This is an abbreviated summary of the audited figures for the performance in the year ending October 31st 2006:
Profit before tax for the year was £1.74m (2005 was £1.12m, so profit was up 55%)
The undistributed reserves of the company at 31 October 2006 totalled £9.87m (2005 was £8.67m, so up 14%)
No dividend is proposed for the year (2005 was £nil)
Sales
In a tough climate, turnover increased 5.7%, primarily based on a strong sales to USA retailers and good sales to UK special customers.
Margins
Gross margin increased by 4.2% based on lower returns levels, fewer overstocks, a higher proportion of licensed rights contracts and the successful launch of the new photo-library business.
Overhead
Administrative expense in 2006 was £2.89m, £290,000 (11.2%) up on 2005.
The increased overhead is mainly caused by a £180,000 provision created against the £260,000 owed by Advanced Marketing Services Inc, a USA customer, when it entered Chapter 11 on 29 December 2006.
58 people were employed in 2006 versus 56 in 2005.
Funding and cashflow
Cash at the 2006 year end stands at £3,563,877. 2005 year end cash was £946,341, so cash holdings are up 277%.
At the year-end the company had a total of £1.5m in funding available that was not being utilised in addition to the £3.6m in the bank.
Inventory
The business maintained tight controls over inventory levels, starting the year with £2.39m in finished book stocks and ending it with £2.36m 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 £3.38m and a closing value of £3.24m, though investment levels were kept at the same level as 2005 and 2004.
Investment
The company maintains its dedication to the creation and maintenance of probably the best active illustrated book portfolio in the industry, which now stands at around 3,450 titles in print, and around 600,000 copyright-owned photo-images. Actual investment in new products in 2006 was in the region of £1.4m, which took management's estimate of total creative investment since 1997 to £25.1m, only a small proportion of which is currently carried on the balance sheet as work-in-progress (£3.2m). Given the revenue and contribution streams being palpably generated by the intellectual property, management considers this a highly prudent carrying value for this asset.
Creditors
Creditors rose to £5.26m from £4.02m reflecting in part higher levels of manufacture to support increased sales but also a 100% increase in tax reserve to pay for increased profits, and close to 100% increase in accruals for advanced contract payments received. Trade creditors (the vast majority of which are printers in the Far East) rose from £3.5m in 2005 to £4.3m in 2006 (up £800,000) while cash increased in the business by £2.6m at the same time, and this reflects the timing of payments for Christmas deliveries.
Debtors
Debtors fell by £477,720, from £5.87m to £5.40m, due to faster payments from customers balancing out the higher level of revenues.
New technology
The company continues the development of its leading edge digital asset management system. Over 100,000 images are now fully indexed and searchable and an additional 200,000 further images are available digitally and stored accessibly on system. In 2006 a new company, Practical Pictures, was launched to commercially exploit this asset as a photo-library and picture licensing business: the launch was profitable and close to £100,000 was generated in revenues.
Ethical trading
The company has embarked on a forestry project with the intention of cultivating, managing and planting as many trees annually as it utilises each year in the paper consumption of its book manufacture (over 8.55m books were manufactured in 2006). 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. The company currently manages over 600,000 trees which approximates to about two and a half year's paper consumption.
Summary
2006 was a successful year for the company. Management is pleased that the business has increased sales, improved profit margins and delivered further growth in its net worth whilst simultaneously investing solidly in new products, advanced technology and ecological sustainability.
Auditors
Ernst & Young LLP
1 More London Place
London SE1 2AF
Registered Office
Hermes House
88-89 Blackfriars Road
London SE1 8HA
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