For immediate release                                                                                      15 September 2008

Ideal Shopping Direct PLC

Interim Results

Ideal Shopping Direct Plc ("Ideal"), Britain's leading independent TV shopping and online business, today reports half year Group figures for the 26 weeks ended 29 June 2008.

KEY FINANCIALS

  * Key development programme underway

  * Successful website relaunch - showing strong growth in online sales

* 9% increase in new customer acquisition 

* Craft sales up 24%

  * 19% reduction in inventory levels

* 2006 and 2007 accounts restated to reflect accounting system adjustments totalling  

  £0.8m

David Williams, Chairman, commented:

"We are continuing our programme of core business developments, which will improve our service across an increasingly multi channel business.  The development of online is a key initiative, and we are particularly encouraged by the successful relaunch of our websites since June.  Over the next few weeks, Ideal World will also benefit from further significant improvements in the ways we interact with our customers, making it easier to shop with us both by telephone and online.

Our first half results, however, reflect the well publicised consumer downturn, which has undoubtedly impacted our customer base, noticeably in sales of Homewares and Fashion.  

By contrast, the first 10 weeks of the second half have seen sales 6% ahead of last year, and at a higher margin.  With the programme of improvements already under way, and given the fundamental strengths of our business, we remain confident of an improved second half.  However, we will continue to manage the business on the basis that we are unlikely to see any upturn in consumer spending for some time and we currently expect our results for the full year to be no higher than 2007 (pre-adjusted figures)."

Enquiries:

Ideal Shopping Direct plc:

Andrew Fryatt, Chief Executive officer                     Tel: 08700 780704

Numis Securities Limited

Nominated Advisers

Michael Meade, Oliver Cardigan                              Tel: 020 7260 1000

Buchanan Communications

Nicola Cronk, Mark Edwards, Miranda Higham       Tel: 020 7466 5000

  Financial results

Total revenues grew by 2.6% in the first half of 2008, against a well-publicised deterioration in the general retail climate. Average customer spend fell by 4% compared with the first half of 2007, but, driven by a strong promotional focus, this was offset by a 9% increase in new customer acquisitions, to 211,000 in H1 2008.  

Within this sales growth, we saw strong results from our Craft and Online businesses. Sales of craft products grew by 24% compared to the first half of 2007, supported by a strong increase in subscribers to the Create & Craft Club, up to 26,000 members (H1 2007: 11,000). The Ideal World website was relaunched at the end of June, and online sales grew by 10% in the half, reaching 24% of sales for the half.

Our main channel, Ideal World, saw good growth in Health & Beauty and Leisure & Technology, but this was offset by lower sales in Fashion and Homewares, and our continuing reduction in emphasis on the Jewellery category.

During the first half we discontinued our third channel, Ideal Vitality, and replaced it with "Ideal World 2", broadcasting repeats of shows from the main live channel. This has been a successful transition, and Ideal World 2 is now consistently generating daily sales in excess of Ideal Vitality. We have recently acquired a better channel position for Ideal World 2, Sky channel 651, which commenced broadcasting at the start of September and is already generating increased sales volumes.

The use of pricing and promotions to support sales and drive new customer acquisition, coupled with an increased focus on technology within the category mix, resulted in a 350 basis point reduction in gross margins, primarily in the first four months of the year. Since May 2008, trading margins have increased, and shown some improvement on the comparative period last year.

Total overheads grew by £1.1m, or 5.9%, of which £0.4m is attributable to depreciation and exchange rate variances.  

Distribution costs increased by £0.4m, including £0.1m relating to our outlet store in Peterborough, which clears end of line and returned goods. With the reduction in average spend, the volume of sales increased faster than their value, and warehouse activity was 7% higher than last year. This additional volume had to be fulfilled via external facilities, resulting in distribution costs rising faster than sales.  

Excluding the contracted increases in broadcast costs and the prior year exceptionals, other overheads grew by just 0.1%.

The slower sales growth and the dilution of margin resulted in loss before tax of £1.2m for the half (2007: profit before tax of £1.2m).  

Post tax profit was (£0.9m) vs. £0.8m in 2007.

Inventory

At the end of the first half, inventory stood at £7.3m, a reduction of 19% over last year.

Financial Systems and Accounting adjustments

We are currently recruiting for a new Finance Director. In June, we appointed an interim FD and instigated a full review of the Group's financial systems and processes.  This has identified an understatement of liabilities in the balance sheet, which arose during the transition to our new computer systems in 2006 and 2007.  The initial migration of financial systems onto the new platform took place in 2006, followed by the full transition of all other systems in June 2007.

