TIDMFDL
RNS Number : 1503B
Findel PLC
05 June 2019
5 June 2019
Findel plc ("Findel" or "the Group")
Another year of strong progress and delivery
Results for the 52 weeks ended 29 March 2019
Findel, the online value retail and Education business, today
announces its Full Year Results for the 52-week period ended 29
March 2019.
Financial Highlights
2019 2018 Change
Revenue GBP506.8m GBP479.6m +5.7%
---------- --------- ------
Adjusted operating profit* GBP38.4m GBP33.6m +14.4%
------------------------------------- ---------- --------- ------
Adjusted operating profit margin* 7.6% 7.0% +60bps
------------------------------------- ---------- --------- ------
Adjusted profit before tax* GBP28.8m GBP24.4m +17.7%
------------------------------------- ---------- --------- ------
Profit/(loss) before tax GBP29.4m GBP22.1m +33%
---------- --------- ------
Profit/(loss) for the year GBP23.3m GBP19.6m +18.9%
------------------------------------- ---------- --------- ------
Adjusted free cash flow generation* GBP28.9m GBP15.8m +83%
------------------------------------- ---------- --------- ------
Cash generated from operating
activities GBP22.4m GBP11.4m +95%
------------------------------------- ---------- --------- ------
Core net debt* GBP57.4m GBP73.8m -22%
------------------------------------- ---------- --------- ------
Overall net debt* GBP233.4m GBP232.3m +0.5%
---------- --------- ------
Summary
-- Group revenue up 5.7% to GBP506.8m and adjusted operating profit* up 14.4% to GBP38.4m
-- Group name to be changed to Studio Retail Group plc
-- Studio continues to drive Group performance, producing strong
growth in customer numbers, sales and profits:
-- Product revenue growth of 7.8% driven by a further increase
in the active customer base to 1.9m and higher spend per
customer
-- Focus on value and investment in digital led to online
customer ordering increasing to 75% of product revenue (FY18: 68%)
with 92% of new customers placing their first orders online (FY18:
84%)
-- Improvements to sourcing and focus on retail profitability
helped product margins to widen by 170bp to 32.2% (FY18: 30.5%) and
gross profit from retail increased by 13.8% to GBP98.9m (FY18:
GBP86.9m)
-- Financial services revenue increased by 8.6% to GBP117.5m,
with gross profit from financial services increasing by 1.0%, after
adjustment for transition to IFRS 9 in FY19.
-- Adjusted operating profit margin* for the business increased to 9.3% (FY18 restated: 8.6%)
-- Customer redress programme substantially completed
-- Education's operational turnaround, focused on digital and
value strategies is gaining traction:
-- Online sales up from c.50% to over 66%, with the main Schools
brand seeing over 75% of orders coming online
-- Active customer base up by 8%, driven by investment in
product value for online ordering and increased promotional
activity, resulting in revenue, excluding the discontinued
Sainsbury's scheme, up by 0.8%, despite the investment in value
through lower prices
-- Increased use of Far-East sourcing, combined with increased
sales of Classmates own-brand alternative, led to increased product
margins in H2
-- Individually significant items, totalling GBP4.2m have been
recognised reflecting final reconciliation of redress programme and
past service cost in respect of GMP, offset by reduction in
property provisions; Adjusted profit before tax* up 17.7% to
GBP28.8m
-- Core net debt* down by GBP16.4m to GBP57.4m after strong working capital generation
Phil Maudsley, Group Chief Executive, commented:
"These strong results reflect the clear transformation of the
Group into a digital-first, value led retailer.
"In particular, Studio has prospered in current market
conditions. We have rapidly grown the active customer base to 1.9
million over the last three years, with new customers drawn to the
incredible value we offer, while existing customers are shopping
with us more frequently and across wider ranges.
"Our Education business has also adopted a digital-first
mentality with an objective to save schools time and money to win
back customers and I am delighted with the progress that continues
to be made.
"We look ahead with confidence and ambition, as shown by our
proposed name change to Studio Retail Group. We remain focused on
our customers' needs, and our investment in digital technologies
and delivering on our strategic objectives will underpin profitable
growth over the medium term."
Enquiries
Findel plc
Phil Maudsley, Group CEO
Stuart Caldwell, Group CFO
0161 303 3465
Tulchan Communications
Catherine James
Will Smith
020 7353 4200
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
Chairman's Statement
This has been another successful year. We have made further
progress against our strategic plans, which aim to transform our
two businesses from their legacy of catalogue-oriented operations
into digital-first value retailers. Group revenue growth of 5.7%
translated into adjusted profit before tax* growth of 17.7% and
adjusted free cash flow* growth of 83%, showing the resilience of
our business model in a challenging retail environment.
Proposed change of name
For many years, Studio has been the main customer-facing brand
of our largest business, Express Gifts. We have increased
investment in digital and TV advertising in order to raise the
profile of the Studio brand. The division changed its name from
Express Gifts to Studio at the start of 2019 and has recently
modernised its logo and websites.
We think the time is now right to strengthen Studio's identity
further and so will be proposing that we change the Group's name
from Findel plc to Studio Retail Group plc at the upcoming AGM.
Financial performance
Group revenue increased to GBP506.8m (FY18 restated: GBP479.6m)
driven by a particularly strong trading performance from Studio in
the period leading up to Christmas. Adjusted profit before tax*
increased to GBP28.8m, up by 17.7% on the equivalent pro-forma
result from FY18 of GBP24.4m which adjusts for the two new
accounting standards that we have had to adopt this year. The
statutory profit before tax was GBP29.4m (FY18 restated:
GBP22.1m).
Improved free cash flow generation, notably working capital
efficiencies within Studio, contributed to a reduction in core net
debt* of GBP16.4m to GBP57.4m and cash from operating activities of
GBP22.4m, notwithstanding a planned c.GBP12m outflow in respect of
the legacy customer refund programme. That programme has now been
substantially completed, with a final reconciliation of the
provision included within individually significant items.
Mandatory bid from Sports Direct
Our largest shareholder, Sports Direct, increased their holding
in the Group from 29.9% to 36.8% on 1 March 2019 which triggered a
mandatory bid for the remainder of the Group's shares. As
shareholders are aware, Sports Direct received acceptances of a
further 1.0% during this process and so the bid was unsuccessful
and lapsed on 3 May 2019. Costs totalling GBP0.3m were incurred by
the Group in responding to the bid.
Dividends
The Board continues to prioritise investment in improving
digital capabilities and in strengthening the financial position of
each of the operating subsidiaries' balance sheets and that of the
parent company, which has accumulated losses of GBP99.9m. As such,
the Company does not have plans to reinstate dividend payments at
this stage.
Management and Board
Bill Grimsey, chair of the Remuneration Committee, will be
retiring from the Board after the AGM in July 2019 having served
for just over seven years. His insight into the changing landscape
for retail has been of great value to the Board and we wish him
well for the future. Francois Coumau will replace Bill as chair of
the Renumeration Committee.
