pumpkin patch interim report january 2012

pumpkin patch interim report january 2012

the family is the country of the heart G Mazzini Pumpkin Patch Interim Report, January 2012 PAGE 1 Pumpkin Patch Interim Report, January 2012 PAGE 2

chief executive officer s report Over the last 6 months we continued to face challenging retail conditions across most of our markets and this is reflected in the result for the first half of the year. However I am very pleased at the progress we have made reorganising the business, taking steps to refocus the business on its core strengths, and putting in place strategies that will deliver better financial results for our shareholders. Internally we are starting to see the benefits of the changes we have made and I am confident these will be reflected in the financial results going forward. Despite the challenging environment our core business units delivered a pleasing 17% increase in sales, driven by a solid 12% increase in Australasian retail sales, a 32% increase in wholesale/franchise sales, and a very strong increase in online sales of over 50%. While gross margins were impacted by increased promotional activity and higher product costs, mostly cotton, I am very pleased with our ability to generate sales and grow market share in these challenging times. One notable highlight from the first half has been the significant increase in our online sales across the five international online markets we operate. The online operation is set to become a large part of our business in the future with online earnings expected to exceed those from our New Zealand retail operation in the next couple of years. Pumpkin Patch started out as a catalogue business 22 years ago so the concept of taking and fulfilling orders remotely is in our DNA. The merging of the traditional retail and online models is only just beginning, however the investment we have made in technology and support systems over the years has allowed us to remain well ahead of the average retailer in this area. The wholesale/franchise business is also growing strongly. We are starting to see increased orders coming from existing markets and a number of new relationships coming on stream including the recently announced Charlie & Me franchise in the Middle East and the new Pumpkin Patch relationship in Mexico. The wholesale/ franchise business is very important to us. Not only does it generate high margin earnings it leverages off our existing design, supply chain, and other support functions so we won t need to invest large amounts of capital going forward, leading to a higher return on investment. The model also allows us to enter international markets that we could not do on our own. The merging of the traditional retail and online models is only just beginning, however the investment we have made in technology and support systems over the years has allowed us to remain well ahead of the average retailer in this area. The combination of our strong Australasian retail business, the rapidly growing international online operation, and our wholesale/franchise operation makes us a true multi-channel international company and gives us a suite of market entry strategies we Chief Executive Officer s Report Pumpkin Patch Interim Report, January 2012 PAGE 3 Pumpkin Patch Interim Report, January 2012 PAGE 4

can apply to any number of international markets. With the separate Pumpkin Patch and Charlie & Me brands and the multi-channel capability we have at our disposal we can follow multi-brand/multi-channel strategies in different markets around the world. This gives us a lot of flexibility to work with international partners to deliver the solutions that work best in their markets. In recent months we have also been directing a lot of effort at taking costs out of the business to ensure the cost base appropriately reflects the current environment and stays that way as we grow into the future. By working with landlords we have obtained significant rent reductions when leases have been due for renewal. We have also taken around $3.5m or 16% out of the costs of operating our head office and logistics functions. Considerable attention is being given to product and supply chain costs as these are our single biggest cost category. With planned improvements in our procurement processes and lower cotton prices we are starting to see a reduction in product costs which will help gross margins later this year and into FY13. The decisions we made around the closure of the United States and United Kingdom retail operations were necessary. Given the uncertain economic situation in those markets both business units faced the prospect of making substantial losses for a number of years to come which was clearly not acceptable to us or to you, our shareholders. We still see good longer term potential for the brands in the United States and United Kingdom. We still have very strong wholesale/franchise relationships in both markets and our online operations are growing strongly. During the closure process we identified a number of alternative wholesale/franchise and online opportunities for both brands in those markets and we will be exploring those in the near term. As a result of the closures we fully recognised all the expected closure costs of those business units in the first half period. While those costs pushed the Group into a loss position for the period the removal of the losses from the United States and United Kingdom operations will significantly improve overall results going forward. Not having those two businesses means we can focus on our core operations and put more effort into the parts of the business that offer substantially more potential for us. We have put a lot of work into improving our inventory and working capital management processes and have been very disciplined with decisions around capital expenditure and other major spend items. Combine this with better trading performances going forward we expect bank debt to be less than $50m at year end and follow a downward trend next year. Based on this and the progress we are making with the initiatives we are implementing, the Directors will be reviewing the possibility of resuming dividend payments at year end. While we expect the rest of the financial year to remain challenging we are making the hard decisions that shareholders expect of us and implementing strategies that will deliver much better financial results going forward. We remain the leading childrenswear brand across Australasia and are determined to hold that position. The strategies we are implementing in international markets and online and the results we are starting to see from both business units gives us confidence that the international growth opportunities for our brands are substantial and that our shareholders will benefit from this. I would like to thank all our shareholders who have continued to support us over the challenging last few years. The business is in a period of change and I look forward to reporting back to you at year end to update you on the progress we have made. Neil Cowie Chief Executive Officer We remain the leading childrenswear brand across Australasia and are determined to hold that position. Chief Executive Officer s Report Chief Executive Officer s Report Pumpkin Patch Interim Report, January 2012 PAGE 5 Pumpkin Patch Interim Report, January 2012 PAGE 6

