REG - Findel PLC - Final Results <Origin Href="QuoteRef">FDL.L</Origin> <Origin Href="QuoteRef">SAFE.L</Origin> - Part 1

Safestore HoldingsAnnouncement

16/07/2015 11:29

RNS Number : 4953Q
Findel PLC
18 June 2015
18 June 2015
Findel plc ("Findel" or "the Group")
STRONG PROGRESS FROM EXPRESS GIFTS AND KITBAG 
Results for the 52 weeks ended 27 March 2015
Findel, the UK Home Shopping and Education business, today announces its results for the 52 week period ended 27 March 2015.
Financial Summary

2015
2014
Change
Revenue 
Continuing operations
481.4m
468.2m
+2.8%
All operations
518.0m
514.7m
+0.6%
Operating profit*
Continuing operations
36.6m
30.6m
+20%
All operations
36.5m
31.9m
+14.4%
Operating profit margin*
Continuing operations
7.6%
6.5%
+110bps
All operations
7.0%
6.2%
+80bps
Operating profit from continuing operations
(after exceptional items)
8.5m
16.0m
-47%
Profit before tax from continuing operations*
26.5m
20.7m
+28%
(Loss)/profit before tax from continuing operations
(1.7m)
5.6m
n/a
(Loss)/profit for the year
(25.3m)
0.5m
n/a
Core bank debt**
86.9m
97.2m
-10.6%
Overall net debt
206.6m
207.0m
-0.2%
* before exceptional items
**  overall net debt excluding the securitisation facility
 excluding Healthcare, discontinued from April 2013
Results Highlights
 Revenue growth from continuing operations 2.8% ahead of prior year at 481.4m
 Profit before tax* from continuing operations up 28% to 26.5m
 Strong improvement driven by sustained progress from our largest business, Express Gifts 
o Sales up 4.7% to 302m and operating profit* up 9.0% to 33.5m
o Growth in Express Gifts' active customer base and spend per customer
o Increase in Express Gifts operating margin* to 11.1% (March 2014: 10.6%)
 Findel Education had a more difficult year with sales down by 6.5%. Tighter cost control was successful in maintaining operating profit* at 4.2m
 Substantial reduction in losses* at Kitbag following sales growth of 11.7% and renegotiation of major unprofitable contracts
 Operating margin* for continuing businesses of 7.6% (FY14: 6.5%) 
 Further reduction in core bank debt**, down 10.6% to 86.9m


Outlook
 Good start to the new financial year. Group sales up 3.3% in the first 11 weeks and Express Gifts product sales up by 7.1%.
 Significant scope for further profit growth at Express Gifts 
 New leadership at Findel Education taking remedial actions to deliver long-term growth
 Continued reduction in net debt remains a priority
David Sugden, Chairman of Findel commented:
"These results represent another year of progress for Findel, with Express Gifts continuing to drive the Group forward. There remains significant opportunity for further growth within this business as we continue to grow the depth and breadth of our ranges and improve the customer experience. 
"We are confident that the new management team in place at Findel Education, together with a sharper market focus, will deliver an improvement in performance over the medium-term. Kitbag has delivered a substantial recovery and has started to capitalise on the significant growth opportunities open to the business.
"Overall, we expect to achieve further profit growth, which together with a further reduction in core debt, will deliver improved returns for shareholders."
Enquiries
Findel plc
David Sugden
Tim Kowalski
0161 303 3465
Tulchan Communications LLP
Stephen Malthouse / Will Smith
020 7353 4200
Notes to Editors
The Findel Group contains market leading businesses in the UK home shopping and education supplies markets. It is primarily a retailer and distributor, handling and supplying specialist products manufactured by third parties.
The Group's activities are focused in three main operating segments, together with a small overseas sourcing operation:
 Express Gifts - one of the largest direct mail order businesses in the UK;
 Findel Education - the largest listed independent supplier of resources and equipment (excluding information technology and publishing) to schools in the UK; and
 Kitbag -e-commerce retailer of sports merchandise to leading brand partners.


CHAIRMAN'S STATEMENT
The last twelve months has seen significant progress for Findel, with profit before tax* from continuing operations increasing by 28% reflecting another year of strong progress at Express Gifts and a substantial reduction in losses at Kitbag. We have also recognised significant exceptional impairments in the carrying value of intangible assets at Findel Education and the discontinued business of Kleeneze.
Our largest business, Express Gifts has had another successful year with product sales up by 6.3%, total sales up by 4.7% and operating profit* up by 9.0% to 33.5m. Product sales in the final quarter were up by 7.9% and this momentum is expected to continue into the current year supported by the launch of an increased range of clothing from leading brands in the new catalogues. The quality of the credit receivables portfolio has also continued to improve as a result of improved collections management and the investment in behavioural scoring. This has had a significant beneficial effect in reducing the bad debt charge and improving outcomes for our customers.
Findel Education has had a more difficult year with sales down by 6.5% on the prior year. Tight cost control was successful in achieving its operating profit* of 4.2m, broadly similar to the prior year. Whilst this market has been difficult with caution over school budgets and uncertainty created by numerous political initiatives, we have also recognised that this business has been losing customers and market share. The management of the division has now been strengthened and the deficiencies in marketing and our online offer are being addressed. We are confident that these actions will improve the performance of the business in due course but their effects will not be immediate.
Kitbag saw a substantial reduction in losses, driven by a combination of top-line growth of 11.7% and a further reduction in the effective royalty rate of 50bp resulting from the successful renegotiation of unprofitable contracts and the launch of new contracts on a more sustainable operating model. It reported an operating loss* of 1.2m, down from 4.1m in the prior year. The range of profitable opportunities for Kitbag is significant, given its strong reputation within the sports industry for service and delivery and our strategic review of the business recently concluded that the best value for shareholders will result from developing these opportunities within the group. 
Our struggling Kleeneze business was successfully sold during the year for cash consideration of 3.4m. Its intangible assets were fully impaired in the first half of the year, producing a net loss before tax of 19.3m (FY14 2.4m) shown in discontinued operations. 
Overall profit before tax* from continuing operations grew by 28% to 26.5m (FY14: 20.7m). After taking account of exceptional items totalling some 28.2m, of which 19.9m relates to a non-cash reduction in the carrying value of intangible assets in Findel Education, the loss before tax from continuing operations was 1.7m (FY14: profit of 5.6m). The net loss for the year was 25.3m (FY14: profit of 0.5m).
The operating margin* for the continuing businesses was 7.6% (FY14: 6.5%) which is further into our target operating margin range than previously anticipated due to the disposal of the low-margin Kleeneze business. 
Our other key strategic objective of reducing legacy debt levels continued with core bank debt** at the year end reducing by some 10m to 86.9m. This significant reduction in the group's core bank debt over the last five years has resulted in our lenders agreeing to extend the term of our committed bank facilities to the end of December 2016 on improved terms. 
Management and Board
Roger Siddle retired as Group Chief Executive at the end of March 2015 after leading the group through a difficult period of rehabilitation following the emergency refinancing in 2011. He leaves the group in a much stronger position and I would like to thank him for his considerable efforts in achieving this. As previously announced, I have taken on the role of Executive Chairman on a temporary basis to allow time for the board to complete a review of the medium term shape of the group. It is clear that significant work remains to be done to realise the full potential of Findel Education and Kitbag. In light of this and the oversight required to support the continued successful growth of Express Gifts, the Board has decided to instigate a search for a replacement Group Chief Executive. My role as Executive Chairman will continue until a Group Chief Executive is in place.
Following the disposal of Kleeneze, Phil Maudsley will now focus exclusively on Express Gifts where his leadership has delivered consistent and substantial growth in sales and profits over the last five years. We have already invested in strengthening the management of our financial services activities of Express Gifts to improve effectiveness and in preparation for the change in regulator for this business to the Financial Conduct Authority which happened in April 2014. We are already seeing considerable benefits from this. We intend to further invest in strengthening our marketing and digital functions in Express Gifts to ensure that we grasp the many opportunities that new technology is presenting for the business.
We have recently appointed a new Managing Director, Chris Mahady, for our Education business and are investing in stronger management in the marketing and digital functions here also.
Laurel Powers-Freeling stepped down from the Board in July 2014 and was replaced by Sandy Kinney Pritchard who joined the Board in October 2014. Laurel's experience in financial services enabled her to make an invaluable contribution to the board during a period of great change for the financial services activities of Express Gifts and we are very grateful to her for this. I am delighted that in Sandy we also have substantial understanding and experience across the financial services sector, from both executive and non-executive roles, which I am sure will provide vital support to the Board as this period of change continues in the years ahead.
Dividends
Your Board currently intends to continue to use the cash generated by the group to reduce debt further rather than to reinstate dividend payments. However, the significant progress made in recent years in strengthening the group's overall financial position means that steps can now be taken to pave the way for the reinstatement of a dividend in due course. A resolution will therefore be tabled at the upcoming AGM to cancel non-distributable reserves and reduce the nominal value of ordinary shares, subject to the subsequent approval of the courts, to increase the level of distributable reserves. Further details are set out in the notice for that meeting.
Employees
On behalf of the Board and the shareholders I would like to thank all of our employees for their substantial efforts in the last year. We continue to benefit from a workforce who show exceptional commitment to the development of the group and the ongoing progress of the group is substantially due to their efforts. I would also like to wish the employees of Kleeneze well for the future under their new ownership.
Current trading
The early weeks of the financial year are a relatively quiet trading period for our businesses. The group has, however, made a solid start to the year with total sales in the first 11 weeks 3.3% ahead of last year, with an encouraging start by Express Gifts where product sales in the first 11 weeks are ahead by 7.1%. A fuller update on trading will be given at our AGM when a more significant portion of the trading year will have passed.
Outlook
There is considerable opportunity for our main business, Express Gifts, to continue the strong profit growth that it has delivered in recent years and its management have exciting plans to do this, although there may be near-term headwinds from the stronger US dollar on input prices. Our Education business faces significant challenges in reversing the sales decline. The new leadership team has recognised the issues and are focussed on the remedial actions required, but these actions will take time and it will therefore take longer than previously anticipated to realise the potential of this business. Kitbag is already demonstrating its recovery potential, but will remain loss-making for a further year. Overall, we expect our track record of profit growth and debt reduction to continue to deliver good returns for shareholders in the coming years.
David Sugden
Chairman
* before exceptional items
** overall net debt excluding the securitisation facility