Clare Askem joined the Board in March 2019 as a non-executive
director. She is the Managing Director of Habitat and adds
experience of multi-channel retailing, digital marketing and
branding to the Board.
Employees
The last two years have seen a significant amount of transition
and investment within both businesses as we move towards a
digital-first future. This has led to a number of new roles being
created at all levels within the Group. On behalf of the Board, I
would like to thank all our employees for their efforts in
delivering these successful results.
Current trading
The early weeks of our financial year are always relatively
quiet trading periods for our businesses. However, the performance
to date has been in line with our expectations. A fuller update on
trading will be given at our AGM, which will be held at the end of
July.
Outlook
We continue to position Studio in the attractive part of the
retail market, with its digital-first strategy focussed upon
delivering great value to its customers. Our strategy to grow the
Studio customer base and increase our customers' spend with us,
particularly on clothing ranges, supported by our flexible credit
offer, is working and provides the basis for sustainable
medium-term profit growth.
Ian Burke
Chairman
4 June 2019
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
Chief Executive's review
Studio is thriving in current market conditions as it caters for
those customers who truly know the value of the pound in their
pocket. Its transformation from being a small, traditional,
Christmas-oriented catalogue retailer into being a substantial,
digital and value retailer is evident from these results. Its
objective is "to hunt for value so customers don't have to". It has
grown its active customer base to 1.9m rapidly over the last three
years, with new customers drawn by the outstanding value in its
ranges and established customers coming back having been "wowed" by
the quality. Our expansion into clothing ranges helps the frequency
of customer visits to the website, as does the flexible credit
offer that many of our customers choose to use. Studio is in a
digital sweet-spot in the retail market.
Education is also using a digital-first mentality and an
objective to "save schools time and money" to win back customers
and increase our share of their spend. I am delighted with the
progress that it has made over the last two years.
Continuing our strategies for growth
Studio has an ambition to increase its customer base beyond 3
million customers and to see revenue in excess of GBP1bn. Having
seen the successful expansion of other retailers who have disrupted
their markets over the last decade, these levels of ambition are a
vital part of our culture.
The main elements of Studio's strategy for growth are as we
outlined last year. It aims to improve its retail profitability,
maximise its financial services opportunity, whilst building its
growth on strong foundations. It has delivered significant progress
on all three fronts during the last year, notably the 14% increase
in its retail gross profit and the substantial completion of the
legacy financial services refund programme. Investing in the
customer relationship management system, Salesforce, which is
already helping to improve the performance of our customer
experience team, will next allow our marketing activities to become
more efficient and focussed.
We've gradually been reallocating more of our marketing spend
away from catalogues into digital and TV advertising, aiming to
raise the profile of the Studio brand. The recent facelift of the
brand, together with sponsorship of the fashion segment of ITV's
"This Morning" and selectively advertising in peak TV programmes on
top of the traditional daytime slots is helping to boost awareness
of the brand and its value credentials.
Investment in our sourcing process tools has helped to widen our
product margin significantly over the last year. Further investment
in tools to help our buying and merchandising teams make better
deals and set competitive prices will go live over the next two
years to continue that trend. Our team in Asia provide a valuable
link in our supply chain, ensuring that we can find the best
suppliers and help to oversee quality.
The investment in the Financier tool in 2017 gives us the
versatility to offer more tailored repayment options for Studio's
customers. We saw a particularly strong response to our Interest
Saver product that we piloted in the run up to Christmas and have
since started to roll it out. The flexible credit product is
designed to help customers spread the cost of their purchases
without incurring interest. However, we still have to ensure that
lending money to a customer is the responsible thing to do given
their circumstances. We have increased the level of information
captured at the point of application to help that decision. A more
sophisticated application decision engine will be deployed later
this year to improve that process for customers followed by a tool
to personalise the credit journey for each customer. We will also
be introducing a new cash payment alternative to help customers who
either choose not to use credit, or for whom it is not
appropriate.
Our Education business transformed its strategy two years ago by
incentivising schools and nurseries to shift their ordering away
from traditional catalogue channels in favour of upgraded websites,
by offering reductions of up to 30% against catalogue prices on
many key items when ordering online. At the same time, additional
online tools were developed to help teachers save time by
automatically comparing our prices against the competition to
demonstrate best prices and encouraging switching to our own brand
Classmates range to save money. The investment in product margin
has been mitigated as more Far-East sourced product arrives. The
business has also seen a further overhaul of its cost base as it
strives to achieve a 10% return on sales in the medium term. It
ended the year with its customer base up by 8% and with over 75% of
orders in the main GLS brand coming online. Its digital
transformation is working.
Leadership
The successful transition of Studio and Education into being
digital retailers requires a combination of experienced commercial
retailers and digital innovators within our leadership teams. Over
the last year, Studio has increased the breadth of leaders at the
level just below its executive to harness and deliver more change
without materially increasing risk. Building strong foundations is
a key part of Studio's strategy and I'm delighted with the
contributions that our new colleagues have made already.
We have also continued the transfer skills and leadership from
Studio over to Education to accelerate its development of Far-East
buying, commercial and digital marketing.
Brexit
The Group prepared itself for the potential of Brexit at the end
of March 2019 by accelerating a limited level of stock purchases,
particularly in Education to ensure continued supply towards the
end of the academic year. However, with the timing and nature of
Brexit now uncertain, much of that activity has since been
unwound.
The majority of Studio's supplies are sourced, either directly
or indirectly, from outside the European Union. All of Studio's
customers are based in the UK and therefore, any imposition of
customs tariffs is not anticipated to have a material impact on our
operations. There is a broader risk that consumer confidence
suffers if there continues to be a lack of clarity over Brexit, but
we believe that more customers will seek Studio's value offer if
economic conditions weaken.
Potential collaboration with Sports Direct
We announced in March 2018 that we were exploring possibilities
for commercial supply arrangements between Studio and our largest
shareholder, Sports Direct International plc. The results of the
pilot-scale trials undertaken in FY19 have not yet indicated that a
fuller roll-out of licenced menswear will be beneficial. However,
we have continued to explore the potential for access to other
Sports Direct owned brands in future seasons, as well as ways in
which Sports Direct can help to improve our own supply chains.
Progress on these initiatives was put on hold during the recent
mandatory bid process, but we anticipate resuming discussions in
the near future.
Looking forwards
I've seen a significant amount of change within Findel over my
32 years with the Group, but I'm excited about its future renamed
as Studio Retail Group. The business continues to undergo
significant change as we adapt to the changing customer and
competitive landscape. With a clearly differentiated strategy based
on deep customer insight I am confident that we have the business
plans in place to deliver significant and sustainable growth in
profit over the coming years.
