17-02-2005 - Printing.com - Trading Update - Printing.com Plc
Specialist retail chain with 97 Outlets (plus 12 pending) across the UKTRADING UPDATE
* Year's expected pre tax profit broadly in line with expectations,
albeit at the lower end of the range
* Fiscal Q3 trading in line with expectations, January sales slightly
disappointing - February stronger
* The Agency - trading continues below expectations
* 3 new Territory Franchise Stores opened
* Strong pipeline of imminent openings
* 30 Stores operational with 7 pending
* 67 Bolt-on Franchises operational with 5 pending
* Successful launch of 'Flyerlink Pro'
* Finalising purchase of a third printing press facilitating an estimated
'Total Retail Sales' capacity in excess of #30 million.
* Company continues to gain momentum
* Optimistic that the continued momentum will translate into future
earnings growth
Recent Trading from Stores and Bolt-on Franchises
Post the close of the interim period, trading in the Company's Stores (both Company owned and franchised) together with its Bolt-on Franchises, in the respective four week trading periods ending 7 November, 5 December and 2 January proved broadly in line with expectation. In contrast, the period ending 30
January, which featured the Company's January Sale, although higher than 2004, proved slightly disappointing: however, this does not appear to be a trend as
trading in the current period is stronger and in line with expectations.
Territory Franchise Development
At the time of the Interim announcement we reported that Territory Franchise Agreements had been completed for Bournemouth and Middlesbrough. Both of the
Stores have now commenced trading, albeit later than expected due to the delayed finalisation of property matters. An additional Territory Franchise Agreement
has been completed for 'London Southeast' and encouragingly the Store, located in Orpington, is now trading. It is anticipated that the Coventry and Dublin
North franchises will also open by 31 March 2005. Property negotiations continue in Brighton.
Additional Options (each involving the payment of a non-refundable deposit of GBP 6,000) have been taken out, covering Manchester North, Hertfordshire, and
Nottingham (presently a Company owned Store). A Management Buy Out of our Sheffield Store is also expected soon. The option over the Hull Store has
lapsed. This takes the present number of operational Stores to 30 (12 Company owned), with a further 7 pending. Further Options are at an advanced stage of
negotiation.
With the advent of these anticipated openings we will have achieved our Territory Franchise expansion target for the financial year, albeit the pattern of openings will be weighted towards the third and especially the fourth quarters.
Bolt-on Franchise Development
Post the Interim period, an additional 7 Bolt-on Franchise agreements have been completed, one has been terminated. This takes the number of operational Bolt-on Franchises to 67 with a further 5 pending. In addition to the Territory Franchisees who market the Bolt-on Franchise opportunity locally, a national promotional campaign will commence mid-February. The new campaign features case studies of Bolt-on Franchises who have added significant additional revenues to their businesses via the Bolt-on Franchise. It is it hoped this will prove an important element in accelerating Bolt-on Franchise expansion.
The Agency
At the Interim stage we reported that the 'Agency' (formerly referred to as the Company's 'Traditional Markets') had, after two years of successful growth, shown a decline in like for like sales. Regrettably this trend has continued, we estimate that turnover from this division may fall circa GBP 350,000 short of that for the previous year to approximately GBP 1,587,000 (2004 GBP 1,937,000). Essentially this is attributed to the contraction of two key accounts. In our Interim announcement we reported our intention to franchise the Agency, this remains our aim.
Successful Launch of Flyerlink Pro
The Company is pleased to report that on 20 December a new generation of its Flyerlink Software was successfully launched under the branding 'Flyerlink Pro'. The original Flyerlink was launched in May 1994 and operated within an 'MS DOS' environment. Over the years it was significantly expanded and adapted to reflect the Company's changing business model. In 2001, an interface was added to allow certain functionality within a standard browser window. This facilitated the Bolt-on Franchise expansion.
Even though the principal architecture of Flyerlink Pro is taken directly from the previous version, the project took more than two years, reflecting the
complexity of the software and its inherent barrier to entry. Flyerlink Pro is written in a Linux environment and runs 'real time' via a standard web browser.
The project to date represents an investment of over GBP 250,000, which has been financed from operational cash flow.
Flyerlink Pro now provides a platform to facilitate our planned UK expansion over the next few years. As it embraces both multi-currency and multi-hub operations it will also enable us to exploit other territories or grant master franchises. Flyerlink Pro will continue to be developed on an ongoing basis to further enhance operations.
Additional Press
The Company is presently finalising the purchase of a third printing press at a cost of circa GBP 1 million. The press should be commissioned during Q3 of the next fiscal year. It will be located at the Company's Manchester Hub, with the advent of a second hub now being targetted once Total Retail Sales have passed the GBP 30 million point.
Outlook
During the current financial year we have encountered operational challenges such as the timing of certain Store openings, the disappointing trading in early summer and January coupled with the revenue shortfall from the Agency. Notwithstanding these challenges and assuming that imminent franchise deals progress, we would expect our pre tax profit for the year to be broadly in line with expectations, albeit at the lower end of the range.
Moving forward our objective is to open a similar number of Territory Franchises over the coming financial year, with the current pipeline of prospective franchisees encouraging us that this is realistic. In addition we hope to accelerate the roll out of our Bolt-on Franchise programme. The launch of Flyerlink Pro and our plans for a third press also reflect our confidence that transactional volumes will continue to grow significantly as momentum continues to build.
Recent market research reaffirms the Printing.com competitive advantage. It highlights that the Company continues to offer a higher specification of print at a more favourable price point than the market at large. The cornerstone of our franchise orientated strategy is the premise that each Outlet makes a positive contribution pre and post opening in terms of both cash and profit. Accordingly we remain optimistic that the scope exists for significant further growth in our earnings and cash generation.