Divisional performance review 
Express Gifts
000
2015
2014
% change
Product
219,796
206,714
6.3%
Interest
62,258
60,689
2.6%
Services & fees
19,598
20,811
(5.8%)
Revenue
301,652
288,214
4.7%
Cost of sales
(146,075)
(136,520)
(7.0%)
Gross profit
155,577
151,694
2.6%
Trading costs
(122,125)
(121,015)
0.9%
Operating profit*
33,452
30,679
9.0%
Gross margin
51.6%
52.6%

Operating margin*
11.1%
10.6%

Business model and key trends
Our business model is built on providing its customers with three key elements:
 Good value product
 Extensive personalisation
 Flexible Credit Offer
Express Gifts, our core credit-based home shopping business, is one of the largest direct mail order businesses in the UK offering its customers online and via catalogue, a broad range of home and leisure items, clothing, toys and gifts. As well as offering a number of exclusive products, including a variety of own-brand ranges, its comprehensive in-house personalisation facilities and focus on value supported by a flexible credit offer distinguish Express Gifts from other UK retailers. 
Our target customer
Using the brands of Studio and Ace, Express Gifts has 1.4m active home shopping customers, predominantly women aged between 30 and 60 shopping for themselves or for their families. They are reached through an omni-channel marketing plan that includes the annual production and distribution of over 150 publications ranging from 6 to 900 pages made available in both paper and electronic versions, together with press inserts, media advertising and direct response television to support the recruitment of new customers.
An increasing range of good value product
Over the last few years Express Gifts has invested significantly in its product margin through selling price reductions to deliver customer value and maintain its competitiveness. We have also responded to customer demand for broader choice within our historical core ranges of gifts, clothing, household and electrical goods. This has included the introduction of plus-size clothing, lingerie and nightwear, kitchen, and health & beauty ranges. The range architecture ("good, better, best") continues to evolve through extension of our own-branded ranges, supplemented by the increased use of aspirational premium brands.
The growth in the product range has resulted in the average level of annual spend per customer increasing from around 120 in FY12 to 144 in FY15. Despite this, we still have a very small share of key markets such as clothing and consequently see significant opportunities to continue this positive trend for a number of years.
The investment in prices has been partially facilitated through increasing the proportion of supplies sourced directly from the Far East to around 33%, with an increase in sourcing through our own Far East sourcing office (Findel Asia Sourcing Ltd), there has also been a focus in consolidating the total number of suppliers to share bargaining power benefits with our customers.In addition to this Express Gifts has expanded its range of products to its online shopping community through the increased use of suppliers who ship directly to the customer, this growing trend of drop ship / direct dispatch accounted for circa 18% of dispatches.
In addition, Express Gifts continued to invest in its buying and merchandising capability during the year, to enhance the customer experience through the ability to offer a wider range of products and deliver improvements in gross margin in future periods.
Extensive personalisation
One of the key differences of the Express Gifts proposition is its ability to personalise a wide range of its goods, free of charge to customers. Our in-house facilities at our primary warehouse in Accrington, Lancashire provide personalisation for over 40% of customers each year, which is a key point of differentiation against other major UK home shopping retailers.
Flexible credit offer
The majority of Express Gifts customers use a revolving account that operates in a similar fashion to a credit card. The customer is required to pay a relatively high minimum payment each month but beyond that has the flexibility to pay the amount they choose including making full payment. Around half of all customers choose to spread their payments, with the average balance of c. 240 taking around 9 months to settle. Regular monthly statements ensure that customers can remain in control of their account, whilst also providing regular additional marketing opportunities.
Investment in systems to improve the customer journey
Express Gifts embarked upon a multi-year investment strategy in 2011 designed to overhaul its infrastructure and systems, some of which were more than 20 years old. Investment in the IT function is delivering these improvements enabling the business to grow sales and profits significantly, whilst enhancing the customer's experience and ease of shopping. A major enhancement is due to be implemented later this financial year with associated benefits expected in the following year and beyond.
More activity is planned for the future with more pro-active customer communications and basket recovery, a greater level of online customer self-service and website functionality. We are also working to implement a new credit platform to provide even greater flexibility on credit products to reflect the changing needs of our customers.
2015 Performance and Progress
FY15 was another year of strong progress for Express Gifts, with operating profits* growth of 9.0% in the last 12 months to 33.5m (FY14: 30.7m). The overall growth has come principally from increased spend from existing customers, although we have also increased the active customer base by 2.2% as at the end of December 2014.
Total sales were 4.7% ahead of the prior year at 301.7m (FY14: 288.2m), with product sales ahead by 6.3% and up by 7.9% in the final quarter. Gross profit increased by 2.6%, although the gross margin rate declined slightly principally due to changes in product mix.
The quality of the credit receivables portfolio has continued to improve, principally as a result of the investment in the breadth and quality of the management team, refinements to the behavioural scoring system and improved collections management. This has resulted in financial services revenue growing at a slower rate than product sales, particularly from default fees, but this has been more than offset by the resulting significant reduction in the bad debt charge notwithstanding investment in collection costs. The bad debt charge, expressed as a percentage of total revenue, fell from 10.2% in March 2014 to 8.1% in March 2015. An updated version of our bad debt provision model is being developed in the coming months to better cope with these improved management practices and reduce the extent of post-model adjustments.
The business has continued to invest in its buying and merchandising capabilities and IT systems during the year, which has partially offset the improvements in trading noted above. Nonetheless, the overall operating margin* for the business increased by 50bp to 11.1%.
The business obtained its interim consumer credit licence from the Financial Conduct Authority at the start of the year, when the FCA took over responsibility for consumer credit regulation. A substantial amount of work has been undertaken to improve the governance and effectiveness of controls and risk management within the business over the last year. Express Gifts is well placed to deliver its application for full permission in its scheduled window later in 2015, although the FCA's normal processes and considerations mean that it could be 2016 before this is formally obtained. Exceptional costs of some 0.8m were incurred in relation to this one-off project during the current year.
As noted at the half year, as part of its enhanced oversight work, the business has identified circumstances where certain customers required redress as a result of errors in some legacy processes. A provision of 3.7m has been taken to cover this activity and the customer contact programme is underway. This includes 0.7m to cover the final elements of PPI redress which we believe is adequate. These costs were partially offset by an exceptional credit of 0.8m in respect of an historic VAT claim relating to Express Gifts that was settled during the year.
Other trading costs were tightly controlled given the increase in volumes, such that the operating margin* for the largest business in the group increased from 10.6% to 11.1%.
Findel Education 
Substantial improvements in supply chain efficiency and customer service have been offset by ineffective marketing and a challenging market.
000
2015
2014
% change
Revenue
102,776
109,917
-6.5%
Cost of sales
(66,921)
(71,719)
6.7%
Gross profit
35,855
38,198
-6.1%
Trading costs
(31,656)
(34,106)
7.2%
Operating profit*
4,199
4,092
2.6%
Gross margin
34.9%
34.8%

