RNS Number:0850T
Victory Corporation PLC
10 December 2003
VICTORY CORPORATION PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003
Chairman's statement
Highlights
*Turnover on continuing operations up 42% with operating losses reduced by
57% to #1.0 million
*Cosmetics business continues to demonstrate solid growth with sales
increasing by 42% and achieved EBITDA positive of #0.4 million
*Number of Cosmetics Consultants grew by 17% to 9,153
*Continued our focus on the Cosmetics business with the disposal of Capo,
the non-core retail clothing business
Solid Growth
The strategy of concentrating our resources behind our highly successful Virgin
Cosmetics business has resulted in another period of strong growth, especially
within our Direct Selling channel. The key drivers within Direct of activity,
recruitment and retention of Independent Sales Consultants have all impacted
favourably and had a very positive impact on growth.
Results
For the six months ended 30th September 2003, I am able to report a 42% increase
in turnover from continuing operations to #26 million, whilst Group losses
before tax of #1.5 million were 57% lower than for the same period last year.
Net bank borrowings were #8.8 million and capital expenditure for the period was
#0.5 million.
Virgin Cosmetics
Virgin Cosmetics Direct, which accounts for 83% of our Cosmetics Sales,
delivered a very strong performance recording a 41% increase in sales as
compared with the corresponding period of last year. The number of Independent
Sales Consultants increased by 17% to 9,153, whilst our Independent Manager
network who direct, train and motivate the Consultant teams, increased by a
further 23%.
The steadily growing strength and expanding reach of the Direct Selling Network,
has been achieved through the innovative and popular sales incentive plan,
coupled with a dedication to providing high quality products and consistently
outstanding quality Consultant and Customer Services.
In July of this year we introduced personalised Web sites for Consultants, and
now we have over 1,300 Consultants operating their own internet sites. The
purpose of these sites is to enable Consultants to offer the facility to their
customers to order product through their internet site, as well as offering the
service to new customers within their area. The new selling facility has proved
to be highly popular with both customers and Consultants.
The retail environment continues to be highly competitive and challenging.
Against this background, a like-for-like sales increase of 7% is testimony to
the Retail Team's continued focus on good practice, improved merchandising and
personalised Customer Service. The strategy of supporting the nationwide network
of Direct Consultants with Retail Outlets is proving very beneficial. We
currently have 12 stand-alone retail stores, and
10 Virgin Spa's operating in Virgin Active Life Centres.
In September 2003, in agreement with the Sound & Media Group, we took over the
ownership and running of the nine Virgin Cosmetic factory outlet stores. The
nine new stores offer discontinued and seasonal lines as well as products in
obsolete packaging. The opening of this new sales channel enables us to benefit
from an increasingly popular retail format, manage stockholding more efficiently
by clearing slow moving lines and bring new products to the market quickly.
The restructuring of Virgin Cosmetics supply chain has had a beneficial effect
on our operating cost efficiencies. We are well advanced in setting up a number
of regional warehousing facilities, and a Far East facility will be on stream in
the first half of 2004.
International
The Liwa Group, our Middle East franchisee, with eight stores in the Middle
East, found trading affected with the Iraq War, and as a consequence consumer
spending has been depressed.
The franchise for South Africa, that operates ten Virgin Spas in Virgin Active
Life Centres, is currently being sold. Once the sale has been completed, the new
Franchisee will work with existing sub-franchisees in developing their business,
as well as opening further Virgin Spas and stand-alone retail stores in shopping
malls.
Whilst at the present time our strategy is to concentrate our resources into
maximising the potential that the United Kingdom market affords us, we are
confident that in the next few years we will take our highly successful Direct
business model into a number of key International markets.
Virgin Clothing
Our strategy continues to be the development of our clothing business through
licencing arrangements with key strategic partners. Unique Commerce Limited, our
underwear licencee, is concentrating its resources on proving the concept in the
UK before expanding internationally, and has opened during the period
stand-alone stores in the Trafford Centre Manchester and the Bull Ring in
Birmingham. Fast Fashion, our women's wear licencee, is operating satisfactorily
in Italy, France, Spain and Greece. Davenport, our women's wear franchisee in
Australia, is trading in line with expectations.
