This is an abbreviated version of the directors. report and financial statements for the year ended 31 October 2009:
At year end the Group was holding £4.38m in cash, up from £2.54m at the end of the previous year
Sales revenues were £18.22m, up £2.53m from £15.69m the previous year (16% up)
Gross Profit for the year was £5.70m, up from £5.20m in 2008, an increase of 9%
Profit before tax for the year was £1.06m. Profit before tax in 2008 was £0.95m, so profit was 11% higher
The undistributed reserves of the company at 31 October 2009 totalled £12.8m (in 2008 this was £11.9m, so the year ends 7% up)
Special Events
On 22 December 2008, the Company purchased the entire share capital of Bookmart Holdings Limited ("Bookmart"), a publisher and distributor of promotional books, for cash. The acquisition of Bookmart added new titles to the Companyi's portfolio, provided additional logistical facilities and created overall business synergies that will strengthen the Company's position going forward
Sales
Rights & Co-Editions: This sales division was up over 12% in the year based mainly on a major promotion with a close partner in Holland.
Promotional Publishing: The contract publishing department, Hermes House, grew over 15%.
Stationery: The Peony Press stationery business delivered a year of 20% growth. It is building a distinct and characterful brand, differentiated from the standard lines traditionally marketed in the highly price-competitive mass market stationery industry.
Retail: The ten Book Extra shops are a great channel for the group's overstocks and hurt books, adding margin and efficiency to the end of the product life cycle. It should be stressed that all retail outlets are taken on a temporary basis.
Trade Publishing: Higher-priced books tended to fare badly in a tough economy, and this category was therefore impacted by a reduction in sales. On the upside, margins improved by 5% as a cautious approach to quantities resulted in lower returns levels and fewer remainders.
Margins
Gross margin fell from 33.1% to 31.3%. The reduction came partly from structural changed in the business, with wholesaling now contributing a larger proportion of total sales, and partly from disadvantageous exchange rate movements in overseas manufacturing costs.
Overhead
Administrative expense in 2009 was £4.6m, £0.25m up on 2008. This increase in overhead is mainly caused by the acquisition of Bookmart (which came with the attendant staff and property costs associated with running a warehouse), offset by gains on currency exchange and the partial amortisation of the discount to book value represented by the acquisition price of Bookmart.
Funding and cashflow
Cash in the bank at the 2009 year end stood at £4.38m. At the 2008 year end cash was £2.54m, so cash holdings are up £1.84m.
This is a fine performance on cash management considering a 16% growth in sales, a £1.0m growth in inventory, and the fact that Bookmart was purchased for cash.
At the year-end the company had an additional total of £1.0m in bank funding available that was not being utilised, as well as the £4.38m of cash in the bank.
Inventory
The business increased inventory levels as a consequence of the acquisition of Bookmart, starting the year with £3.37m in finished book stocks and ending it with £4.77m in finished book stocks.
Work in progress
The company's valuation formula for creative work in progress remained unchanged. This meant an opening value of £4.22m and a closing value of £4.89m. Though investment levels in new product were kept at the same level as 2008, the acquisition of Bookmart brought in an additional £0.4m of work in progress.
Investment
The company maintained its dedication to the creation and maintenance of probably the best active illustrated book portfolio in the industry, which now stands at around 4,100 titles in print, and around 650,000 copyright-owned photo-images. Actual investment in new products in 2009 was in the region of £1.7m, which took managementi's estimate of total creative investment since 1997 to over £30.0m, only a small proportion of which is currently carried on the balance sheet as work-in-progress (£4.89m).
New technology
The company continued the development of its digital asset management system. Over 280,000 wholly-owned images are now fully indexed and searchable on our own web-based search engine, and an additional 150,000 images are available digitally and stored accessibly on system. In 2006 a new company, Practical Pictures Limited, was launched to commercially exploit this asset as a photo-library and picture licensing business: the launch was successful and over £330,000 has been generated in revenue through to October 2009.
Changes in the image licensing and digital environments have challenged the traditional model of picture sales and photo-libraries in recent years, and it has to be recognised that the big advantage created by the development of this asset is likely to be in the in-house use, which is estimated to save the company up to £1.5m per year in product development costs.
Ethical trading
In 2006 the company embarked on a forestry project with the intention of acquiring, cultivating, managing and planting as many trees annually as it utilises each year in the paper consumption of its book manufacture (8.55m books were manufactured in 2006; 7.54m books were produced in 2007; 7.83m books were printed in 2008; 8.76m books were produced in 2009).
This programme is being run in accordance with the UK Woodland Assurance Scheme and validated by the internationally recognised Forest Stewardship Council which certificates the type and quality of trees grown and timber produced.
With a new purchase in late 2007, Deveron Forest in North-east Scotland, the company added a further 185 acres of semi-mature woodland to its portfolio.
This increased its plantations from around 600,000 trees to around 765,000 trees under cultivation. This volume of forestry currently owned approximates to about 3.6 years. paper consumption at current levels of book production.
For the future, an agreement in principle has been made to acquire just over 570 acres of unplanted land near Kilchrenan in Argyle for the establishment of a quality forest with the assistance of grants from the Scottish Government over 10 years. Applications are in progress and the final purchase is subject to these being successful. This newly created forest, should the processes all be successfully navigated, would eventually consist of over half a million trees.
Summary
2009 delivered a decent result for the company, especially in the context of the tough economy, currency changes, and volatility in paper and print prices.
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