DIVISIONAL OVERVIEW
Studio
Summary income statement
2019 2018 Change
---------- ----------
GBP'000 GBP'000
Product revenue 307,249 284,965 7.8%
Financial services
revenue 117,451 108,116 8.6%
Sourcing revenue 26 196 -86.7%
Reportable segment
revenue 424,726 393,277 8.0%
---------- ----------
Product cost of sales (208,344) (198,021) -5.2%
Financial services
cost of sales (36,623) (30,556) -19.9%
Sourcing costs of sales (18) (205) 91.2%
Total cost of sales (244,985) (228,782) -7.1%
---------- ----------
Gross profit 179,741 164,495 9.3%
---------- ----------
Marketing costs (39,694) (40,741) 2.6%
Distribution costs (38,396) (35,183) -9.1%
Administrative costs (53,723) (47,189) -13.8%
EBITDA 47,928 41,382 15.8%
---------- ----------
Depreciation and amortisation (8,480) (7,455) -13.7%
Adjusted operating
profit^ 39,448 33,927 16.3%
---------- ----------
IFRS 9 adjustment 2,400 -100.0%
Operating profit for
segmental reporting^ 39,448 36,327 8.6%
---------- ----------
Product margin % 32.2% 30.5% +170bp
----------
Impairment loss on
trade receivables as
% of revenue* 8.6% 7.8% +80bp
----------
Adjusted operating
profit % 9.3% 8.6% +70bp
------------------------------- ---------- ---------- --------
^ excluding individually significant items
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
Studio has moved away from its roots of being a traditional
catalogue business with a heritage in Christmas gifts, cards and
decorations, to now becoming a leading digital value retailer. Its
broad product offer covers a fast-growing clothing and footwear
category alongside home and electrical products plus the more
seasonal ranges, many of which can be personalised for free. Over
75% of sales are generated online and, although catalogues are
still used, they are just a part of the wider marketing activity
which includes growing investment into TV and digital media.
Underpinning all this, is the drive to amaze our customers with
value and provide them with a range of payment options, including
our flexible credit facility.
In January 2019, the business changed its name from 'Express
Gifts Ltd' to 'Studio Retail Ltd', which aligns with the main
customer facing brand, Studio (the other smaller brand is Ace),
recognises the changes in the business over recent years and
facilitates the ongoing transformation programme as we aim to be
the UK's most loved digital value retailer.
Studio has significant opportunity for growth in the UK, and the
combination of a broad, value product range and financial services
creates a point of difference to other retailers. With no physical
stores to service and with over 75% of orders coming online (the
rest being phone and postal orders), it is now striving to utilise
data and technology across all aspects of the business to improve
decision making, becoming a truly digital retailer. With the
Customer at the Heart of the business, ongoing improvements to
customer experience and service means our 1.9m customers love the
Studio offer and continue to shop with us more frequently.
To deliver this ambition, Studio continues with a strategy built
around three key pillars:
- Improve Retail Profitability
- Maximise Financial Services Opportunity
- Build Strong Foundations
The plans and priorities underpinning the three pillars have
been clarified over the last year, as well as defining the values
we aim to deliver to customers by actively demonstrating them
internally within Studio.
These values came through customer research and by involving 700
colleagues across the business:
v Inclusive - the broad product range has wide customer appeal,
and the flexible payment option opens up our retail offer to
customers who may prefer to spread the cost of purchases. To
deliver this we act as one team, with no departmental silos.
v Trusted - customers have to be able to trust us to deliver the
value and quality they expect, to deliver for those important
family moments, like Christmas, and also that we make responsible
decisions when we lend money. We do this by being positive and
delivering against our promises.
v Amazing - we amaze customers with our value and product range,
along with targeted offers and service. To do this we are
innovative, think big and are creative.
v Savvy - for customers, shopping with Studio is clever - with
its great range and value, there is no reason to buy elsewhere. For
colleagues it means we are commercial, we hunt for great value and
use the tools available to be even better at our jobs and deliver
for our customers.
The strategic pillars frame the business plans and a
transformation programme is already delivering business change
which has driven the sales and profit growth seen in 2018/19. This
programme continues, with investment in new technology, process
change and enhancing the capabilities of our people to enable
Studio to continue to grow into the future.
Retail Profitability
Increasing the retail profitability will be achieved by growing
sales through having more customers, who shop more frequently, and
by improving how we plan and source our ranges to improve product
margins.
The actions we are taking to deliver this are:
-- Build the Studio brand as the online destination for value
and raise its profile within our target audience of value-conscious
customers.
-- Focus on Customer Experience with a single view of the
customer to improve how we target and service them, alongside a
programme to continually make Studio easier, faster and more
trusted to shop with.
-- Product development -changing our buying processes to improve
product planning and sourcing to in turn improve margins, with
particular focus on attracting customers with Clothing, Footwear,
our Wow ranges (larger volume lines, offering exceptional value)
and gift offer - especially where we can add value through
personalisation.
In the year 1.9 million customers shopped with Studio, which is
up 5.6% on the prior year and builds upon the success in recent
years where new customers are recruited through increased use of TV
advertising and digital marketing, with customers then being
retained through data-driven CRM programmes utilising catalogue
mailings and targeted digital activity. We have recently updated
the creative look and feel of Studio for customers with a revamped
website and new advertising creative and, to better establish the
brand, have sponsored the fashion section within ITV's "This
Morning" programme which commenced in March 2019. This was done at
the same time as improving the efficiency of our marketing spend
and reducing the cost to sales ratio* from 14.3% to 12.9%.
Our business model is built around customer lifetime value, with
initial acquisition costs taking time to recover. The credit
account acts as a loyalty mechanic, even for customers who pay in
full when they get a statement and retention is further enabled by
targeted marketing and improving service levels to deliver a better
overall experience. We have selected Salesforce to provide a new
marketing and customer service platform with initial phases of
development implemented in January 2019, and further roll out
planned later in the coming year. We measure how customers rate our
service through a Net Promoter Score (NPS) survey and through
insight, root cause analysis and an ongoing programme of
improvements, we increased this NPS score by 25% in the year from
34.2% to 42.8%. We also benchmarked favourably through a survey
conducted with the Institute of Customer Services.
Our online order penetration increased from 68% to over 75%, and
we added new functionality to our website platform, including
improved search (utilising artificial intelligence), customer
reviews, improved design and site speed. This helped contribute to
our biggest ever sales week around Black Friday. Mobile orders grew
in the year from 51% to 62% of online sales, and we have commenced
development of our first app for delivery in the summer of
2019.
Product sales grew by just under 8% overall in FY19, with Home
& Leisure ranges growing by around 6% and Clothing &
Footwear categories growing faster by around 12%. Clothing &
Footwear remains a key growth category for us, mainly from our
own-brand ranges, as it still only represents around 30% of total
sales but helps to drive customer order frequency. Garden ranges
saw a strong performance, helped by a long hot summer and products
such as our Aqua Spa for GBP250 showed we can still deliver
exceptional value, even at higher price points. Since the Brexit
vote in 2016 and the subsequent devaluation of Sterling we have
been focused on improving product planning and sourcing, so we
continue to deliver value for customers and can also improve our
margins. In the year we increased our gross product margin % by
170bp and maintained our competitive price benchmark position.