Unaudited Consolidated Income Statements $000 $000 Sales revenue 161,144 137,236 Cost of goods sold (72,238) (52,652) Gross profit 88,906 84,584 Other operating income 551 142 Expenses Selling expenses (66,988) (62,979) Finance expense (2,249) (1,832) Administrative and general expenses (11,818) (7,399) Profit from continuing operations before income tax 8,402 12,516 Income tax expense (2,559) (3,931) Net profit from continuing operations 5,843 8,585 (Loss) from discontinued operations (net of tax) (35,826) (527) (Loss)/profit for the period (29,983) 8,058 Earnings per share for (loss)/profit attributable to shareholders: Cents Cents Basic earnings per share (17.84) 4.82 Diluted earnings per share (17.84) 4.77 Attributable to continuing operations: Basic earnings per share 3.48 5.14 Diluted earnings per share 3.48 5.08 Pumpkin patch limited & subsidiaries unaudited consolidated financial statements Attributable to discontinued operations: Basic earnings per share (21.32) (0.32) Diluted earnings per share (21.32) (0.31) Jane Freeman Chairperson 14 March 2012 David Jackson Director 14 March 2012 For the half year ended 31st January 2012 UNAUDITED CONSOLIDATED Financial STATEMENTS Pumpkin Patch Interim Report, January 2012 PAGE 7 Pumpkin Patch Interim Report, January 2012 PAGE 8

Unaudited Consolidated Statements of Comprehensive Income Unaudited Consolidated Statements of Changes in Equity Share capital Treasury Stock Reserves Retained earnings Total equity $000 $000 (Loss)/profit for the period (29,983) 8,058 Other comprehensive income Exchange differences on translation of foreign operations 1,357 (2,564) Net fair value movement on cash flow hedges 23,869 (19,723) Release of gains made on foreign currency portfolio restructure - (7,726) Income tax relating to components of other comprehensive income (6,683) 8,235 18,543 (21,778) Total comprehensive income attributable to shareholders (11,440) (13,720) $000 $000 $000 $000 $000 Balance as at 1 August 2010 58,431 (33) (1,544) 24,013 80,867 Profit for the period - - - 8,058 8,058 Other comprehensive income - - (21,778) - (21,778) Total comprehensive income - - (21,778) 8,058 (13,720) - Shares issued 211 - - - 211 Movements in reserves - - 52-52 Movement in treasury stock - (113) - - (113) Dividends paid - - - (8,373) (8,373) Balance as at 58,642 (146) (23,270) 23,698 58,924 (Loss) for the period - - - (9,934) (9,934) Other comprehensive income - - (12,388) - (12,388) Total comprehensive income - - (12,388) (9,934) (22,322) Shares issued 192 - - - 192 Movements in reserves - - 509-509 Movement in treasury stock - (28) - - (28) Dividends paid - - - (4,824) (4,824) Balance as at 31 July 2011 58,834 (174) (35,149) 8,940 32,451 (Loss) for the period - - - (29,983) (29,983) Other comprehensive income - - 18,543-18,543 Total comprehensive income - - 18,543 (29,983) (11,440) Shares issued 315 - - - 315 Movements in reserves - - 5,414-5,414 Movement in treasury stock - (125) - - (125) Dividends paid - - - - - Balance as at 59,149 (299) (11,192) (21,043) 26,615 As at there were 168,286,408 ordinary shares on issue (: 167,636,408). All ordinary shares are fully paid and rank equally with one vote attaching to each share. UNAUDITED CONSOLIDATED Financial STATEMENTS UNAUDITED CONSOLIDATED Financial STATEMENTS Pumpkin Patch Interim Report, January 2012 PAGE 9 Pumpkin Patch Interim Report, January 2012 PAGE 10