Operating margin*
4.1%
3.7%

Business model and key trends
Our Educational Supplies division is one of the largest independent suppliers of school and early years resources (excluding IT, utilities and publishing) to primary, secondary and nursery educational establishments in the UK, with an estimated 7% market share (Source: BESA 2012) of the UK educational supplies market. The division's international business unit exports to English-speaking schools in over 120 countries worldwide.
Findel Education offers three distinct brand propositions: School, Classroom and Specialist. The main route to market is via printed catalogues and web based solutions, including multiple websites and eProcurement solutions. The School brands (GLS, A-Z and WNW) are primarily focussed on servicing the basic commodity needs of all educational establishments with products such as stationery, janitorial supplies, furniture and arts & crafts materials. The Classroom brands (primarily Hope Education) focus on the supply of specialist curriculum and early years teaching aids to Primary School and Nurseries. The Specialist brands (Davies Sports, Philip Harris Scientific, Learning Development Aids - LDA) are specialists in their respective fields and focus on both Primary and Secondary school establishments.
Findel Education also operates internationally and uses all of its product, brand strengths and market leading supply chain to support international schools in the delivery of their educational teaching requirements.
The business has recently been awarded a new two year supply contract by Sainsbury's which will take the Active Kids Scheme into its twelfth year of delivery.
Excellent customer service is a key fundamental requirement within the education marketplace
Findel Education continues to deliver a 'Best in Class Customer Experience' across all areas. The business has built on the success delivered over the last three years with a Net Promoter Score of 86% (FY14: 84%) and the award of three major Customer Experience awards. The business operates from two distribution centres based in Enfield and Nottingham which carry c.20k product lines. A further c.10k product lines are supplied through a direct delivery service. Significant investment is being made in our core IT and operational warehouse management systems that will further enhance our service capabilities. 
Our customer recruitment and retention practices are being refined
Findel Education is a business that has gone through a significant change in the last four years. The level of operating profit has increased substantially from 1.6m in FY11 to 4.2m in FY15. A major part of this growth has come from cost reduction and business efficiency, although in part this has detracted from our key external market focus and we have seen a reduction in customer numbers and a loss of market share. Our main schools brand, GLS, continues to be a major strength within its London heartland, as is our highly performing Scotland Excel contract.
After a period of review, the business is in the process of delivering an enhanced 'Go to Market Strategy'. Findel Education has recently invested significantly in growing its sales coverage, developing its brand-focused marketing structure that will fully evaluate and understand the needs of our customers, and creating a newly defined business intelligence team. All of this investment will enable the business to focus on growing its core customer base and regain lost market share. 
Investment in future trading platforms is a key area of focus
A key element of the future of educational resources supply lies in the growth of digital development and driving efficiencies into the cumbersome ordering process of public sector organisations. Both web and eProcurement channels are growing significantly and investment in these technologies is critical to the future success of the business. There has been strong growth within online transactions, moving from 7% to 14% since 2012. However, it still remains lower than our aspirations. A new upgraded web platform will be launched in the coming months which will provide significant functionality improvements, including intelligent search, self-serve features and an overall enhanced online customer experience. This new website platform is the first stage in the evolution of Findel Education's future digital strategy.
In the short-term market conditions continue to present challenges for this division, with recent analysis from the Institute of Fiscal Studies indicating that the new Conservative government will implement real-term reductions in spending levels per pupil in the new parliament. Pupil numbers are predicted to increase by 2.1% within Primary Schools but reduce by 0.7% within Secondary Schools over the next 12 months. This is expected to give a net positive impact for the business. The long-term fundamentals for the education consumables and resources market remain positive with the demographic trends showing increases in pupil numbers, this is particularly pronounced in GLS's stronghold of London and South-East, and in nursery and primary school aged children.
2015 Performance and Progress 
FY15 was a tough year with overall sales down by 6.5% against the prior year, driven by a reduction in average spend from our School customers and a reduction in the number of established Classroom customers. To some extent this has been the result of difficult market conditions and the impact of austerity on public sector spending. However, it has also highlighted the need to refine the "Go To Market" strategy for future years. 
Despite the headline reduction in sales, there were positive aspects within the underlying sales position; the heartland London GLS primary school customer numbers grew marginally and the key Scotland Excel contract continues to grow at a faster rate. The business has demonstrated a strong capability in winning educational resources government tender opportunities, the work undertaken over the last 12 months has built up a strong pipeline of opportunities for the forthcoming year. New business development was focused on large academy school trusts where we secured six large contracts towards the end of the financial year with a combined annual value in excess of 0.5m.
The gross profit margin was maintained, with operational efficiencies within the business mitigating the impact of the sales reduction to produce an operating profit* of 4.2m, marginally ahead of the 4.1m reported in FY14. Further investments in sales coverage and on line trading platforms will be required, however, to return the business to sustainable profit growth in the coming years. 
The leadership team has been strengthened and marketing improvements were implemented ahead of the new catalogue launch at the end of April 2015. Whilst the Board retains confidence in the long term future of this business, market conditions and the investment challenges mean that achieving the Board's aspirations for the business will likely take longer and be harder than previously anticipated. Consequently, the carrying value of the intangible assets relating to the division have been impaired by 19.9m, which is shown as a non-cash exceptional item for the year.


Kitbag
Our sports ecommerce business is now on a much stronger footing following the successful renegotiation or exit from unattractive contracts.
000
2015
2014
% change
Revenue
74,488
66,698
11.7%
Cost of sales
(41,498)
(38,665)
-7.3%
Gross profit
32,990
28,033
17.7%
Trading costs
(34,190)
(32,139)
-6.4%
Operating loss*
(1,200)
(4,106)
70.8%
Gross margin
44.3%
42.0%

Operating margin*
-1.6%
-6.2%

Business model and key trends
Kitbag is a specialist sports retailer selling club-branded replica kits, leisurewear and souvenirs as well as sports-branded playing and training wear. It operates through its own online platform Kitbag.com, and also manages officially-licensed club or sports organisation retail outlets, including online, physical stores and event-retail on a white-label basis.
Its partners are a wide range of leading names in sports, including Real Madrid, Manchester United, Chelsea and Manchester City in the world of football, in addition to other sports organisations such as the Wimbledon Championship, the Tour de France, McLaren, the Ryder Cup, F1, the NBA and the NFL. Typically these partnerships are structured so that the club receives a royalty from Kitbag, usually with a fixed minimum payment. Kitbag then operates the Partners' retail and, in some cases, merchandise licensing businesses. The business therefore operates a range of e-commerce platforms serving customers all over the world, and has over 70 language variations of its online stores. Deliveries to customers are managed from a central warehouse near Manchester. The business has c.375 suppliers, although the largest by far - unsurprisingly given their position in the sports world - are Adidas and Nike. Kitbag's capability to manage both online and multi-channel partner needs (where Kitbag can operate all official retail operations including e-commerce, mail order, event retail, stadium stores, in-town stores and hospitality concessions, as well as managing product development and licensing) is a key factor in its ability to secure new contracts with leading football clubs and other major sports organisations.
Over the last three years the business has been through a significant amount of transformation, through the renegotiation of partner contracts that had become materially unattractive, investment in systems and infrastructure, the development of more sustainable operating frameworks such as fixed management fees, and a gradual diversification away from reliance on football and replica shirts where net margins tend to be lower. The business has also looked for international opportunities, including for Kitbag.com, due to the highly competitive nature of the market for its products within the UK.
2015 Performance and Progress 
The renegotiation and termination of three major unprofitable contracts at the start of 2014 provided the platform for an improvement in trading in FY15. The productive summer transfer window and the excitement of the FIFA World Cup benefited Kitbag.com. On-pitch improvements from key white-label partners such as Real Madrid and Manchester City, plus the launch of new contracts with the likes of McLaren F1, produced sales growth of 11.7% to 74.5m (FY14: 66.7m). The further reduction in the effective royalty rate from 16.4% to 15.9%, an increase in gross margin from 42.0% to 44.3% and the expansion of contracts on a more sustainable operating model, such as the successful Ryder Cup event retail management, produced a much reduced operating loss* of 1.2m, down from 4.1m in FY14.
Strategic Review 
Kitbag is now on a significantly sounder footing, although in FY15 it remained loss-making. In October 2014 the board commenced a strategic review to assess all of the options for Kitbag's future development. This business is on an improved trading trajectory and the strategic review has identified a significant range of further profitable opportunities across the world. The experienced management team have a strong reputation within the global sports industry for service and delivery and the business has developed an increasingly scalable infrastructure capable of harnessing this international opportunity. It has also identified marketing and logistics investments that would improve the efficiency and the effectiveness of its digital offering, as well as the performance of Kitbag.com. 
The board therefore concluded at the end of May that it was in the best interests of the group's shareholders to continue Kitbag's development within the group.