We have also introduced a new seasonally based planning process
which enhances our process from Autumn Winter 2019 launch later in
the year and moves away from the traditional catalogue focused
approach. By bringing stock in at more seasonally appropriate
times, we have been able to improve our working capital in
FY19.
We also consolidated our overseas buying offices into Shanghai,
where we have over 50 colleagues monitoring our supply chain and
securing the best deals. We have increased the proportion of direct
sourcing through them which in turn improves cost prices. We have
continued to reduce and simplify our ranges and, through careful
management, reduced stock holdings without impacting service levels
to customers.
Financial Services
The second of our strategic pillars is maximising the financial
services opportunity, whilst ensuring the credit offered is
relevant, appropriate and affordable for our customers, so we meet
regulatory guidelines. The majority of Studio customers have a
revolving credit account that allows them to either pay for their
purchases within a month when their statement arrives, or to roll
their balance and spread payments to help with their household
budgeting.
The benefit to Studio of the credit proposition is not just an
additional revenue stream through financial income when customers
choose to roll a balance, but also in that the account facility
drives higher loyalty for the retail part of the business and a
regular prompt for the customer to revisit the website. As we move
forward, we will continue to deliver actions to underpin:
-- Payment proposition - provide a range of repayment options to
make shopping with Studio easy, and to enhance the benefits of the
credit account to be an ideal option for all customers
-- Lending approach - ensure that when we lend money to our
customers it is done in a responsible way, with appropriate credit
limits and that customers are treated fairly should they
subsequently find they have repayment issues
-- Operational efficiency - to utilise new technologies to
improve efficiency and how we service customer accounts
Studio's consumer credit activity is regulated by the Financial
Conduct Authority (FCA), and there are a number of guidelines which
they have issued to ensure firms treat customers fairly, and that
lenders take responsible steps to ensure loans are affordable and
avoid any customer harm. Studio constantly reviews its processes to
ensure it remains aligned with the FCA guidelines and is utilising
new robust systems and risk management tools to help in this area.
Credit limit strategies have been reviewed in the last year, and
more detailed information is now captured where relevant on income
to assess whether our customer can afford to take on new or
additional credit from us. A new application and decision platform
is in development for launch in 2019 to further enhance decision
making in this area. This follows on from us implementing the
Financier account management system in 2017, and we are now
utilising this to test new financial products for our
customers.
Financial income in the year was up by 8.6% but we also saw
increases to the impairment loss on trade receivables, partly due
to the growth in balances flowing from higher retail sales, and
also due to an accounting standard change, IFRS 9, which requires
earlier recognition of potential default. Repayment rates and the
arrears profile remained broadly unchanged.
In 2018 we also implemented a new strategic fraud tool, which
utilises artificial intelligence and enhanced data sets, to
identify potentially fraudulent product orders before the goods are
dispatched. Not only did this help to significantly lower the
levels of losses due to fraud, but better protects our customers
from such activity.
Our programme to refund customers in respect of historical
credit and insurance products that were flawed continued and the
vast majority of refunds have now been completed with some residual
follow up left to complete in the coming few months. As a result,
we have now been able to fully reconcile this programme against the
provision for the activity and have had to make a final net
adjustment of GBP2.9m as we saw better response rates from
customers and took on board some updated guidelines from the FCA in
respect of this activity. We completed the process to proactively
approach and refund customers who purchased PPI from us several
years ago and so we have seen relatively low levels of new claims
for this product in the last two years.
Strong Foundations
The third strategic pillar is Strong Foundations, where we are
investing in the infrastructure to support our future growth,
improve processes and how we manage the business and develop our
people and culture for the future. Key action areas here are:
-- Warehouse development - ensure our current operations are
robust and create a clear plan to improve service and scale to
manage our sales ambitions
-- Data and technology - data is our most valuable asset and we
will ensure it is kept safe and secure as well as building new
capabilities to drive greater business intelligence. We will also
modernise our technology architecture to be agile and scalable
-- Cost efficiency - continually look at ways to be more
efficient and keep costs down so we can deliver on our value
promise
-- People and culture - we need to have people with the right
skills to deliver our plans and a culture that makes Studio a great
place to work.
Over the last two years we have addressed many historical issues
in this area but have a wide-scale transformation plan ahead of us,
so we have invested in resource within our change function and IT
areas to deliver improved project governance and delivery
capability.
Within our warehouse operation we invested in updating legacy
systems and operational hardware to ensure the current operation is
robust in the medium term. We are now reviewing a number of
strategic options to ensure our warehouse operations are capable of
supporting the ongoing business growth, as well as changing
customer expectations on service.
As this transformation programme requires new systems, we have
started to articulate a clear IT strategy around data, application
and infrastructure architectures. This is aligned to the projects
we are delivering, and new ways of working are being introduced,
including increased use of offshore development and testing. A new
systems integration platform (Mulesoft) was developed through these
new processes and successfully deployed in March. We have also been
making infrastructure changes to improve business resilience and,
in anticipation of the introduction of GDPR regulations in May
2018, had rolled out changes to further strengthen data
security.
Finally, and most important, is the need to improve the skills
and capability of our people and transform the business culture. In
2018, we reviewed all business functions, with job roles being
clarified, the organisation structure adapted to enhance
capabilities, and leadership training for all senior managers
delivered. A new HR system and Applicant Tracking system were
introduced to better support people management. Further
improvements are planned during 2019 as we work towards the
introduction of the Senior Manager & Certification Regime from
the FCA in December, designed to improve individual accountability
in key areas to protect against customer harm.
On the back of the company name change to Studio Retail, we
started to update signage around the offices and have now completed
reception refits at both the Accrington and Clayton offices, and
further refurbishment planned for 2019 to enhance the working
environment. We are a major employer in Accrington, and more widely
in Lancashire with c.1500 employees (rising to c. 2000 in the run
up to Christmas) and are raising the profile of our employee brand
with enhanced corporate activity, including sponsorship of local
activities such as the new stand at Accrington Stanley Football
Club.
Performance and Progress
The last year saw good progress on Studio's transformational
plans, and also against financial measures. The growth in the
customer base by 5.6% was the main driver in product sales
increasing 7.8% to GBP307.2m. Through improved product planning and
sourcing, we increased product gross margin by 170bp to 32.2% which
was slightly ahead of our plans. This improved margin was achieved
despite the loss of c.GBP1m of income received in FY18 from our
former subsidiary, Kleeneze (which was sold in 2015). The sales and
margin increase delivered a gross profit from product sales of
GBP98.9m, up 13.8%.