Unaudited Consolidated Balance Sheets As at As at As at 31 July 2011 $000 $000 $000 Equity Share capital 58,850 58,496 58,660 Hedging reserve cash flow hedges (16,441) (26,448) (33,627) Share based payments reserve 6,519 5,882 6,391 Foreign currency translation reserve (1,270) (3,652) (7,913) Foreign currency portfolio restructure reserve - 948 - Retained earnings (21,043) 23,698 8,940 Total equity 26,615 58,924 32,451 Assets Cash and cash equivalents 3,255 3,910 10,030 Trade and other receivables 15,497 13,176 18,196 Derivative financial instruments 497 3,310 1,747 Inventories 63,430 92,266 84,375 Current tax receivable 4,637 1,133 4,882 Total current assets 87,316 113,795 119,230 Property, plant and equipment 47,987 57,960 54,133 Intangible assets 9,477 10,004 9,452 Trade and other receivables - 4 4 Derivative financial instruments - - 4,224 Deferred tax assets 11,905 16,893 17,964 Total non current assets 69,369 84,861 85,777 Total assets 156,685 198,656 205,007 Liabilities Trade and other payables 19,894 21,004 34,466 Interest bearing liabilities 45,000 20,000 20,000 Provisions 3,035-2,114 Derivative financial instruments 23,208 25,302 34,117 Deferred landlord contributions 1,243 2,345 2,365 Total current liabilities 92,380 68,651 93,062 Interest bearing liabilities 25,000 50,000 51,000 Provisions - - 789 Derivative financial instruments 9,935 15,784 21,859 Deferred landlord contributions 2,755 5,297 5,846 Total non current liabilities 37,690 71,081 79,494 Total liabilities 130,070 139,732 172,556 Net assets 26,615 58,924 32,451 with every litt le step, we g r ow UNAUDITED CONSOLIDATED Financial STATEMENTS Pumpkin Patch Interim Report, January 2012 PAGE 11 Pumpkin Patch Interim Report, January 2012 PAGE 12

Unaudited Consolidated Statements of Cash Flows Unaudited Consolidated Statement of Cash Flows $000 $000 Cash flows from operating activities Cash was provided from: Receipts from customers 189,824 181,515 Interest received 389 11 Other income 232 131 Cash was applied to: Payments to suppliers and employees (189,262) (192,039) Interest paid (2,249) (1,832) Income tax paid (1,068) (5,273) Net sales tax paid (40) (2,095) Net cash flow from operating activities (2,174) (19,582) Cash flows from investing activities Cash was applied to: Purchase of property, plant and equipment (1,727) (8,854) Purchase of intangibles (1,874) (3,226) Net cash flow from investing activities (3,601) (12,080) Reconciliation of profit after income tax $000 $000 to net cash inflow from operating activities (Loss)/Profit after tax for the period (29,983) 8,058 Add/(deduct) non cash items: Depreciation 3,847 3,991 Amortisation of intangibles 1,849 1,657 Amortisation of share option cost 128 52 Revaluation of derivative financial instruments 6,510 (11) Fit-out contributions amortised (1,134) (1,167) Non-cash reorganisation costs 24,835 - Foreign exchange restructure amortisation - (5,408) Add/(deduct) movements in working capital items: (Increase)/decrease in receivables and prepayments (1,993) 7,897 (Increase)/decrease in deferred tax (624) (1,817) (Increase)/decrease in inventories 8,334 (23,474) Increase/(decrease) in payables and provisions (13,943) (9,360) Cash flows from financing activities Cash was provided from: (Repayment)/proceeds of borrowings (1,000) 37,000 Cash was applied to: Dividends paid - (8,373) Net cash flow from financing activities (1,000) 28,627 Net cash flows from operating activities (2,174) (19,582) Net (decrease) in cash and cash equivalents (6,775) (3,035) Cash and cash equivalents at the beginning of the period 10,030 6,945 Cash and cash equivalents at the end of the period 3,255 3,910 UNAUDITED CONSOLIDATED financial STATEMENTS UNAUDITED CONSOLIDATED financial STATEMENTS Pumpkin Patch Interim Report, January 2012 PAGE 13 Pumpkin Patch Interim Report, January 2012 PAGE 14