Reconciliation on the Consolidated Reserves of the Group
At the EGM held on 30th September 2003, shareholders approved proposals for a
reduction in Capital of the Group. This process was carried out in order to
facilitate the earlier payment of dividends out of profits earned after the date
on which the reduction took place than otherwise possible. These proposals were
subject to court approval, which was granted in October 2003. The effects of
this reconstruction on the consolidated reserves of the group on a "pro forma"
basis are shown in the notes to the Balance Sheet.
Current Trading
Trading for the first 34 weeks of this financial year remained strong, with
sales through the Cosmetics Direct Selling Channel having increased by 41%,
whilst like-for-like sales in our 22 retail stores increased by 6%. However, for
the last 2 weeks we have seen a marked decline in the rate of growth to 12% in
Direct and minus 3% in our retail stores, which we believe is due to reduced
consumer confidence currently prevailing within the UK economy.
I am pleased with the progress made in the first half of the financial year, but
we believe high consumer credit and the increase in mortgage interest rates have
affected consumer spending. However, in this financial climate it does give our
Direct business the opportunity to increase recruiting levels in the early
months of 2004.
Whilst we still look forward to profitable growth, I remain cautious of the
outcome for the full year.
John Jackson
Chairman
December 2003
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 30 September 2003
Six months to 30th Six months to 30th Twelve months to 31st
-------------------- -------------------- -----------------------
September 2003 September 2002 March 2003
---------------- ---------------- ------------
Unaudited Unaudited audited
----------- ----------- ---------
#'000 #'000 #'000
------- ------- -------
Continuing Discontinued Continuing Discontinued
------------- -------------- ------------- -----------
operations operations Total operations operations Total
------------ ------------ ------- ------------ ----------- -------
Turnover 26,008 18,312 4,408 22,720 47,954 9,664 57,618
Cost of sales (10,573) (7,198) (2,790) (9,988) (19,462) (6,074) (25,536)
----------- ------- -------- ------ ------- -------- ------
Gross profit 15,435 11,114 1,618 12,732 28,492 3,590 32,082
Administrative (16,414) (13,381) (2,243) (15,624) (31,787) (7,157) (38,944)
expenses ----------- ------- -------- ------ ------- -------- ------
Operating loss
before exceptional items (1,975) (1,256) (3,231)
Exceptional items (1,320) (2,311) (3,631)
------- -------- ------
----------- ------- -------- ------ ------- -------- ------
Operating loss (979) (2,267) (625) (2,892) (3,295) (3,567) (6,862)
Interest receivable
and similar income
7
Interest payable
and similar charges (496) (540) (1,080)
----------- ------ ------
Loss on ordinary
activities before
taxation (1,475) (3,432) (7,935)
Tax on loss on - - -
ordinary activities -------- ------ ------
Loss on ordinary
activities after
taxation (1,475) (3,432) (7,935)
=========== ====== ======
EBITDA 9 (1,266) 430 1,696 (3,233)
----------- ------- -------- ------ ------
UNAUDITED CONSOLIDATED BALANCE SHEET
at 30th September 2003
At At At
---- ---- ----
September 2003 September 2002 March 2003
---------------- ---------------- ------------
Unaudited Unaudited Audited
----------- ----------- ---------
#'000 #'000 #'000
------- ------- -------
Fixed Assets
Fixed Assets 4,010 6,005 4,367
Intangible 79 215 161
---------- ---------- --------
4,089 6,220 4,528
---------- ---------- --------
Current Assets
Stock 12,200 13,091 9,929
Debtors 4,944 3,528 4,549
---------- ---------- --------
17,144 16,619 14,478
Creditors: amounts
falling due within one
year (21,959) (27,564) (28,316)
---------- ---------- --------
Net current assets (4,815) (10,945) (13,838)
Total assets less
current liabilities (726) (4,725) (9,310)
Creditors: amounts
falling due after more
than one year (60) (197) (110)
---------- ---------- --------
Net Liabilities (786) (4,922) (9,420)
========== ========== ========
Capital and reserves
Called up share
capital 565 258 258
Share premium account 63,569 53,765 53,765