Financial income increased by 8.6% to GBP117.5m, in line with
the growth in Eligible Receivables. The reported impairment loss on
trade receivables increased by GBP8.5m to GBP36.6m, although
GBP2.4m of this increase represents the effect of the transition in
FY19 to IFRS 9. The business benefitted in the prior year from a
one-time step-change in our debt sale strategy which yielded a
GBP3.5m benefit compared to FY17, although it also continued to
benefit from favourable pricing conditions in debt sale markets in
FY19, which may not continue into future periods.
Marketing efficiencies, as we moved investment from print/paper
into TV and Digital advertising meant the ratio to product sales*
dropped from 14.3% to 12.9%, and we also drove out operational
efficiencies in our warehouse and customer service operations. As
we go through the business transformation we did invest in resource
with our IT and Change function, to improve project delivery and
make the business more secure and resilient, plus within Buying
& Merchandising, to support the shift to a seasonal planning
approach.
Adjusted Operating Profit* for the year increased by GBP5.5m to
GBP39.4m. Individually significant costs of GBP2.9m relating to the
final reconciliation for the provision for historical insurance
product refunds were incurred in the period bringing the reported
operating profit to GBP36.5m.
The senior management team, which has been significantly changed
in recent years, was further strengthened by a new Marketing and
Digital Director, joining in August 2018. The team, along with a
consistent and clear strategy focussed on delivering value, is well
positioned to continue to grow the business.
Findel Education
Summary income statement
2019 2018 Change
--------- ---------
GBP'000 GBP'000
Revenue 82,081 86,336 -4.9%
--------- ---------
Cost of sales (53,015) (55,324) 4.2%
--------- --------- -------
Gross profit 29,066 31,012 -6.3%
--------- --------- -------
Marketing costs (2,803) (3,393) 17.4%
Distribution costs (8,836) (10,013) 11.8%
Administrative costs (12,552) (13,183) 4.8%
EBITDA* 4,875 4,423 10.2%
--------- ---------
Depreciation and amortisation (1,658) (1,488) -11.4%
-------
Operating profit^ 3,217 2,935 9.6%
--------- -------
Gross profit margin
% 35.4% 35.9% -50bp
------------------------------- --------- --------- -------
Operating profit% 3.9% 3.4% +50bp
------------------------------- --------- --------- -------
^ excluding individually significant items
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
Our business model
Findel Education is one of the largest independent suppliers of
school and early years resources (excluding IT and publishing) to
primary, secondary and nursery educational establishments both in
the UK and Internationally to over 130 countries.
It offers three distinct brand propositions - School, Classroom
and Specialist - each of which supports differing educational
resources requirements within schools and nurseries. The School
brands (GLS, A-Z and WNW) are primarily focussed on servicing the
basic commodity needs of all educational establishments with
products such as stationery, janitorial supplies, furniture and
arts & crafts materials. The Classroom brand (Hope Education)
focuses on the supply of specialist curriculum and early years
teaching resources to Primary School and Nurseries. The Specialist
brands (Davies Sports, Philip Harris Scientific, and Learning
Development Aids LDA) are specialists in their respective fields
and focus on both Primary and Secondary school establishments.
Our brands, their products and service strengths combine to sell
resources to International Schools and Groups as well as UK Academy
Groups.
Our market
Schools are typically funded with a pre-agreed sum per pupil to
cover the cost of staffing, buildings, utilities, IT, specialist
textbooks and educational resources. The latter of these, which
Findel Education services, only accounts for around 5% of the
overall school budget and has been squeezed in real terms by up to
8% over the last three years as other areas have been prioritised.
Whilst the last 12 months have seen greater stability for resource
budgets, it remains clear that a successful player in the resource
market needs to be able to save schools money.
Procurement of educational resources is normally managed in a
school by the School Business Manager ("SBM"). This key role in a
school has replaced the traditional bursar in recent years, with an
influx of private sector business managers now entering the sector
bringing with them modern procurement and commercial skills. SBM's
are far more open minded to change, seeking best value, easier
digital procurement processes and great service. Nonetheless, the
SBM still has numerous competing demands placed upon them. As a
result, it is clear that a successful player in the resource market
also needs to be able to save schools time.
Organisations competing in the UK education resources market
tend to either be structured on a not-for-profit basis, often under
local authority control, or be privately owned such as Findel
Education. Our ambition is to achieve a 10% return on sales in the
medium-term, in line with our privately-owned competitors, compared
to the 3.9% achieved in FY19. That ambition requires us to increase
our scale, reduce our operating costs and improve our own supply
chain to lower buying prices without sacrificing product
quality.
Our business strategy: 'Saving Schools Time and Money'
The educational resources market has been relatively slow to
adopt digital channels for procurement, with large annual
catalogues being the preferred route for teachers and SBMs to
browse. This has started to change in recent years, particularly as
School Integrated Management Systems ("SIMS") have evolved to
manage pupil lists, timetabling, attendance and performance data,
as well as routine administration matters such as procurement.
These systems are key in saving schools time.
Our own websites have been overhauled in response to this
structural change, with the capability to seamlessly integrate with
several of the leading SIMS providers, notably Capita. Over 3,000
schools now order from us using these platforms, with 66% of total
orders in FY19 being placed using either the website or SIMS, up
from c.50% in FY18.
We have also developed tools and new market-first features such
as Share My Basket, Quick Order, Repeat Order, Wishlists and
1-Click checkout. These aim to make it easier for teachers and SBMs
to place orders with us, demonstrate best value, leading to higher
levels of customer loyalty and a greater share of the school's
budget.
At the same time, we have actively sought to recover market
share that has been lost over many years. We have increased our
promotional activity in recent months to recruit new customers and
have incentivised new and existing customers to increase their
level of online shopping by offering significantly lower prices on
a broad range of over 2,200 products, but only if bought using the
website or SIMS channels. That lower online value pricing has
brought our ranges into line with the key not-for-profit
competitors in the sector, improving our competitive position
whilst also helping to save schools money.
Our business strategy: Improving profitability
The online value pricing strategy, together with the improved
digital tools and promotional activity has seen the active customer
base increasing by 8% over the last 12 months after years of
decline. However, the business has warehouse and office support
facilities capable of supporting a significantly greater level of
activity. A further GBP2.4m of cost reductions were delivered
during FY19 on the back of the large warehouse cost reduction in
FY18. This has been a key to funding the investment in value.
Our buying and supply chain has been focused on overseas
sourcing through the Group's Shanghai Resourcing Office to support
the re-sourcing of several key ranges from the Far East, including
our Classmates ranges. Substantial re-sourcing and renegotiation
with both UK and Far-East suppliers has been necessary to support
the investment in lower prices to customers, with suppliers
benefitting from increased volumes.
The business is transforming at pace and will become a Digital
First business during FY20. This will continue to reduce the
overhead cost base as traditional marketing and buying processes
are replaced by digital technologies, including a further reduction
in the size and quantity of annual catalogues.