PUmpkin Patch limited & Subsidiaries notes to & forming part of the financial statements For the half year ended 31 st January 2012 Pumpkin Patch Interim Report, January 2012 PAGE 15 Pumpkin Patch Interim Report, January 2012 PAGE 16

1. General Information Pumpkin Patch Limited (the Company or Parent ) together with its subsidiaries (the Group ) is a leading designer, marketer, retailer and wholesaler of children s clothing. The Company is a limited liability company, incorporated and domiciled in New Zealand. The Company is registered under the Companies Act 1993, and is an issuer in terms of the Securities Act 1978 and the Financial Reporting Act 1993. The Group is designated as a profit oriented entity for financial reporting purposes. 2. Summary of Signficant Accounting Policies These condensed consolidated interim financial statements for the six months ending have been prepared in accordance with NZ IAS34, Interim Financial Reporting. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 July 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRS). The reporting currency used in the preparation of these consolidated financial statements is New Zealand dollars, rounded where necessary to the nearest thousand dollars. Changes in accounting policies Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 July 2011, as described in those annual financial statements. 3. Reorganisation of Group Operations (a) Reorganisation of United States operations On 15th June 2011 the Company announced the intention to close the remaining 20 retail stores operated by the wholly owned United States registered subsidiary company, Pumpkin Patch LLC. In 2009 the Group renegotiated all of its United States leases down to levels that reflected market rents at the time. As these leases approached their expiry dates, the Group held discussions with landlords to extend lease periods. While lease extensions were available, the proposed lease terms were deemed to make the United States operation unsustainable. As a result of this, the Group implemented a managed store closure program which resulted in the closure of all 20 stores. The last store ceased trading on 21st January 2012. Financial information relating to the discontinued operation is set out in section (c) below. (b) Abandonment of United Kingdom subsidiary On 19th January 2012, following the completion of an extensive review of trading operations and longer term market strategies, the United Kingdom subsidiary was placed into administration. As a result of this, the Pumpkin Patch Limited (UK) assets and operations were no longer controlled by the Pumpkin Patch Group from 19th January 2012. The trading results of the United Kingdom trading operations up to the 18th January have been included in the financial statements of the Pumpkin Patch Group as a discontinued operation. The net assets held by Pumpkin Patch Limited (UK) have been written off and recognised as a non-recurring cost to the Pumpkin Patch Group. Financial information relating to the discontinued operation is set out in section (c) below. A summary of the non-recurring costs associated with the abandonment of the United Kingdom subsidiary can be seen in section (d) below. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings. To ensure consistency with the current period, comparative figures have been reclassified where appropriate. Pumpkin Patch Interim Report, January 2012 PAGE 17 Pumpkin Patch Interim Report, January 2012 PAGE 18

3. Reorganisation of Group Operations (cont d) (c) Summary of discontinued operations United States United Kingdom Total Discontinued Operations $000 $000 $000 Unaudited 6 months ended Total Revenue 8,872 21,320 30,192 (Loss) from discontinued (2,108) (2,198) (4,306) trading operations Non-recurring (costs)/credit 2,562 (36,749) (34,187) relating to discontinued operations Income tax credit relating to 657 2,010 2,667 discontinued operations Profit/(loss) from 1,111 (36,937) (35,826) discontinued operations Operating cashflows from discontinued operations (2,682) (2,780) (5,462) Unaudited 6 months ended Total Revenue 10,820 25,811 36,631 (Loss) from discontinued (505) (249) (754) trading operations Income tax credit relating to 151 76 227 discontinued operations (Loss) from (354) (173) (527) discontinued operations Operating cashflows from discontinued operations (505) (136) (641) (d) Summary of non-recurring (costs)/credits Half Year Ended Half Year Ended $000 $000 United States Reorganisation (costs)/credits Asset write off costs (2,324) - Net gains on financial assets or liabilities designated as fair value 719 - through profit and loss relating to United States operations Gain on realisation of Foreign Currency Translation Reserve 4,634 - Other costs (467) - 2,562 - United Kingdom Abandonment (costs)/credits Asset write off costs (14,002) - Redundancy costs (691) - Net losses on financial assets or liabilities designated as fair value (10,312) - through profit and loss relating to United Kingdom operations Loss on realisation of Foreign Currency Translation Reserve (9,920) - Other costs (1,824) - (36,749) - (34,187) - Pumpkin Patch Interim Report, January 2012 PAGE 19 Pumpkin Patch Interim Report, January 2012 PAGE 20

