Interim Report

Business Review

The first half of the Group's financial year has seen a period of change, both strategically in the case of the Department Store Division, and operationally for The Perfume Shop (TPS). We are half way through our year but with many challenges still to be faced it is greatly to the credit of the business that the period's financial results show further progress. Group profitability, excluding exceptional items, has increased to £3.62m, an increase of 15% against last year. Additionally an exceptional profit of £2.12m was achieved from the sale of the Woodwards Leamington property, giving a total profit before tax of £5.74m, an increase after exceptionals of 82%. Sales have increased by 12% to £77.65m in the period.

We have made clear our intentions in respect of a progressive dividend policy and this will be continued, with the interim payment increasing by 33% to 1.00p per share. This will be paid on 4th January 2005 to all those shareholders on the register at 10th December 2004.

The trading performance of both businesses has been strong particularly taking into account the many issues encountered. However, the most important sales period is now in front of us and this as always will determine the outcome for the full year.

Department Stores Division

Joplings

In July, as a result of a review of Group activity and against a backdrop of increasing competition, changing demographics and a significant offer for Tynedale Park, we announced our withdrawal from department store trading on the UK mainland. Terms were agreed for the sale of Tynedale Park to Tesco for the sum of £17m, a figure significantly above its book value and a sale that the Board believes was in the best interests of shareholders. Completion of this sale will take place by the year end.

The sale of the Leamington store followed at £4.6m to property development interests, again a price significantly in excess of book value. Discussions are progressing for the sale of
the remaining Joplings business on a “going concern” basis that will then complete the withdrawal from the North East Department Stores.

However, it should be cautioned that the more significant costs of exit relate to the sale of the remaining business and whilst we have every confidence that the final outcome will provide
a recovery of the full book values within Joplings, it would be inappropriate to draw any conclusions further than that. An announcement in respect of the final sale will be made in
due course.

During this period of great uncertainty the Joplings people have performed magnificently. They have been positive, co-operative, and after the initial shock of the announcement of the Group's decision, optimistic to make the most of their futures. Although many people have already lost their jobs at Leamington, and more will do so when Tynedale closes, every effort will be made to secure a sale that will allow the two remaining stores to continue trading and thereby protect those employees and their jobs. We are indebted to the entire Joplings team for their commitment and understanding. The Board wishes to express its sorrow for the anguish and insecurities that have resulted.

It is a great testament to these people that in the light of all of the above Joplings’ sales during the period have seen a like for like increase of 4% moving sales to £27.21m and at the same time profit has improved against last year to £1.5m. These results have been influenced
by the success of the Leamington closure and
a number of one-off sales initiatives only possible as a consequence of the decision to exit this business.

De Gruchy

Trading conditions in Jersey have remained challenging restricting the sales to an increase of 1% and profit to £0.8m. Sales during the period produced a clear contrast with strong results achieved from the refurbished Fashion areas being offset by a disappointing Household contribution. Our plans remain in place for the continuation of the Department Store refurbishment programme on a
phased basis.

The Perfume Shop (TPS)

As announced at the full year, and as a necessary measure to ensure the future efficiency and quality of our information and systems, we introduced both a new stock, order and warehouse management system and a new electronic point of sale (EPOS) system. The introduction of Island Pacific, the stock, order and warehouse system, although not without its problems, has been completed.

However, introducing 111 stores and their teams to a new and quite different EPOS system was always going to be challenging and for that reason we took the decision to purchase a tried and tested option from a market leading provider. The implementation programme is now complete and our attention is focussed upon addressing the initial problems that have unsurprisingly accompanied a demanding installation. The immediate requirement is to secure a fully robust system and operating performance that will support the important Christmas trading period. We will then look forward to the additional operating efficiencies and opportunities this investment will provide in the New Year.

Although systems have clearly been the focus for TPS this has not stopped progress in other directions. New stores have opened during the course of the year at Stirling, Lisburn (NI), Antrim (NI), Lewisham, Nottingham, Bradford, Inverness, and Limerick (Eire). There are five further openings scheduled before Christmas and this will take the number of trading units at the end of the calendar year to 111.

Our plans have advanced for an entry into Australia for TPS and we fully expect to report upon the first store openings with the Group's full year results.

In a very busy half, we achieved an increase in sales of 19% from £34.69m to £41.33m, a like for like growth of 7%, and a profit of £2.3m, down only 9%, in line with the internal expectations and a reflection of the planned increase in infrastructure during the first half to support expansion plans. This performance underlines the excellence and effort of everyone at TPS.

Summary

This has been the most challenging of starts to the year and there still remains much to be achieved. The shape and trading focus of the Group will have changed significantly by this time a year hence. Change can rarely be achieved without cost but the actions taken are firmly in the long term interests of the business.

We cannot report at this stage the full impact of the Department Store exit on both cash generated and the P & L effect, which will only be known once the final outcome is achieved. In the immediate term the loss of profit from the Joplings business, from firstly a curtailed trading period and thereafter from its exclusion altogether, will be dilutive. However, this will be progressively offset by the benefits that will flow from cash received, lower borrowings, and the focus of the Management Team and its resources on the re-shaped business and identified opportunities for further growth.

Finally, it goes without saying that the outcome of the full year is heavily dependent upon a successful Christmas trading period and this applies more so this year than ever. We have prepared thoroughly for this important period and with the experience of a number of Christmas “pasts” expect yet again that the marvellous people in our business will not be found wanting.

A Christmas trading statement will be issued on Wednesday 19 January 2005.

Brian O'Callaghan Chairman
Philip Newton Chief Executive
22 november 2004

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