Finance Director's Review
Group profit before tax
Group profit before tax* (including the discontinued Kleeneze operation) was 26.4m in FY15, up 4.4m on FY14, as summarised below. 

2015
2014
Change

000
000
000
Operating profit*:



Express Gifts
33,452
30,679
2,773
Education Supplies
4,199
4,092
107
Kitbag
(1,200)
(4,106)
2,906
Overseas sourcing
145
(93)
238
Total continuing operations
36,596
30,572
6,024
Discontinued operations:



 Kleeneze
(142)
1,306
(1,448)
Total operating profit*
36,454
31,878
4,576
Net finance costs*
(10,097)
(9,876)
(221)
Profit before tax*
26,357
22,002
4,355
Exceptional costs
(47,345)
(18,747)
(28,598)
(Loss)/profit before tax
(20,988)
3,255
(24,243)
*  before exceptional items
 excluding the Healthcare division discontinued in April 2013 
The operating profit* of the continuing operations of the group increased by 6.0m to 36.6m, with an excellent performance from Express Gifts, a broadly stable performance from Findel Education and a strong recovery from Kitbag.
Discontinued operations
Kleeneze
The trading performance of Kleeneze deteriorated sharply during the first half of the year with sales declining by over 20% leading to the business falling towards a break-even position and requiring an exceptional non-cash impairment charge of 19m to be recorded during the first half of the year. The board was therefore pleased to receive an unsolicited offer from CVSL Inc. for the business which was completed on 24 March 2015. Total consideration received in cash was 3.4m, with agreement also being reached with Express Gifts to supply distribution and other support services on an exclusive basis for a minimum period of 18 months.
Exceptional items
Total exceptional items totalling 47.3m (FY14: 18.7m) were incurred during the year as detailed in note 6.
Continuing operations
Exceptional items totalling 28.2m were incurred by the continuing operations, of which 19.9m relates to the impairment of intangible assets within Findel Education following a review of the longer period now expected to be required to achieve the board's aspirations for the business. 3.7m relates to customer remediation for legacy flaws in processes at Express Gifts, 1.7m relates to restructuring, redundancies and senior management changes.
Whilst the group's defined benefit pension scheme was closed several years ago, advice was received during the first half of the year suggesting that the equalisation of normal retirement ages between male and female members of the scheme in 1994 was not implemented correctly and as a result past service liabilities were understated. A past service cost of 2.3m was recorded to correct this within exceptional items. Partially offsetting this charge, a credit 0.7m has been recorded to reflect the benefit of transfers made by members out of the scheme during the year. 
Other exceptional charges totalling 2.1m were recorded in respect of onerous leases and contracts relating to Kitbag partner contracts that have been terminated.
Discontinued operations
An impairment charge of 19.0m was made in respect of Kleeneze during the first half of the year, reflecting its deteriorating trading performance. A profit of 0.6m was recognised as a result of its subsequent disposal, less a charge of 0.5m made in respect of obsolete stock transferred from Kleeneze to Express Gifts at the time of the sale.
Pensions
The group has continued to make additional voluntary contributions to its defined benefit schemes totalling 4.1m in the current financial period (FY14: 3.2m) to improve the funding levels of these closed schemes. In accordance with the schedule of contributions agreed with the trustees in early 2014, 2.5m of contributions will be made in each of FY16 and FY17. The net deficit at the end of FY15 measured in accordance with IAS19 increased to 11.5m (FY14: 8.6m) as a result of actuarial losses in the year, reflecting a reduction in corporate bond yields used to value the schemes' liabilities and additional liabilities referred to above.
Taxation
The group posted a charge of 4.4m in the year in respect of taxation for the continuing operations (FY14: 1.9m). The equivalent effective pre-exceptional tax rate for the year was 22.2%.
Earnings per share 
The adjusted earnings per share for the year increased from 19.8p in FY14 to 24.2p in FY15. The basic loss per share from continuing operations was 7.2p per share (FY14: earnings of 4.5p).
Summary balance sheet

2015
2014
Change

000
000
000
Intangible fixed assets
50,217
90,337
(40,120)
Tangible fixed assets
35,070
34,644
426
Net working capital
208,426
195,068
13,358
External net debt
(206,551)
(206,953)
402
Other net liabilities
(4,452)
(1,448)
(3,004)
Net assets
82,710
111,648
(28,938)
Consolidated net assets amounted to 82.7m at the period end (FY14: 111.6m), largely reflecting the impairments to the carrying values of intangible assets during the year, together with actuarial losses in respect of the pension liabilities plus other net losses in the income statement during the period. Working capital balances grew by 13.4m, primarily to due to the continued growth in credit receivables within Express Gifts. The net assets are equivalent to 96p per ordinary share (FY14: 130p per ordinary share).
Cash flow and borrowings
Net cash from operating activities was an inflow of 7.9m (FY14: 14.6m), reflecting the underlying profits of the growth offset in part by the continued growth in Express Gifts' credit receivables.
External net debt at the year-end was as follows:

2015
2014
Change

000
000
000
External bank borrowings
125,334
121,513
3,821
Less total cash
(38,470)
(24,270)
(14,200)
Core bank debt
86,864
97,243
(10,379)
Securitisation drawings
119,687
109,710
9,977
Net debt
206,551
206,953
(402)
The group's bank facilities were amended in January 2015 to extend their maturity to the end of December 2016.
Dividends and capital structure
The group's overall financial position has strengthened materially since the emergency refinancing in March 2011. Core bank debt has reduced by a third to 86.9m despite the significant growth in the Express Gifts credit receivables. The operating profit* from the continuing operations of has increased from 20.3m in FY11 to 36.6m in FY15.
The board currently intends to continue to use the cash generated by the group to reduce debt further, rather than to reinstate dividend payments. Consequently, no dividend will be paid in respect of FY15 (FY14: nil). However, in recognition of this improved financial position, steps will be proposed at the upcoming AGM to cancel non-distributable reserves, subject to the subsequent approval of the courts, and reduce the nominal value of ordinary share capital to create distributable reserves to enable dividends to be potentially payable in future years.


Findel plc
Group financial information
Consolidated Income Statement
52 week period ended 27 March 2015


Before
Exceptional items



Exceptional items
Total


000
000
000
Continuing operations




Revenue

481,418
-
481,418
Cost of sales

(256,646)
-
(256,646)
Gross profit

224,772
-
224,772
Trading costs

(188,176)
(28,082)
(216,258)
Analysis of operating profit/(loss):




- EBITDA

44,876
(7,697)
37,179
- Depreciation and amortisation

(8,280)
-
(8,280)
- Impairment

-
(20,385)
(20,385)
Operating profit/(loss)

36,596
(28,082)
8,514
Finance costs

(10,097)
(136)
(10,233)
Profit/(loss) before tax

26,499
(28,218)
(1,719)
Tax (expense)/income

(5,875)
1,462
(4,413)
Profit/(loss) for the period

20,624
(26,756)
(6,132)





Discontinued operation




Loss from discontinued operation, net of tax

(154)
(18,975)
(19,129)
Profit/(loss) for the year

20,470
(45,731)
(25,261)





Loss per ordinary share




from continuing operations




Basic



(7.20)p
Diluted



(7.20)p
from discontinued operation




Basic



(22.46)p
Diluted



(22.46)p
total attributable to ordinary shareholders




Basic



(29.66)p
Diluted



(29.66)p
The accompanying notes are an integral part of this consolidated income statement.


