Interim Report

Business Review

This has been another strong first half for the Group with profits before tax of £3,160,000 an increase of 25 % compared to last year’s £2,520,000. The results for the half year will continue to encourage confidence that we are on the right course for yet another year of significant growth. Sales including VAT increased from last year’s £64.03m to £69.43m this year.

We have made clear our intentions to continue a progressive dividend policy and will be increasing the interim payment by 50% to 0.75p. This will be paid on 2 January 2004 to those shareholders on the register at 5 December 2003.

The trading performance of our two divisions, The Perfume Shop and the Department Stores, has remained very much as it was when we last reported in June. TPS has continued its excellent progress, but Joplings and De Gruchy have found the going much tougher.

The Perfume Shop (TPS)

Following another outstanding performance again last year, the business has continued to maintain a pace that has shown no sign of slacking. Sales during the first six months have increased by 25% to £34.69m and the barometer by which the management team judge the real progress being made, Like for Like sales growth, has been at a level of 13%. A considerable achievement.

A profit of £2,504,000 is an advance of 75% against last year’s comparable numbers of £1,427,000.

This is clearly an excellent performance and one that will stand comparison against any retail competitor. TPS is now an established part of the High Street and is able to capitalise on the solid foundations developed throughout the entire business to ensure delivery of the best standards of service for the most important people to TPS... our customers.

Much of the sales growth is attributable to the development of our people and the knowledge they are able to give to the TPS customer in a friendly and unbiased manner. We cannot over emphasize the importance that training has within TPS; our budget for this area of the business is significant and is an investment well made. We believe our customer trusts us to provide them with premium brands in an environment and at a value where they are happy to shop. We are determined to continue fulfilling these expectations.

During the course of the year we have developed and strengthened our supply arrangements. We are pleased that, after discussions taking place over a number of years, a partnership with Clarins has been confirmed for the supply of the Thierry Mugler brand Angel and the complete range of these products is now fully available to our customers.

By Christmas we will be trading from 97 stores, having opened new shops at Birmingham Bullring, Harlow, Bootle, Livingston, Craigavon (NI), Bangor (NI), Street, Oxford, Clydebank and Wakefield.

We have also opened two stores in Dublin and these are the first of a number of outlets we expect to open in the Republic of Ireland.

Further work has been completed with our strategy for an entry in to the Australian retail market with TPS and we are hopeful that there will be firm plans to present when we announce our full year results.

We continue with the development work of the sister company to TPS that will present skincare and colour in a retail format consistent to, and with the same values as, TPS. We are making steady and encouraging progress and it is very much a case of “so far so good”. We are pleased with all that we have learnt and are learning and plan a second trial in the spring of next year.

Department Stores Division (DS)

We are disappointed with the performance of this side of the business, however, as was pointed out earlier this year the majority of our competitors have found themselves in the same boat. Whilst that is no consolation, it is some comfort to know that the reduction in customer spend is not restricted to Joplings or De Gruchy alone.

There are a number of reasons that this has happened. Firstly we have not been helped by the weather and retailers are seen to offer this as an excuse, but it is often a reason why customers sometimes defer or even cancel a purchase altogether. Secondly, Department Store demographics favour the more mature customer for which the much published pension issues must feature high in their considerations, with a subsequent and consequently cautionary approach to their use of disposable income.

Trading times such as these have been experienced by the sector before and it is important to remember that times change and will do so again. It is vital that we continue to develop our stores, people and our offer so that we provide the customer with an attractive reason to return. The Group’s Department Stores are all freehold and whilst the returns currently generated by this part of the business are disappointing to the management team they still deliver a double digit yield upon the assets employed.

Joplings

Sales have declined from £27.01m to £25.76m, a decrease in LFL sales of 5%. Profit has reduced by 25% from £1,226,000 to £924,000.

The transition of Tynedale from a quasi department store to a “destination” retail outlet centre is progressing well. The radical change in offer was always an investment for the medium to long term, and not without short term pain and difficulties, as both our existing and new customers become aware of Tynedale in its new coat! This has not been helped by competitive openings at Dalton Park and North Shields which have provided the customer with more choice, as well as the UK High Street which has been in discount mode all summer. Although sales have declined 7% against strong comparisons last year, on a 2 year basis sales have grown by 10%. Our confidence in the repositioning of Tynedale has not been at all diminished, but in the light of current trading circumstances and the importance of protecting the existing sales base some of our medium term plans for developing Tynedale may have to be delayed.

Robbs of Hexham now has the benefit of a re-organised and modernised selling layout which will assist its second half trade. Whilst Sunderland and Leamington have seen a weakening of sales it is worth making the point that all of the division’s stores produce an appropriate contribution to the investment within them and remain profitable.

De Gruchy

Although Jersey has suffered from a restructuring of the Finance industry with a consequent number of job losses and the Tourist Industry has not yet found its feet again, De Gruchy has fared better than its mainland counterparts. Sales have seen a smaller reduction from £9.17m to £8.98m, a decline of 2%. Profitability has reduced by 28%, from £1,045,000 to £757,000.

This remains a quality and high contributing business, we now have confirmed plans to commence the second phase of the refurbishment of the ground floor of the store. Phase one which was the Fragrance and Cosmetic Hall continues to provide significant like for like sales growth of 44% and this is an encouragement to us for continuing investment. The next phase which will cost £1.5m will include accessories, young fashion and homeware space. It is planned to commence these works soon after Christmas and have the new floor ready for Easter.

The planning approval referred to in last year’s annual report has now been confirmed and considerably enhances the value of this important part of the Group. De Gruchy is a business that has been considerably underinvested in during the past. Our focus since the acquisition of De Gruchy was to repay the not inconsiderable debt incurred to make the purchase. With this now done we can move towards improving, in all respects, the offer made to the customer. As always though, we shall do this on a “brick by brick” approach with appropriate levels of capital spent and its return evaluated.

Summary

It has been an excellent first half with the disappointment of the DS division being more than compensated for by another strong performance at TPS. Despite the difficult trading conditions being experienced by the DS division we remain confident of achieving another year of progress. Whilst Christmas is key to the success of both our businesses we are well prepared for this important trading time and are determined to once again deliver the goods.

A Christmas Trading Statement will be issued on Thursday 15 January 2004.

Brian O'Callaghan Chairman
Philip Newton Chief Executive
24 november 2003

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