Capital reserve 13,724 13,724 13,724
Profit and loss
account (78,644) (72,669) (77,167)
---------- ---------- --------
Shareholders deficit (786) (4,922) (9,420)
========== ========== ========
Proforma shareholders deficit after court approval
At At At
---- ---- ----
September 2003 September 2002 March 2003
---------------- ---------------- ------------
Capital and reserves Unaudited Unaudited Audited
----------- ----------- ---------
Called up share capital 565 258 258
Share premium account 28,569 53,765 53,765
Special reserve 4,295
Capital reserve 13,724 13,724 13,724
Profit and loss account (47,939) (72,669) (77,167)
---------- ---------- --------
Shareholders deficit (786) (4,922) (9,420)
========== ========== ========
UNAUDITED CASHFLOW STATEMENT
for the six months to 30th September 2003
Six months to 30th Six months to 30th Twelve months to 31st
-------------------- -------------------- -----------------------
September 2003 September 2002 March 2003
---------------- ---------------- ------------
Unaudited Unaudited Audited
----------- ----------- ---------
#'000 #'000 #'000
------- ------- -------
Operating loss (981) (2,892) (6,862)
Depreciation
and amortisation 987 1,216 3,633
Increase in stock (2,271) (3,702) (540)
Decrease in debtors (395) (119) (1,140)
Increase in creditors (1,823) (294) (163)
----------- ----------- -------------
Cash inflow/outflow
from operating activities (4,483) (5,791) (5,072)
Interest received - - 7
Interest paid (493) (537) (1,076)
Interest element of
element of finance lease
rental (3) (3) (4)
----------- ----------- -------------
Returns on investments
and servicing of finance (496) (540) (1,073)
Purchase of intangible
fixed assets - - (37)
Purchase of tangible
fixed assets (548) (1,135) (1,823)
----------- ----------- -------------
Capital expenditure (548) (1,135) (1,860)
Sales and purchases - - -
of investments ----------- ----------- -------------
Management of
liquid resources (5,527) (7,466) (8,005)
Issue of ordinary
shares 10,433 - -
Less issue costs (322) - -
Debt due within one
year: new secured loan - 6,750 10,939
Debt: secured loan
repayment (3,714) (3,825)
Debt:Unsecured Loan
repayment - (47) (89)
Capital element of
finance lease rentals (7) (37) (72)
----------- ----------- -------------
Financing 6,390 6,666 6,953
----------- ----------- -------------
Increase/(Decrease)
in cash in the period 863 (800) (1,052)
=========== =========== =============
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET (LIABILITIES)/FUNDS
-------------------------------------------------------------------------
Six months to 30th Six months to 30th Twelve months to 31st
-------------------- -------------------- -----------------------
September 2003 September 2002 March 2003
---------------- ---------------- ------------
Unaudited Unaudited Audited
----------- ----------- ---------
#'000 #'000 #'000
------- ------- -------
Increase/(Decrease)
in cash in period 863 (800) (1,052)
Cash outflow/(inflow) from
increase in debt financing 3,714 (6,703) (7,025)
Cash outflow from leasing
finance 7 37 72
----------- ----------- -------------
Changes in net
debts resulting from cash flow 4,584 (7,466) (8,005)
New finance leases ----------- ----------- -------------
Movement in net debts 4,584 (7,466) (8,005)
Net funds at beginning of
period (18,296) (10,291) (10,291)
----------- ----------- -------------
Net debt at
end of period (13,712) (17,757) (18,296)
=========== =========== =============
ANALYSIS OF CHANGE IN NET DEBT
Current asset
Cash in hand at bank Other loans Finance leases investments
----------------- ----------- -------------- -----------
At 31 March 2002 (8,591) (1,621) (79) (10,291)
Net cash flow (800) (6,703) 37 (7,466)
----------- ----------- -------------- -----------
At 30 September 2002 (9,391) (8,324) (42) (17,757)
Net cash flow (252) (322) 35 (539)
----------- ----------- -------------- -----------
At 31 March 2003 (9,643) (8,646) (7) (18,296)
Net cash flow 863 3,714 7 4,584
----------- ----------- -------------- -----------
At 30 September 2003 (8,780) (4,932) - (13,712)
----------- ----------- -------------- -----------
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