4. Segment Information The Group has five reportable segments that are defined by geographical area and the nature of the distribution channel to external customers. The following is an analysis of the Group s revenue and results from continuing operations by operating segment. Revenue reported below represents revenue generated from external customers. There were no intersegment sales in the period (HY2011:nil). Segment result represents the profit earned by each segment without allocation of central administration costs, finance costs and income tax expense. Australia Unaudited 6 months ended Total Revenue New Zealand United Kingdom United States Wholesale & Online Head Office Group $000 $000 $000 $000 $000 $000 $000 Continuing activities 98,382 28,803 - - 33,959-161,144 Discontinued activities - - 21,320 8,872 - - 30,192 Segment result before non-recurring costs Continuing activities 12,955 4,031 - - 6,661 (12,996) 10,651 Discontinued activities - - (2,198) (2,108) - - (4,306) Non-recurring costs Discontinued activities - - (36,749) 2,562 - - (34,187) Interest costs Continuing activities - - - - - (2,249) (2,249) Segment result before tax Continuing activities 12,955 4,031 - - 6,661 (15,245) 8,402 Discontinued activities - - (38,947) 454 - - (38,493) Australia New Zealand United Kingdom United States Wholesale & Online Head Office $000 $000 $000 $000 $000 $000 $000 Unaudited 6 months ended Total Revenue Continuing activities 86,372 27,031 - - 23,833-137,236 Discontinued activities - - 25,811 10,820 - - 36,631 Segment result Continuing activities 14,871 4,696 - - 5,608 (10,827) 14,348 Discontinued activities - - (249) (505) - - (754) Interest costs Continuing activities - - - - - (1,832) (1,832) Segment result before tax Continuing activities 14,871 4,696 - - 5,608 (12,659) 12,516 Discontinued activities - - (249) (505) - - (754) Total Segment assets Continuing activities 71,561 24,041 - - 28,432 43,903 167,937 Discontinued activities - - 25,855 4,864 - - 30,719 71,561 24,041 25,855 4,864 28,432 43,903 198,656 Group Total Segment assets Continuing activities 60,519 21,306 - - 32,092 42,768 156,685 As a result of a Group strategic review following the administration of the United Kingdom subsidiary, the Ireland retail operations are now being managed as an integral part of the Group s European wholesale operations. As such the results of the Ireland retail operations (representing only three stores) have been included within the Wholesale & Online operating segment. The comparative segment note for January 2011 has been restated to reflect this change. Pumpkin Patch Interim Report, January 2012 PAGE 21 Pumpkin Patch Interim Report, January 2012 PAGE 22

