Shop Direct, the group behind catalogue retailer Littlewoods and very.co.uk, in line to post £50m profits after an accounting switch to IFRS standards mean it would no longer be hit by amortization charges

January 26, 2014 11:18 pm

Shop Direct in line to post £50m profits

By Duncan Robinson

Shop Direct, the group behind catalogue retailer Littlewoods and very.co.uk, is set to make a pre-tax profit of nearly £50m this year putting the retailer in the same league as fast-growing rival Asos.

The retailer, which is owned by the Barclay family, posted pre-tax profits of £6.6m –its first in a decade – for the year to June 30.

But rapid growth from brands such as Very and Isme, where revenues jumped by a fifth last year, could push operating profits at the group to between £25m and £30m next year.

An accounting switch to IFRS standards would mean that Shop Direct would no longer be hit by amortisation charges of about £20m related to the group’s buyout of the catalogue division of former FTSE 100 retailer GUS in 2003. This would feed through to the group’s bottom line, pushing it to nearly £50m, if the company goes ahead with the switch, estimate analysts.

Such a performance would put Shop Direct on a par with rivals such as Asos, which had pre-tax profits of £55m last year off revenues of £770m, and top off a remarkable 10-year turnround at the group.

The potential jump in profits comes after a decade of losses at Shop Direct, as the business shifted from its core catalogue business to an online model. The business lost nearly £60m in 2012 alone.

Now about 85 per cent of transactions from the group are online, with 36 per centtaking place on mobile devices

. Alex Baldock, chief executive, predicted that “every transaction” will involve a mobile device at some point from next year.

“We have been taken by surprise at how fast this is growing,” said Mr Baldock.

The group derives just over half its £1.7bn revenues from its “heritage” businesses, which include Littlewoods, where sales are declining by about 5 per cent per year. The remainder of the business comes from newer brands, such as Very and Isme, which should account for the majority of revenues from 2016.

Yodel, the Barclay family’s sometimes maligned delivery service, is also set to become profitable in the next year or so. Yodel has had a rough life since it was spun out of Shop Direct, with heavy losses and regularly hitting the headlines due to tales of poor customer service. Losses halved from £125m before tax in 2011 to just under £60m in 2012 and the delivery group made a profit over the busy Christmas period.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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