Consolidated Income Statement
52 week period ended 28 March 2014*


Before
Exceptional
items



exceptional items
Total


000
000
000
Continuing operations




Revenue

468,232
-
468,232
Cost of sales

(249,923)
-
(249,923)
Gross profit

218,309
-
218,309
Trading costs

(187,737)
(14,575)
(202,312)
Analysis of operating profit/(loss):




- EBITDA

39,332
(8,295)
31,037
- Depreciation and amortisation

(8,760)
-
(8,760)
- Impairment

-
(6,280)
(6,280)
Operating profit/(loss)

30,572
(14,575)
15,997
Finance costs

(9,876)
(472)
(10,348)
Profit/(loss) before tax

20,696
(15,047)
5,649
Tax (expense)/income

(3,937)
2,080
(1,857)
Profit/(loss) for the period

16,759
(12,967)
3,792





Discontinued operations




Loss from discontinued operations, net of tax

(124)
(3,202)
(3,326)
Profit/(loss) for the year

16,635
(16,169)
466





Earnings/(loss) per ordinary share*




from continuing operations




Basic



4.47p
Diluted



3.76p
from discontinued operations




Basic



(3.92)p
Diluted



(3.29)p
total attributable to ordinary shareholders




Basic



0.55p
Diluted



0.47p
The accompanying notes are an integral part of this consolidated income statement.
*Restated to present the results of Kleeneze as a discontinued operation.


Consolidated Statement of Comprehensive Income
52 week period ended 27 March 2015

2015
2014

000
000
(Loss)/profit for the period
(25,261)
466
Other Comprehensive Income


Items that may be reclassified to profit or loss


Cash flow hedges
(42)
89
Currency translation gain/(loss) arising on consolidation
255
(251)

213
(162)
Items that will not subsequently be reclassified to profit and loss


Remeasurements of defined benefit pension scheme
(5,125)
9,481
Tax relating to components of comprehensive income
374
(306)

(4,751)
9,175
Total comprehensive (loss)/income for period
(29,799)
9,479
The total comprehensive income for the period is attributable to the equity shareholders of the parent company Findel plc.


Consolidated Balance Sheet
at 27 March 2015


2015
2014


000
000
Non-current assets



Goodwill

16,691
36,591
Other intangible assets

33,526
53,746
Property, plant and equipment

35,070
34,644
Deferred tax assets

9,141
8,066


94,428
133,047
Current assets



Inventories

65,405
64,406
Trade and other receivables

224,375
213,284
Cash and cash equivalents

38,470
24,270


328,250
301,960
Total assets

422,678
435,007
Current liabilities



Trade and other payables

73,290
75,661
Current tax liabilities

2,138
964
Provisions

6,912
6,236


82,340
82,861
Non-current liabilities



Bank loans

245,021
231,223
Provisions

1,152
725
Retirement benefit obligation

11,455
8,550


257,628
240,498
Total liabilities

339,968
323,359
Net assets

82,710
111,648
Equity



Share capital

126,442
125,942
Capital redemption reserve

403
403
Share premium account

92,954
93,454
Translation reserve

760
505
Hedging reserve

(42)
-
Accumulated losses

(137,807)
(108,656)
Total equity

82,710
111,648
The accompanying notes are an integral part of this consolidated balance sheet.


Consolidated Cash Flow Statement
52 week period ended 27 March 2015


2015
2014


000
000
(Loss)/profit for the period

(25,261)
466
Adjustments for:



Income tax

4,273
2,595
Finance costs

10,233
10,348
Depreciation of property, plant and equipment

5,483
6,082
Impairment of property, plant and equipment and software and IT development costs

485
110
Impairment of goodwill

19,900
-
Impairment of other intangible assets

19,045
9,970
Amortisation of intangible assets

3,029
2,848
Share-based payment expense

861
1,698
(Profit)/loss on disposal of property, plant and equipment

(191)
142
(Profit)/loss on disposal of subsidiary

(641)
239
Pension contributions less income statement charge

(2,481)
(3,000)
Operating cash flows before movements in working capital

34,735
31,498
(Increase) in inventories

(5,370)
(5,754)
(Increase) in receivables

(13,175)
(3,919)
Increase in payables

1,957
2,727
Increase in provisions

1,103
530
Cash generated from operations

19,250
25,082
Income taxes paid

(1,396)
(998)
Interest paid

(9,977)
(9,239)
Exceptional financing costs paid

-
(246)
Net cash from operating activities

7,877
14,599
Investing activities



Interest received

39
3
Proceeds on disposal of property, plant and equipment

960
4
Purchases of property, plant and equipment and software and IT development costs

(10,269)
(11,831)
Sale of subsidiary (net of cash held in subsidiary)

1,720
15,461
Net cash (used in)/generated from investing activities

(7,550)
3,637
Financing activities



Bank loans drawn/(repaid)

3,821
(32,663)
Securitisation loan drawn

9,977
4,710
Net cash from financing activities

13,798
(27,953)
Net increase/(decrease) in cash and cash equivalents

14,125
(9,717)
Cash and cash equivalents at the beginning of the period

24,270
34,023
Effect of foreign exchange rate changes

75
(36)
Cash and cash equivalents at the end of the period

38,470
24,270




The accompanying notes are an integral part of this consolidated cash flow statement.


Consolidated Statement of Changes in Equity
52 week period ended 27 March 2015

Share
capital
Capital
redemption
reserve



Retained
earnings/
(accumulated
losses)


Share
premium
account




Hedging
reserve
Translation
reserve
Total
equity


000
000
000
000
000
000
000
As at 29 March 2013
125,942
403
93,454
756
(89)
(119,995)
100,471
Total comprehensive loss







for the period
-
-
-
(251)
89
9,641
9,479
Share-based payments
-
-
-
-
-
1,698
1,698
As at 28 March 2014
125,942
403
93,454
505
-
(108,656)
111,648
Total comprehensive loss







for the period
-
-
-
255
(42)
(30,012)
(29,799)
Share issue
500
-
(500)
-
-
-
-
Share-based payments
-
-
-
-
-
861
861
At 27 March 2015
126,442
403
92,954
760
(42)
(137,807)
82,710
The total equity is attributable to the equity shareholders of the parent company Findel plc.


Findel plc
Notes to the Group Financial Information
1 Basis of preparation of consolidated financial information
The financial information set out herein does not constitute the Company's statutory financial statements for the periods ended 27 March 2015 or 28 March 2014, but is derived from those financial statements. Statutory financial statements for 2014 have been delivered to the Registrar of Companies, and those for 2015 will be delivered in due course. The financial statements were approved by the Board of directors on 17 June 2015. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
Copies of the Company's statutory financial statements will be available on the Group's corporate website. Additional copies will be available upon request from Findel plc, 2 Gregory Street, Hyde, Cheshire, SK14 4TH. 
The Group financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use within the European Union and in accordance with the accounting policies included in the Annual Report for the period ended 28 March 2014 except as stated below.
Impact of accounting standards adopted
IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities have been adopted in the Group's consolidated financial statements in the current period. There is no impact on the consolidated financial statements in either the current or prior periods as a result of this adoption, other than certain disclosure requirements.
Discontinued operations
Kleeneze Limited
The Group completed the disposal of its network marketing Company, Kleeneze Limited on 24 March 2015. Consequently it met the criteria to be accounted for as a discontinued operation as defined in IFRS 5, "Non-current assets held for sale and discontinued operations". Results from this discontinued operation have therefore been separated out in the consolidated income statement in both the current and prior periods to enhance the comparability of the ongoing businesses.
Going concern 
In determining whether the Group's financial statements for the period ended 27 March 2015 can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities in the current challenging economic climate. 
The directors have reviewed the trading and cash flow forecasts as part of their going concern assessment, including reasonable downside sensitivities which take into account the uncertainties in the current operating environment including amongst other matters demand for the Group's products, its available financing facilities, and movements in interest rates. Although at certain times the level of headroom reduces to a level which is less than the directors would regard as desirable in the long term, the directors believe it to be sufficient and have identified controllable mitigating actions that could be implemented if required. The Group's banking facilities mature on 31 December 2016 and therefore management will seek to refinance these facilities in the coming year.
Taking into account the above uncertainties and circumstances, the directors formed a judgement that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the Group's annual consolidated financial statements