In conjunction with Grant Thornton, Management have identified an adjustment of £0.8m before taxation that relates to the financial years 2006 and 2007.  The accounts have been restated to reflect the necessary prior year adjustments of £282k and £560k respectively (before taxation).  Of the 2007 adjustment, £191k relates to the first half. The adjustments affect sales and cost of sales, and the detail is identified in note 6 to these interim accounts.

Following rigorous investigation of the issue, the Board has taken action to improve processes and controls within the business and to strengthen management to prevent a recurrence of this issue.  

Cash

Net cash outflow from operating activities was £3.9m (H1 2007: £3.1m). Capital expenditures were £1.8m in the half (H1 2007: £1.6m), and £1.1m was paid in dividends (H1 2007: £0.8m). Gross cash balances were £9.7m at the end of the half (H1 2007: £13.0m).  

Dividend

The Board has recommended an interim dividend of 1.75p, unchanged from 2007.

Superstore

Superstore's third party sales were flat year-on-year at £1.5m However, this is against a strong result in the comparative period which saw the launch into Wilkinsons' of our wholesale craft range, including a substantial initial stock fill of their retail chain. On a comparable basis, sales were significantly ahead of 2007, driven by the launch of the Create & Craft branded range into independent craft outlets. 

Superstore's primary contribution to the business remains direct sourcing for Ideal, and it supplied 14% of Ideal's H1 product sales.

Development

We are continuing our strategy of repositioning the business to offer a more customer-focused, multichannel proposition, and, as part of that, there have been a number of key developments post the period end which will underpin second half performance: 

• The Ideal World website was relaunched at the end of June, and the Create and Craft website relaunched at the start of August. Sales on both sites have increased by more than 50% since relaunch, and conversion of traffic has risen to over 8% of all visits.

• The benefit of these improvements is in evidence, with total online sales now up to 28% of total revenues. Development of our websites is continuing, and we expect our online revenues to account for almost 30% of sales by the end of the year.

• In July we completed a 12 week trial of selling some overnight Freeview airtime to Smart TV Ltd, who operate gaming services. We have now entered into a 12 month contract with Smart TV for 2 overnight hours at an enhanced hourly rate, in excess of the revenues generated from TV shopping at those times.

• At the end of July we launched a range of 50 craft video projects onto the BT Vision platform, accessible in almost 300,000 households via their video on demand service. Initial feedback on the content has been very good, and use of the service should step up as BT enhances the functionality later this year. 

• We have begun the introduction of a new automated phone ordering system, which will be fully implemented by the end of September. Our existing Interactive Voice Response (IVR) system ("In First") will be replaced with a new system, allowing a faster ordering route for customers, improved service, and additional sales opportunities.

• In October, our Customer Service call centre, operated by Oceans Connect, will transfer from India back to the UK, based out of Runcorn. Whilst this increases the operating cost per call, this will be mitigated by the switch to our online and IVR routes, which will offer increased customer service capabilities in addition to a faster order channel.

Board & Staff

As previously announced, David Blake stepped down as Finance Director in June 2008, and has been replaced on an interim basis by Steve Mensforth, whilst we pursue recruitment of a permanent Finance Director.

In July, Pamela Aujla joined the Board as Commercial Director. Pamela has been with Ideal as the Head of Buying and Merchandising since January 2005 and is a welcome addition to our Board. 

Outlook

The fundamental strengths of the business remain unchanged - Ideal is well placed as one of the leading digital retailers to benefit from the continuing drive towards convergence of broadcast and online media, and our business model allows us to react quickly to manage our sales plans in response to changing market conditions. With the development programme outlined above, and particularly the growing online component, the Board remains confident in our future growth potential. 

The first 10 weeks of the second half show signs of improvement in both sales and margins, with turnover 6% ahead of 2007 as we move into the critical final quarter of the year. 

However, we are undoubtedly operating in an uncertain retail climate, and do not believe that the consumer environment will improve significantly in the short term.  This market weakness is likely to mitigate our own developments, and we currently expect our results for the full year to be no higher than 2007 (pre-adjusted figures). 

Consolidated income statement 

As at 29 June 2008

Consolidated interim balance sheet

As at 29 June 2008

Consolidated interim statement of changes in equity