FY19 Performance and Progress
Total revenue for the business reduced by GBP4.3m to GBP82.1m
(FY18 restated: GBP86.3m). However, the business started the year
knowing that it would not repeat the c.GBP5m of revenue and
c.GBP0.7m of contribution from the Sainsbury's Active Kids Scheme,
which was discontinued at the end of FY18. Therefore, the ongoing
activities with the business grew by GBP0.7m or 0.8%, supported by
the 8% growth in the active customer base.
During the year the business successfully re-tendered for the
Scotland Excel and NI Library Board contracts. These were important
wins in two of our key regions where we hold a high percentage of
market share.
The investment in lower prices for online purchases supressed
revenue leading to the gross profit margin reducing by 50bp to
35.4% (FY18 restated: 35.9%). This gap has improved in recent
months, as expected, from -250bp seen in H1 to +230bp in H2 in part
due to improved stock management and a consequential reduction in
provisions.
Operational cost reductions totalling GBP2.4m helped to more
than offset the lost Sainsbury's contribution and margin
investment, leading to the operating profit for Education
increasing by 9.6% to GBP3.2m (FY18 restated: GBP2.9m).
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
FINANCE REVIEW
Group profit before tax
The Group has produced an adjusted profit before tax* of
GBP28.8m in FY19, up by 17.7% from GBP24.4m in FY18. This figure is
presented on a like-for-like GAAP basis taking into account the
adoption of IFRS 9 and IFRS 15, as summarised below.
2018
2019 (Restated) Change
GBP000 GBP000 GBP000
---------------------------------- ------- ----------- -------
Adjusted operating profit*:
Studio 39,448 33,927 5,521
Education 3,217 2,935 282
Central (4,248) (3,286) (962)
Adjusted operating profit* 38,417 33,576 4,841
Net finance costs* (9,656) (9,130) (526)
Adjusted profit before tax* 28,761 24,446 4,315
Pro-forma adjustment for IFRS9
for FY18 2,400 (2,400)
Individually significant costs (4,158) - (4,158)
Fair value movement on derivative
financial instruments 4,750 (4,701) 9,451
---------------------------------- ------- ----------- -------
Profit/(loss) before tax 29,353 22,145 7,208
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be below.
The key elements of this improved performance are discussed
earlier in the Strategic Report.
Individually significant items totalling GBP4.2m (FY18: nil)
were incurred, as discussed in more detail below and set out in
Note 3. The fair value movement on derivative financial instruments
was a credit of GBP4.8m (FY18: charge of GBP4.7m). This is
presented below the adjusted profit before tax* on the income
statement as it relates to the reversal of prior year fair value
movements net of the revaluation of hedging contracts that will
unwind during FY20.
Individually significant items
Provisions totalling GBP29.0m were built up in FY16 and FY17 in
relation to the anticipated refund of premiums and interest to
customers in respect of historic flawed credit and insurance
products. Those provisions contained assumptions and judgements on
the likely level of customer response and the quantum of refund due
to each responding customer. This programme has also been refined
over the last two years to include new guidance from the FCA on
refund matters, including the treatment of commissions following
the "Plevin" ruling. This refined scope, together with slightly
higher response levels than originally anticipated, has led to an
additional GBP2.9m of charges being required. The customer contact
programme is now substantially concluded.
Education consolidated its warehousing estate at the end of 2016
and an onerous lease provision was recorded in FY17 in respect of
the vacant warehouse in Enfield. The site became unavailable for
occupation during 2018 due to damage caused by third-parties and
relief from rental payments was secured from the landlord during
that period whilst repairs were undertaken. The site has recently
been sublet at market rates, leading to a favourable reduction in
the level of onerous lease provision being required of GBP1.2m.
In October 2018, the High Court handed down a judgement
involving the Lloyds Banking Group's defined benefit pension
schemes. The judgement concluded that the schemes should be amended
to equalise pension benefits for men and women in relation to
guaranteed minimum pension benefits. The issues determined by the
judgement arise in relation to many other defined benefit pension
schemes, including the Findel Group Pension Fund. After discussion
with the trustees, actuaries and legal advisors of our fund, we
have recognised an additional past service charge of approximately
GBP2.5m, representing around 1.7% of total scheme liabilities in
relation to this historical issue.
Pensions
The net valuation on the Group's legacy defined benefit scheme
at the end of FY19, measured in accordance with IAS19, moved from a
surplus of GBP2.2m as at March 2018 to a small deficit of GBP0.1m
due to the additional service costs noted above. The normal
triennial valuation of the scheme as at April 2019 is currently in
progress. In the meantime, as previously agreed with the scheme's
trustees, the Group has made additional voluntary contributions
totalling GBP2.5m in FY19. These contributions will increase to
GBP5.0m from FY20 until the middle of FY24.
Taxation
The Group posted a charge of GBP6.1m in the year in respect of
taxation. The increase from the GBP2.6m charge seen in FY18 was
largely due to the recognition of previously unrecognised deferred
tax last year. The underlying effective tax rate* for the year was
20.3% (FY18 restated: 21.0%).
Earnings per share
The adjusted earnings per share* for the year was 26.48p in FY19
(FY18 restated: 27.09p). The basic earnings per share was 26.98p
per share (FY18 restated: 22.68p).
Summary balance sheet
2018
2019 Restated Change
GBP000 GBP000 GBP000
------------------------ --------- --------- -------
Intangible fixed assets 24,952 25,175 (223)
Tangible fixed assets 45,511 45,350 161
Net working capital 201,010 198,101 2,909
Net debt* (233,440) (232,329) (1,111)
Other net assets 5,487 2,896 2,591
Net assets 43,520 39,193 4,327
------------------------ --------- --------- -------
Consolidated net assets amounted to GBP43.5m at the period end
(FY18: GBP39.2m), reflecting the net profit reported and the
actuarial remeasurements in respect of the pension deficit. The net
assets are equivalent to 50p per ordinary share (FY18 restated: 45p
per ordinary share).
Impact of new accounting standards
IFRS 9 "Financial Instruments"
This new standard replaced IAS 39 "Financial instruments:
recognition and measurement" and first applied to the Group for
FY19. Its main impact is upon the level of bad debt provision and
impairment charge required against Studio's trade receivables, by
moving from the current approach of an incurred loss model to an
expected loss model.
Under IAS 39, impairment provisions are only reflected when
there is objective evidence of impairment, which is normally a
missed payment. However, the expected loss approach of IFRS 9 is
instead based upon the probability of default, regardless of
whether a missed payment has occurred. Consequently, impairment
provisions under IFRS 9 are recognised earlier than under IAS 39.
There was also be a one-time adjustment to both receivables,
deferred tax and reserves upon adoption.
It is important to note that the lifetime profitability of a
customer and the cash received from the customer is unaffected by
this change in accounting standard.