2 Segmental analysis
2015






Loss after tax







Continuing operations
Discontinued operation
Group

Express Gifts
Findel Education
Kitbag
Overseas Sourcing
Total
Kleeneze
Total

000
000
000
000
000
000
000
Reportable segment results
33,452
4,199
(1,200)
145
36,596
(142)
36,454
Exceptional items
(3,335)
(23,701)
(1,046)
-
(28,082)
(19,127)
(47,209)
Operating profit/(loss) after exceptional items
30,117
(19,502)
(2,246)
145
8,514
(19,269)
(10,755)
Finance costs (includes 136,000 exceptional finance costs)




(10,233)
-
(10,233)
Loss before tax




(1,719)
(19,269)
(20,988)
Tax




(4,413)
140
(4,273)
Loss after tax




(6,132)
(19,129)
(25,261)
2014









Profit after tax










Continuing operations
Discontinued operations
Group

Express Gifts
Findel Education
Kitbag
Overseas Sourcing
Total
Kleeneze
Healthcare
Total
Total

000
000
000
000
000
000
000
000
000
Reportable segment results
30,679
4,092
(4,106)
(93)
30,572
1,306
45
1,351
31,923
Exceptional items
(2,756)
(1,020)
(10,799)
-
(14,575)
(3,700)
(239)
(3,939)
(18,514)
Operating profit/(loss) after exceptional items
27,923
3,072
(14,905)
(93)
15,997
(2,394)
(194)
(2,588)
13,409
Finance costs (includes 472,000 exceptional finance costs)




(10,348)
-
-
-
(10,348)
Profit/(loss) before tax




5,649
(2,394)
(194)
(2,588)
3,061
Tax




(1,857)
(738)
-
(738)
(2,595)
Profit/(loss) after tax




3,792
(3,132)
(194)
(3,326)
466


3 Exceptional items
The following is an analysis of the exceptional items arising during the period.

2015
2014

000
000
Continuing operations


Exceptional trading costs


Restructuring costs
1,725
2,839
Onerous contracts
1,138
2,768
Onerous lease provisions
967
798
Express Gifts financial services redress
3,738
2,000
Legacy VAT issues
(1,026)
-
Pension scheme service costs
1,640
-
Impairment of goodwill
19,900
-
Impairment of intangible assets
-
6,170

28,082
14,575
Exceptional financing costs


Debt refinancing costs
136
472

28,218
15,047
Tax credit in respect of exceptional items
(1,462)
(2,080)
Total
26,756
12,967



Discontinued operations


Excess of proceeds over assets disposed of
(641)
(261)
Pension settlement cost
-
500
(Gain)/loss on disposal
(641)
239
Restructuring costs
-
(100)
Stock write down in respect of disposal
476
-
Legacy VAT issues
247
-
Impairment of other intangible assets
19,045
3,800

19,127
3,939
Tax credit in respect of exceptional items
(152)
(737)
Total
18,975
3,202



Group total
45,731
16,169
Restructuring costs in the current period of 1,725,000 (2014: 2,739,000), of which nil (2014: 100,000 credit relating to the release of redundancy accruals) related to discontinued operations, relate to management changes, redundancies and costs associated with remedying legacy poor systems and controls, as well as organisational changes made in relation tocompliance with new FCA requirements.
Costs of 1,138,000 (2014: 2,768,000), which includes 485,000 (2014: 110,000) in respect of impairment of property, plant and equipment, have been incurred in the current period in relation to contracts that have become loss making.
Costs of 967,000 (2014: 798,000) have been provided in the current period in respect of onerous lease provisions.
As part of its enhanced oversight work, Express Gifts has recently identified circumstances where we may redress certain customers as a result of flaws in some legacy processes. Charges of 3,738,000 (2014: 2,000,000) have been recognised during the period in respect of this activity which includes 738,000 (2014: 2,000,000) for any remaining elements of PPI.
A credit of 1,026,000 has been recorded in relation to the settlement of an historic VAT claim with HMRC which was settled during the period.
A past service cost of service cost of 2,340,000 has been recorded in the current period in respect of additional liabilities arising from the equalisation of normal retirement ages for members in the Findel Education section of the Findel Group Pension Fund. This has been partially offset by a settlement gain of 700,000 in respect of a Total Pension Increase Exchange ('TPIE') exercise carried out during the year.
Impairment of goodwill relates to a write down of goodwill allocated to the Findel Education cash generating unit ('CGU').
Costs of 136,000 (2014: 472,000) have been incurred the period in respect of the extension to the Group's lending facilities. 
Impairment of other intangible assets relates to a 6,170,000 write down of indefinite lived brand names allocated to Kitbag CGU recognised in the prior period. 
Items specifically related to discontinued operations
A gain of 641,000 has been recorded in the current period in respect of the disposal of Kleeneze Limited, which completed on 24 March 2015.This gain is shown net of a credit of 2,404,000 in respect of deferred tax liabilities released as a result of the disposal. In the prior period a loss of 239,000 was recorded in respect of the disposal of Nottingham Rehab Limited, which completed on 19 April 2013.
A loss of 476,000 has been recorded in the current period in respect of the write down of stock held by Kleeneze immediately prior to its disposal.
Costs of 247,000 have been recorded in respect of the write down of amounts previously recognised in respect of various legacy VAT issues in Kleeneze which are no longer considered recoverable.
Impairment of other intangible assets relates to a 19,045,000 (2014: 3,800,000) write down of indefinite lived brand names allocated to Kleeneze CGU. 


4 Discontinued operations
Kleeneze Limited ('Kleeneze')
The Group completed the sale of its network marketing company, Kleeneze to Trillium Pond A.G. (a subsidiary of CVSL Inc.) on 24 March 2015 for gross consideration of 3.4m. Management are of the belief that the disposal of Kleeneze will enable the Group to reduce its indebtedness and focus on core operations.
A profit on disposal of 0.6m, representing the difference between the proceeds received net of costs of disposal, and the assets disposed of has been recorded within exceptional items.
Kleeneze's results for the period from 29 March 2014 to 24 March 2015 and for the period ended 28 March 2014 have been presented to show the discontinued operation separately from continuing operations and are summarised below:

Period ended 24.3.15
2014

000
000
Revenue
36,557
46,504
Expenses*
(55,826)
(48,898)
Loss before tax
(19,269)
(2,394)
Tax credit
140
(738)
Loss for the year 
(19,129)
(3,132)
*including exceptional charges of 19,768,000 (2014: 3,700,000) and a profit on disposal (net of release of deferred tax liabilities of 2,404,000) of 641,000.
The major classes of assets and liabilities of Kleeneze at disposal on 24 March 2015 and at 28 March 2014 were as follows:

24.3.15
2014

000
000
Assets


Intangible assets
-
19,045
Property, plant and equipment
414
556
Inventory
4,371
7,199
Trade and other receivables
2,793
3,196
Cash
1,316
7,493

8,894
37,489



Liabilities


Deferred tax liability
(2,404)
(2,404)
Trade and other payables
(4,097)
(10,405)

(6,501)
(12,809)



Net assets of disposal group
2,393
24,680
The net cash flows from/(used in) Kleeneze Limited were as follows:

Period ended 24.3.15
2014

000
000
Operating cash flows
2,115
(1,209)
Investing cash flows*
3,433
2,080
Financing cash flow
(10,005)
(17,500)
Net cash outflow
(4,457)
(16,629)
*includes proceeds (net of cash of cash held in subsidiary) of 1,720,000.
Nottingham Rehab Limited ('NRS')
The Group completed the disposal of its Healthcare Division through the sale of NRS on 19 April 2013 which is also disclosed as discontinued in the income statement for the period ended 28 March 2014.
The gross consideration payable upon completion was 24.0 million, comprised of a cash payment of 22.6 million to Findel plc and a payment of 1.4 million into an escrow account to satisfy the estimated value of NRS' debt to the Findel Group Pension Fund. This valuation was completed in August 2013 and a further 0.1m was paid to Findel plc (being the excess over the value of NRS's debt to the Findel Group Pension Fund). 
There were few synergies between NRS and the rest of the Group, and consequently the Board believed that Findel's cash resources were better employed in developing the remainder of the Group and that NRS' interests were best served under a new owner.
The excess of proceeds over the value of assets disposed of was 261,000. This was offset by a pension settlement cost of 500,000, relating to the buyout of members of the Findel Education section of the Findel Group Pension Fund that were employed by NRS, which took place as a result of the sale of the business, and resulted in a loss on disposal of 239,000 being recognised in the consolidated income statement for the period ended 28 March 2014.
NRS' results for the period from 30 March 2013 to 19 April 2013 were presented to show the discontinued operation separately from continuing operations and are summarised as follows:

Period to 19.4.13

000
Revenue
5,940
Expenses*
(6,134)
Profit before tax
(194)
Tax expense
-
Profit for the year
(194)
*including loss on disposal of 239,000.
The major classes of assets and liabilities of NRS at disposal on 19 April 2013 were as follows:

19.4.13

000
Assets

Goodwill
2,308
Intangible assets
1,395
Property, plant and equipment
1,069
Deferred tax asset
1,544
Inventory
6,653
Trade and other receivables
11,514
Cash
6,057

30,540


Liabilities

Trade and other payables
8,512

8,512


Net assets of disposal group
22,028
The net cash flows from/(used in) NRS were as follows:

19.4.13

000
Operating cash flows
(1)
Investing cash flows*
15,461
Financing cash flow
-
Net cash inflow
15,460
*represents proceeds (net of cash of cash held in subsidiary).