5. Expenses Profit from continuing operations before non-recurring items and income tax includes the following: $000 $000 7. PROPERTY, PLANT AND EQUIPMENT Acquisitions and disposals During the six months ended, the Group acquired assets with a total cost of $1.7 million (HY2011: $8.9 million). Property, Plant and Equipment with a Net Book Value of $4.0 million was abandoned by the Group as a result of the United Kingdom subsidiary being placed into administration on 18th January 2012. No other assets were disposed of during the six months ended (HY2011: $nil). Interest income 389 11 Interest expense (2,249) (1,832) Depreciation (3,573) (3,307) Amortisation of intangible assets (1,849) (1,657) Employee benefit expenses (31,277) (32,798) Rental and operating lease expenses (25,209) (23,678) Loss from discontinued operations includes the following: Depreciation (274) (685) Employee benefit expenses (6,167) (8,425) Rental and operating lease expenses (5,629) (8,924) 6. INTEREST BEARING LIABILITIES Bank facility The bank loans are provided under the terms of an ANZ National Bank Limited Revolving Advances Facility Agreement dated 24 June 2009. The total bank facility of $100 million (: $100 million) outlined in this agreement is split into three different tranches. The first tranche, up to $25 million, will expire on 31 July 2012, while the second tranche, a further $25 million, will expire on 31 December 2012 and the third tranche, a further $50 million, will expire on 31 December 2013. These borrowings have been aged in accordance with the repayment terms of the facilities. As at, the Group had $25 million of unused lines of credit (: $25 million). Fair value The fair value of interest bearing liabilities approximates their carrying value. 8. RELATED PARTY TRANSACTIONS During the period the Company advanced and repaid loans to its subsidiaries by way of internal current accounts. In presenting the condensed interim financial statements of the Group, the effect of transactions and balances between fellow subsidiaries and those with the Parent have been eliminated. All transactions with related parties were in the normal course of business, provided on commercial terms and are repayable on demand. Other transactions In addition, the Group undertook transactions with Directors and their related interests as detailed below: The Group made a payment of $693,000 to Maurice Prendergast to extinguish all employment contract obligations following his ceasing to be Chief Executive Officer in December 2011. All rights to Share Options, Partly Paid Shares and Long Term Incentive shares previously held by Maurice Prendergast have been forfeited. The Group has made purchases of shop fixtures and fittings from Espies NZ Limited during the year of $584,853 (HY2011: $3,983,842). Espies NZ Limited is 59.6% (HY2011: 59.6%) beneficially owned by Kezza Family Trust, a shareholder of Pumpkin Patch Limited. Kezza Family Trust is associated with Maurice Prendergast, a Director in Pumpkin Patch Limited. All transactions with Espies NZ Limited are reviewed and approved by the Property Committee, which consists of the Chief Executive Officer, the Chief Financial Officer and the General Manager Property, to ensure the transactions are appropriate. Director fees & dividends The following Directors received directors fees and dividends in relation to their personally held shares as detailed below: Directors fees Dividends Directors fees Dividends $000 $000 $000 $000 Executive Directors - - - 582 Non Executive Directors 171-231 551 Pumpkin Patch Interim Report, January 2012 PAGE 23 Pumpkin Patch Interim Report, January 2012 PAGE 24

9. COMMITMENTS directory a. Capital expenditure commitments The Group has commitments for future capital expenditure not provided for in the condensed consolidated financial information as at of $1.4 million (: $1.4 million). b. Operating lease commitments Obligations payable after balance date on non-cancellable operating leases as follows: Directors Jane Freeman Chairperson & Independent Director Brent Impey Independent Director David Jackson Independent Director Maurice Prendergast Non-Executive Director Sally Synnott Non-Executive Director Media & Investor Relations Contacts Neil Cowie Chief Executive Officer Matthew Washington Chief Financial Officer Half Year Ended Half Year Ended $000 $000 Total non-cancellable operating leases for the Group 10. CONTINGENCIES 156,125 212,946 As at the Parent entity and Group had no contingent liabilities or assets. (: $nil) Registered Office 439 East Tamaki Road Auckland, New Zealand Contact Details Private Bag 94 310 Pakuranga Auckland, New Zealand Phone: +64 9 274 7088 Facsimile: +64 9 274 1122 www.pumpkinpatchkids.co.nz Investor Relations E-mail: investor@pumpkinpatch.co.nz Website: www.pumpkinpatch.biz Share Registrar Link Market Services Limited PO Box 384 Ashburton, New Zealand Phone: +64 3 308 8887 Facsimile: +64 3 308 1311 Solicitors Simpson Grierson Private Bag 92 518 Wellesley Street Auckland New Zealand Auditors PricewaterhouseCoopers Private Bag 92 162 Auckland New Zealand 11. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE As at 14 March 2012, there have been no significant events subsequent to. Pumpkin Patch Interim Report, January 2012 PAGE 25 Pumpkin Patch Interim Report, January 2012 PAGE 26

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