The Group has taken the exemption available not to restate
comparative information for prior periods and has therefore
recognised a charge of GBP17.8m in accumulated losses on transition
at 31 March 2018, being the first day of the current accounting
period. That said, and as indicated in the 2018 Annual Report &
Accounts, the pro forma impact of the standard upon the FY18 income
statement would have been to reduce Adjusted Profit Before Tax by
GBP2.4m.
The change in this accounting standard has no impact upon the
Group's debt covenants, which in the case of the revolving bank
facility are calculated by reference to IAS 39, and in the case of
the securitisation facility by reference to the gross balances owed
by the customer.
IFRS 15 "Revenue from contracts with customers"
This new standard replaces several current standards and aims to
standardise aspects of revenue recognition. Its main effect on the
Group will be to change the point of recognition of product sales
from the point of despatch to the point of delivery to the
customer. For most of the Group, the impact will result in a
one-time delay of between 1-3 days in the recognition of
revenue.
Full retrospective adoption has been applied for this standard,
with comparative figures for FY18 restated as set out in note 1.
The adoption of IFRS 15 resulted in a charge of GBP0.5m being
recorded in accumulated losses at 31 March 2017.
Indicative impact of new accounting standards
IFRS 16 "Leases"
The Group will adopt IFRS 16 in the 2019/20 financial year. On
the adoption of IFRS 16, lease agreements will give rise to both a
right of use asset and a lease liability for future lease payables.
Whilst the new standard has no effect on the total cost recognised
over the course of a lease, under IFRS 16 the lease cost will be
higher in the in the early years of the lease. The lease cost will
also be split between depreciation of the right of use asset and
interest on the lease liability in the income statement rather than
being presented within trading costs as is currently the case. The
new standard does not impact on the Group's cash flows under lease
arrangements but there will some changes to presentation in the
cash flow statement. The Group has decided to adopt the modified
retrospective transition approach and as such will apply the
requirements of IFRS 16 prospectively from 30 March 2019.
Consequently, there will be no adjustment to opening reserves and
comparative figures will not be restated.
Cash flow and borrowings
A part of management's variable incentive plans relates to the
generation of free cashflow, as defined in the table below. Free
cashflow generation was GBP28.9m (FY18: GBP15.8m). After taking
account of interest and the net impact of finance leases, the
Group's core net debt reduced by GBP16.4m to GBP57.4m (FY18:
GBP73.8m), as summarised below.
2019 2018 Change
GBP000 GBP000 GBP000
---------------------------------- -------- -------- -------
Adjusted EBITDA* 50,022 43,995 6,027
Increase in Studio's receivables
net of securitisation inflows (6,926) (1,568) (5,358)
Decrease in other working capital 10,799 6,806 3,993
Capital expenditure (11,545) (10,595) (950)
Cash flows in respect of prior
period individually significant
items (11,983) (20,662) 8,679
Pension scheme contributions (2,500) (2,500) 0
Other 1,011 314 697
---------------------------------- -------- -------- -------
Adjusted free cashflow* 28,878 15,790 13,088
Income tax (1,931) 581 (2,512)
Net interest payable (10,017) (8,305) (1,712)
Repayment of finance leases (571) (545) (26)
Acquisition of subsidiaries - (450) 450
---------------------------------- -------- -------- -------
Movement in core net debt 16,359 7,071 9,288
Opening core net debt* (73,756) (80,827) 7,071
Closing core net debt* (57,397) (73,756) 16,359
---------------------------------- -------- -------- -------
Total net debt* at the year-end was as follows:
2019 2018 Change
GBP000 GBP000 GBP000
------------------------------------ -------- -------- --------
External bank borrowings (excluding
securitisation facility) 95,000 100,000 (5,000)
Less total cash (37,603) (26,244) (11,359)
------------------------------------ -------- -------- --------
Core net debt* 57,397 73,756 (16,359)
Securitisation drawings 175,545 157,504 18,041
Finance leases 498 1,069 (571)
Net debt* 233,440 232,329 1,111
------------------------------------ -------- -------- --------
The Group's revolving credit facility was amended during the
year with the available level of facilities now scheduled to be
GBP95m between April and December 2019 before reducing to GBP90m
until its new maturity date of 31 December 2020. The securitisation
facility restructured during the year with its maximum available
amount increasing from GBP170m to GBP185m to cater for the
continued growth in Studio's trade receivables and its maturity
date also extended to 31 December 2020.
Dividends and capital structure
The Company has not received any dividends from its subsidiaries
during the period and its balance sheet as at 29 March 2019 shows a
deficiency of GBP99.9m on its retained reserves (FY18: deficiency
of GBP95.5m).
Our ambition over the next few years is to invest in our digital
capabilities in order to increase the level of potentially
distributable reserves within the primary operating subsidiary,
Studio Retail Limited, to enable it to remit dividends to Findel
plc. This subsidiary's retained reserves have improved marginally
during the year, although its profit for the year has been offset
by the adoption of IFRS 9 "Financial Instruments" in FY19 of
GBP17.8m as discussed above.
Findel plc is therefore not yet in a position to declare a
dividend and does not have plans to reinstate dividend payments at
this stage. The Directors have determined that no interim dividend
will be paid (FY18: GBPnil) and are not recommending the payment of
a final dividend (FY18: GBPnil).
Treasury and risk management
The Group's central treasury function seeks to reduce or
eliminate exposure to foreign exchange, interest rate and other
financial risks, to ensure sufficient liquidity is available to
meet foreseeable needs and to invest cash assets safely and
profitably. It does not engage in speculative transactions and
transacts only in relation to underlying business requirements in
accordance with approved policies.
Interest rate risk management
The Group's interest rate exposure is managed by the use of
derivative arrangements as appropriate. The Group has purchased
interest rate caps covering the period to August 2020 to protect
against the risk of unforeseen increases to LIBOR rates.
Net interest costs for the year were GBP9.6m, slightly higher
than the GBP9.1m from FY18, reflecting higher LIBOR rates in the
second half of the year offset by lower pension scheme interest.
This charge was covered 4.0 times by adjusted operating profit*
(FY18 restated: 3.7 times).
Currency risk management
A significant proportion of the products sold, principally
through Studio, are procured through the Group's Far-East buying
operations and beyond. The currency of purchase for these goods is
principally the US dollar.
The Group's hedging policy aims to cover anticipated future
exposures on a rolling 12-month basis. As at the balance sheet
date, the Group had forward contracts with an outstanding principal
of $93m (FY18: $86m) and an average rate of GBP1/$1.326 (FY18:
$1.311). The market value and unrealised loss on those contracts as
at the balance sheet date, less the reversal of the equivalent
valuation as at the end of March 2018, was a gain of GBP4.8m (FY18:
loss of GBP4.7m). This is presented separately on the Income
Statement as it represents an element of product costs to be
realised in FY20 as the contracts unwind. The Group currently has
forward contracts in place with an outstanding principal of $90m
covering the 12 months to May 2020.