5 Tax expense

2015
2014

000
000
Current tax expense:


Current period (UK tax)
2,957
1,726
Current period (overseas tax)
18
19
Adjustments in respect of prior periods (UK tax)
(265)
(1,208)

2,710
537
Deferred tax expense:


Origination and reversal of timing differences
1,217
(476)
Adjustments in respect of prior periods
486
-
Effect of tax rate change on opening balance
-
1,796

1,703
1,320
Tax expense from continuing operations
4,413
1,857
Tax expense from continuing operations excludes tax income in respect of the Group's discontinued operation as follows:

2015
2014

000
000
Current tax (income)/charge
(140)
1,812
Deferred tax (income)
(2,404)*
(1,074)

(2,544)
738
*Relates to the release of deferred tax liabilities on disposal and is recorded within the profit on disposal of 641,000 recorded within exceptional items relating to discontinued operation.
6 Earnings per share
Earnings per share figures for the period ended 28 March 2014 have been restated to present Kleeneze as a discontinued operation. 
From continuing operations
(Loss)/profit attributable to ordinary shareholders



2015
2014

000
000
Net profit attributable to equity holders for the purposes of basic earnings per share
(6,132)
3,792
Other exceptional items (net of tax)
(26,620)
(12,495)
Exceptional finance costs (net of tax)
(136)
(472)
Net profit attributable to equity holders for the purpose of adjusted earnings per share
20,624
16,759



Weighted average number of shares


Ordinary shares in issue at start of the period
85,942,534
85,942,534
Effect of shares issued during the period
359,890
-
Effect of own shares held
(1,130,487)
(1,135,110)
Weighted average number of shares - basic
85,171,937
84,807,424
Effect of outstanding share options
5,425,216
7,609,609
Effect of convertible shares
8,343,935
8,343,935
Weighted average number of shares - diluted
98,941,088
100,760,968


Earnings per share


Earnings per share - basic
(7.20)p
4.47p
Earnings per share - adjusted* basic
24.21p
19.76p
Earnings per share - diluted
(7.20)p
3.76p
Earnings per share - adjusted* diluted
20.84p
16.63p
* Adjusted to remove the impact of exceptional items.
From discontinued operations
Loss attributable to ordinary shareholders



2015
2014

000
000
Net loss attributable to equity holders for the purposes of basic earnings per share
(19,129)
(3,326)
Other exceptional items (net of tax)
(18,975)
(3,202)
Exceptional finance costs (net of tax)
-
-
Net loss attributable to equity holders for the purpose of adjusted earnings per share
(154)
(124)



Weighted average number of shares


Ordinary shares in issue at start of the period
85,942,534
85,942,534
Effect of shares issued during the period
359,890
-
Effect of own shares held
(1,130,487)
(1,135,110)
Weighted average number of shares - basic
85,171,937
84,807,424
Effect of outstanding share options
5,425,216
7,609,609
Effect of convertible shares
8,343,935
8,343,935
Weighted average number of shares - diluted
98,941,088
100,760,968



Earnings per share


Loss per share - basic
(22.46)p
(3.92)p
Loss per share - adjusted* basic
(0.18)p
(0.15)p
Loss per share - diluted
(22.46)p
(3.29)p
Loss per share - adjusted* diluted
(0.16)p
(0.13)p
* Adjusted to remove the impact of exceptional items.
Total attributable to ordinary shareholders
(Loss)/earnings attributable to ordinary shareholders



2015
2014

000
000
Net profit/(loss) attributable to equity holders for the purposes of basic earnings per share
(25,261)
466
Other exceptional items (net of tax)
(45,595)
(15,697)
Exceptional finance costs (net of tax)
(136)
(472)
Net profit attributable to equity holders for the purpose of adjusted earnings per share
20,470
16,635



Weighted average number of shares


Ordinary shares in issue at start of the period 
85,942,534
85,942,534
Effect of shares issued during the period
359,890
-
Effect of own shares held
(1,130,487)
(1,135,110)
Weighted average number of shares - basic
85,171,937
84,807,424
Effect of outstanding share options 
5,425,216
7,609,609
Effect of convertible shares
8,343,935
8,343,935
Weighted average number of shares - diluted
98,941,088
100,760,968



Earnings per share


(Loss)/earnings per share - basic
(29.66)p
0.55p
Earnings per share - adjusted* basic
24.03p
19.61p
(Loss)/earnings - diluted
(29.66)p
0.47p
Earnings per share - adjusted* diluted
20.68p
16.50p
* Adjusted to remove the impact of exceptional items.
The earnings per share attributable to convertible ordinary shareholders is nil.
7 Goodwill and other intangible assets
(a) Goodwill


Cost
000
At 29 March 2013
44,991
At 28 March 2014
44,991
At 27 March 2015
44,991


Impairment

At 29 March 2013
(8,400)
At 28 March 2014
(8,400)
Impairment
(19,900)
At 27 March 2015
(28,300)


Carrying amount



Net book value at 27 March 2015
16,691
Net book value at 28 March 2014
36,591
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. After recognition of impairment losses, the carrying amount of goodwill has been allocated as follows:

2015
2014

000
000
Express Gifts
320
320
Findel Education
16,371
36,271

16,691
36,591
The amount of goodwill that is tax deductible is 2,367,000 (2014: 2,367,000).


(b) Other intangible assets

Software and IT

Customer


development costs
Brand names
relationships
Total

000
000
000
000
Cost




At 29 March 2013
15,474
50,175
20,490
86,139
Additions
2,263
-
-
2,263
At 28 March 2014
17,737
50,175
20,490
88,402
Additions
1,854
-
-
1,854
Disposals
-
(22,845)
-
(22,845)
At 27 March 2015
19,591
27,330
20,490
67,411





Accumulated amortisation and impairment




At 29 March 2013
10,513
-
11,325
21,838
Amortisation for the period
1,918
-
930
2,848
Impairment loss
-
9,970
-
9,970
At 28 March 2014
12,431
9,970
12,255
34,656
Amortisation for the period
2,099
-
930
3,029
Impairment loss
-
19,045
-
19,045
Disposals
-
(22,845)
-
(22,845)
At 27 March 2015
14,530
6,170
13,185
33,885





Carrying amount









Net book value at 27 March 2015
5,061
21,160
7,305
33,526
Net book value at 28 March 2014
5,306
40,205
8,235
53,746





Brand names, which arise from the acquisition of businesses, are deemed to have an indefinite life, and therefore are subject to annual impairment tests, on the basis that they are expected to be maintained indefinitely and are expected to continue to drive value for the Group.
The amortisation period for customer relationships, which arose from the acquisition of businesses, is between 2 and 20 years. Management do not consider that any customer relationships are individually material.
Brand names acquired in a business combination are allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. After recognition of impairment losses, the carrying amount of brand names has been allocated as follows:

