We are pleased with the overall performance of the group in the first-half of the year. Revenue for the period was strongly ahead, up by 6.5% on a like-for-like basis (up 11.3% on a reported basis). Pre-tax profit* was £1.9m, lower than the prior year result of £3.4m, reflecting an increase in profits from Express Gifts and market conditions for Findel Education remaining challenging.
The performance during the peak trading periods for each business has been very encouraging and underpins our confidence in the group's ability to deliver full-year results in line with expectations.
Express Gifts is our core online value retail business. With over 1.5m customers, it is one of the largest direct mail order businesses in the UK, offering a broad range of home and leisure items, clothing, toys and gifts via catalogue and online, together with a leading personalisation offer. In order to build upon Express Gifts' market leading position, the business has been successfully focusing on accelerating sales growth and growing its customer base through a number of strategic initiatives.
At the start of the calendar year, the business set out with the aim of recruiting 100,000 additional customers for the year by focusing its core value proposition. Much of the additional recruitment activity has been based around new TV and digital campaigns that highlight particularly good-value products and direct customers towards the www.studio.co.uk website. We are therefore very pleased to report that the recruitment objective has already been passed, and that retention levels from existing customers have also increased throughout the year.
This investment together with the ongoing improvements in our online offering has generated product revenue growth in H1 on a like-for-like basis of 12.0% (reported basis: 18.7%), a rate which has been sustained as the business has moved into its peak trading period ahead of Christmas.
Financial services revenues increased by 11.3% on a like-for like basis (reported basis: 17.9%) in the first-half of the year, driven by the growth in balances resulting from increased product sales and the roll-out of risk-based pricing. The higher level of customer recruitment seen during the early months of the year, together with refinements to the management of the credit book and changes to the timing and extent of debt sales, has increased bad debt charges compared to the first half of last year. The project to introduce a new financial services operating platform is ongoing and is expected to be completed next summer, ahead of the peak trading season.
Placing the customer at the heart of the business is key to its long-term success. Therefore, in addition to a series of new features on the websites that were launched at the start of the year, we have established our own call centre operation in the Philippines to ensure that the business has sufficient capacity to manage customer enquiries throughout the peak trading season. This facility, which was opened at the start of the year, is operating well and is contributing to a significant reduction in lost sales compared to previous years.
A significant level of work has been undertaken over the last two years to improve the governance and effectiveness of controls and risk management in the business. We were therefore very pleased to receive confirmation from the FCA that our application for full consumer credit authorisation was approved in October.
Overall, the business produced an operating profit* for H1 of £5.3m, 7.2% ahead of the prior year, and is well positioned for the remainder of the year.
With the response to our investment activity exceeding our expectations, we have decided to increase the investment in both customer recruitment and customer-facing systems throughout the remainder of this year and next to support further sustainable sales growth.
Looking ahead to FY2018, sales growth, together with initiatives on pricing, sourcing, and efficiencies, will help to mitigate against adverse currency movements.
Findel Education, one of the leading suppliers of resources/equipment to schools in the UK and overseas, has performed well in the first-half of the year increasing its market share in a very challenging market.
The focus for the business over the last 18 months has been to arrest the decline in market share and return the business to market share growth. This objective has been achieved for our Classroom and Specialist brands with both recording sales increases in the second quarter, which is the business' peak period. The more commodity based School brands are still recording declining sales and further actions are underway to help these brands return to market share growth.
Whilst overall first-half revenue declined year-on-year, the rate of decline narrowed as the period progressed. Overall, adjusting for the revised timing of sales under the Sainsbury's Active Kids contract most of which will now occur in Q3 and the additional week, total revenues in the first-half are down by 5.4% (on a reported basis down by 4.2%) with revenues in the second quarter down by c.3%.
The operating profit* for H1 was £2.1m lower than prior year at £1.6m. Around half of this decline is attributable to the reduction in revenue and the timing of Sainsbury's revenues with the balance reflecting the investments that we are making in repositioning the business.
The warehouse consolidation project has now been successfully completed and is performing to plan. It will provide a significant uplift to the profitability of the division for FY2018 and beyond. Expectations for the division for the current year remain unchanged.