2015
2014

000
000
Continuing operations


Express Gifts
1,058
1,058
Findel Education
20,102
20,102
Discontinued operation


Kleeneze
-
19,045

21,160
40,205
(c) Impairment testing
The Group tests goodwill and indefinite lived brand names for impairment annually, or more frequently if there are indicators of impairment. 
Continuing operations
The recoverable amounts of the Express Gifts, Findel Education and Kitbag CGUs are determined from value in use calculations. 
Significant judgements, assumptions and estimates
In determining the value in use of CGUs it is necessary to make a series of assumptions to estimate the present value of future cash flows. In each case, these key assumptions have been made by management reflecting past experience, current trends, and where applicable, are consistent with relevant external sources of information. The key assumptions are as follows:
Operating Cash flows
Management has prepared cash flow forecasts for a three year period derived from the approved budget for financial year 2015/16. These forecasts include assumptions around sales prices and volumes, specific customer relationships and operating costs and working capital movements.
Risk adjusted discount rates
The pre-tax rates used to discount the forecast cash flows are between 12.2% and 25.3% (2014: 12.5% and 18.1%). These discount rates are derived from the Group's weighted average cost of capital as adjusted for the specific risks related to each CGU.
Long term growth rate
To forecast beyond the detailed cash flows into perpetuity, a long term average growth rate of 2.5% (2014: 2.5%) has been used. This is not greater than the published International Monetary Fund average growth rate in gross domestic product for the next five year period in the territories where the CGUs operate. 
Results
The estimated recoverable amount of the Express Gifts CGU exceeds its carrying value by approximately 19,500,000 (2014: 23,200,000) and as such no impairment was necessary.
The recoverable amount of the Kitbag CGU is approximately equal to the carrying value of its residual tangible asset base and consequently, the 6,170,000 impairment of indefinite lived brand names recorded in the prior period remains appropriate and no further impairment is required.
The carrying amount of the Findel Education CGU was determined to be higher than the recoverable amount and an impairment loss of 19,900,000 was recognised. The impairment loss was fully allocated to goodwill and is included in exceptional items. Following the impairment loss recognised, the recoverable amount is equal to the carrying amount. Therefore, any adverse movement in a key assumption would lead to a further impairment. Sensitivity analysis is included below.
Sensitivity analysis
The results of the Group's impairment tests are dependent upon estimates and judgements made by management, particularly in relation to the key assumptions described above. A reasonably possible change in key assumptions could result in further impairment losses being necessary in the Findel Education and Kitbag CGUs. Sensitivity analysis to potential changes in operating cash flows and risk adjusted discount rates has therefore been reviewed. 
The table below shows the risk adjusted discount rate and forecast operating cash flow assumptions used in the calculation of value in use for the Findel Education and Kitbag CGUs and the impact of changes in these key assumptions on the level of impairment loss required:
CGU
Findel Education
Kitbag
Impairment recognised in the period (000)
(19,900)
-
Assumptions used in the calculation of value in use


Pre-tax discount rate
16.5%
25.3%
Total pre-discounted forecast operating cash flow (000)
85,249
17,183
Additional impairment required as a result of changes to key assumptions


1% increase in pre-tax discount rate
(5,027)
(359)
5% decrease in total pre-discounted forecast operating cash flow 
(2,771)
(207)
Based on the results of the impairment test for the Express Gifts CGU, management are satisfied that there is sufficient headroom such that a reasonably possible change in assumption would not lead to an impairment. Consequently, no sensitivity analysis has been disclosed. 
Discontinued operation 
Kleeneze CGU
As part of the interim financial reporting process for the period ended 26 September 2014, management recorded an impairment of 19,045,000 in respect of indefinite lived brands allocated to the Kleeneze CGU, on the basis of a value in use calculation that showed that the carrying value of the CGU exceeded its recoverable amount. 
The disposal of Kleeneze Limited was completed on 24 March 2015 for gross proceeds of 3.4m less costs of disposal of 0.4m. A profit on disposal of 0.6m, representing the difference between the net proceeds received and the assets disposed of has been recorded within exceptional items and consequently it is concluded that the impairment recorded at 26 September 2014 was appropriate.
8 Related parties
During the period, a company under the common control of one of the Group's major shareholders, Toscafund Asset Management LLP ("Toscafund"), acquired one of the buildings leased by the Company from a third party owner. The operating lease rentals paid to the associate of Toscafund in the current period in respect of this property were 194,000. 97,000 was accrued at the balance sheet date.
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not discussed in this note. All transactions and outstanding balances between the group companies are priced on an arms-length basis and are to be settled in the ordinary course of business.
Compensation of key management personnel
The remuneration of the directors including consultancy contracts and share-based payments, who are the key management of the Group is summarised below.

2015
2014

000
000
Short-term employee benefits
1,447
2,188
Company pension contributions
207
206

1,654
2,394
Share-based payments
243
915

1,897
3,309
By order of the board
D A Sugden  T J Kowalski
Chairman  Finance Director
17 June 2015  17 June 2015


Principal risks and uncertainties
There are a number of risks and uncertainties that could impact the performance of the group over and above the treasury risks considered above. There are inherent risks in relation to the group's employees, customers, suppliers and the legal and regulatory frameworks in which it is conducted. Group and divisional management, through the budgeting, forecasting and monthly review of actual results, review business risks and seek to mitigate these risks as far as possible. The risks set out below relate to five key areas of review by the group being those specific to the group's divisions, regulatory, economic, operational and financial risks.
Risks specific to the group's divisions
The business of the Express Gifts and Kitbag divisions are seasonal, and is more heavily weighted towards the second half of the financial year. In addition the Express Gifts division is reliant on credit scoring techniques in the recruitment of new customers.
In the Education Supplies division, the September and March "Back-to-School" periods account for much of the market's annual sales and profits. The group is focused on delivering a high quality of service and being well prepared for managing peak demand in all of its businesses.
Regulatory risks
The financial services activities of the Express Gifts division became subject to regulation from the Financial Conduct Authority (FCA) with effect from 1 April 2014. In addition to its existing permission as an insurance intermediary, the business currently has an Interim Permission to undertake consumer credit activities. The withdrawal or material variation of this permission or a failure to have it converted into a Full Permission in due course could have a material adverse effect on the group. In addition, any changes in legislation, regulation or FCA policy (for example restrictions on interest rates or account fees) could have a material adverse effect on the group. Finally, it is also required to conduct its business in a manner that mitigates against the risk of its customers receiving a poor outcome from its financial services activities. Failure to manage this risk may lead to customers seeking appropriate levels of redress. The group monitors compliance with applicable financial services and consumer credit regulations by taking advice from third party professionals, where appropriate.
Economic risks
The group is affected by the impact of the economy on consumer spending or the ability of its customers to service their debts. The impact of the sustained reductions in government spending on education may adversely impact the performance of the Education Supplies division and may in turn have a material adverse effect on the group's business. 
Interruptions in the availability or flow of stock from third-party product suppliers, or issues arising from the sale of faulty or defective goods leading to product recalls could have an adverse effect on the group's business. To mitigate this risk, the group purchases products from a wide variety of domestic and international third party product suppliers and engages in appropriate quality assurance processes. 
Deteriorating markets and reputational risks could result in the impairment of goodwill, intangible assets (including brands) and property, plant and equipment, which may adversely affect the group's financial position. This includes the potential use of social media by third parties to comment upon the group's businesses. The group focuses on maintaining the highest quality of service to mitigate against any impairment in the value of its businesses.
Operational risk
The group may fail to keep up with advances in internet technology. Furthermore information technology systems failure or disruption could impact the group's day-to-day operations. The group relies heavily on its information technology systems to record and process transactions and manage its operations as well as to enable its customers to purchase products online and over the phone. The group has seen significant growth in the proportion of its home shopping sales which are derived from the internet, and these now represent over 54% of the total sales of the Express Gifts division. The group is focused on investing appropriately in its information technology systems and progressively developing its e-commerce capabilities. This in turn increases the group's exposure to fraud and cyber-attack that could, for example, deny the group access to its systems for a period of time, or result in a loss of confidential customer data. Enhancements to these systems and controls have been made to mitigate against these risks and the group now carries insurance cover against a prolonged loss of service.
The group is dependent on third parties for outsourcing functions. The group carries out extensive reviews of any potential outsourcing partner. Loss of, or disruption to, the group's distribution centres and administrative sites would have a material adverse effect on the group's business. The group has established disaster recovery procedures designed to minimise the impact of any such disruption. The group also carries insurance cover against the potential loss of key facilities.
Financial risk
The group is reliant on the continued provision of credit facilities, and the ability to refinance them as they fall due, to support its operations as it seeks to reduce its net borrowings to a more appropriate level. The current facility agreements which mature in December 2016 include various financial covenants which, if not complied with, would enable the lenders to seek immediate repayment of amounts outstanding under the outstanding credit facilities.The group has recently agreed relaxations to the terms of these facilities which mitigates this risk significantly.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
FR SFWFAWFISEDM