In addition to this direct exposure, the divisions face a
significant level of indirect exposure from supplies made by UK
suppliers who in turn source goods from overseas. That risk is
normally mitigated through a combination of supplier agreements and
fixed term pricing, although from time to time there may be a
requirement to increase prices to customers to maintain
margins.
Borrowing and counterparty risk
The Group's exposure to borrowing and cash investment risk is
managed by dealing only with banks and financial institutions with
strong credit ratings.
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
Alternative Performance Measures
The Directors use several Alternative Performance Measures
("APMs") that are considered to provide useful information about
the performance and underlying trends facing the Group. As these
APMs are not defined by IFRS, they may not be comparable with APMs
shown in other companies' accounts. They are not intended to be a
replacement for, or be superior to, IFRS measures.
The principal APMs used in this Annual Report are set out
below.
Adjusted EBITDA, adjusted operating profit and adjusted profit
before tax
These measures are used by management to assess the underlying
trading performance of the Group from period to period.
The following items are excluded in arriving at these
measures:
-- Individually significant items are, due to their nature or
scale, not reflective of the underlying performance of the Group.
The Directors believe that presenting these items separately aids
year on year comparability of performance.
-- The Group's foreign exchange hedging policy means that there
will be unrealised fair value gains or losses at the period end
relating to contracts intended for future periods. Those fair value
movements are therefore excluded from the underlying performance of
the Group until realised.
In the current period, the Group has adopted IFRS 15 Revenue
from Contracts with Customers and IFRS 9 Financial Instruments. The
full impact of adopting these new accounting standards is detailed
in note 1.
IFRS 15 has been adopted on fully retrospective basis and as a
result the figures presented in respect of 2018 have been restated
so that they are presented on a consistent basis with the current
period. In order to ensure like-for-like comparison between 2019
and 2018, the APMs presented in 2018 have been adjusted to reflect
the adoption of IFRS 15 as shown below.
With regards to IFRS 9, the Group has taken the exemption
available not to restate comparative information for prior periods.
As a result, the impairment loss recognised in respect of Studio's
trade receivables in 2019 is calculated on an expected credit loss
basis as required by IFRS 9, whereas the 2018 charge is calculated
on an incurred loss basis as required by IAS 39. In order to allow
a like-for-like comparison of performance between periods,
management has applied a pro-forma estimate of the impact of IFRS 9
adoption to the 2018 figures, adjusting the APMs presented in
2018.
The 2019 APMs, the restated 2018 APMs and the originally
reported 2018 APMs reconcile to profit before tax as follows:
2019 2018 2018
(restated) (as reported)
GBP000 GBP000 GBP000
Adjusted EBITDA - as reported in
2018 46,370 46,370
Adjustment to reflect adoption
of IFRS 15 25
Pro-forma adjustment for IFRS 9 (2,400)
------------------------------------- --------- ------------
Adjusted EBITDA - 2019 equivalent
basis 50,022 43,995
Pro-forma adjustment for IFRS 9 - 2,400
Depreciation and amortization (11,605) (10,419) (10,419)
Individually significant items (4,158) - -
Fair value movements on derivatives 4,750 (4,701) (4,701)
Finance costs (9,656) (9,130) (9,130)
------------------------------------- --------- ------------ ---------------
Profit before tax 29,353 22,145 22,120
------------------------------------- --------- ------------ ---------------
2019 2018 2018
(restated) (as reported)
GBP000 GBP000 GBP000
Adjusted operating profit - as
reported in 2018 35,951 35,951
Adjustment to reflect adoption
of IFRS 15 25
Pro-forma adjustment for IFRS 9 (2,400)
------------------------------------- -------- ------------
Adjusted operating profit - 2019
equivalent basis 38,417 33,576
Pro forma adjustment for IFRS 9 - 2,400
Individually significant items (4,158) - -
Fair value movements on derivatives 4,750 (4,701) (4,701)
Finance costs (9,656) (9,130) (9,130)
------------------------------------- -------- ------------ ---------------
Profit before tax 29,353 22,145 22,120
------------------------------------- -------- ------------ ---------------
2019 2018 2018
(restated) (as reported)
GBP000 GBP000 GBP000
Adjusted profit before tax - as
reported in 2018 26,821 26,821
Adjustment to reflect adoption
of IFRS 15 25
Pro-forma adjustment for IFRS 9 (2,400)
------------------------------------- -------- ------------
Adjusted profit before tax - 2019
equivalent basis 28,761 24,446
Pro-forma adjustment for IFRS 9 - 2,400
Individually significant items (4,158) - -
Fair value movements on derivatives 4,750 (4,701) (4,701)
Profit before tax 29,353 22,145 22,120
------------------------------------- -------- ------------ ---------------
Studio Product Gross Margin %
This is used a measure of the gross profit made by Studio on the
sale of products only, which shows progress against one of Studio's
strategic pillars. It is derived as follows:
2019 2018
(restated)
GBP000 GBP000
Product revenue 307,249 284,965
Less product cost of sales (208,344) (198,021)
------------------------------ ---------- -----------
Gross product margin 98,905 86,944
------------------------------ ---------- -----------
Gross product gross margin % 32.2% 30.5%
------------------------------ ---------- -----------
Studio impairment loss on trade receivables a like-for-like (pro
forma IFRS 9) basis
IFRS 9 was adopted by the Group on 31 March 2018, being the
first day of the current accounting period, the Group has taken the
exemption available not to restate comparative information for
prior periods. As a result, the impairment loss recognised in
respect of Studio's trade receivables in 2019 is calculated on an
expected credit loss basis as required by IFRS 9, whereas the 2018
charge is calculated on an incurred loss basis as required by IAS
39. In order to allow a like-for-like comparison of performance
between periods, management has applied an pro-forma estimate of
the impact of IFRS 9 adoption to the 2018 impairment charge. This
allows management to assess the underlying performance and credit
quality of Studio's receivables book.
2019 2018
GBP'000 GBP'000
Impairment loss (as reported) (36,623) (28,156)
Pro forma adjustment for IFRS 9 (2,400)
--------------------------------------------- --------- ---------
Impairment loss on like-for-like (pro-forma
IFRS 9) basis (36,623) (30,556)
--------------------------------------------- --------- ---------
Studio impairment loss as a % of revenue
This is an assessment of the impairment loss incurred in respect of
Studio's trade receivables, stated on a like-for-like (pro-forma IFRS
9) basis, which enables management to assess the quality and performance
of its trade receivables.
2019 2018
(restated)
GBP'000 GBP'000
Impairment loss on like-for-like
(pro-forma IFRS 9) basis 36,623 30,556
Studio total revenue 424,726 393,277
------------------------------------------------ ------------ ---------------
Studio impairment losses as
a % of revenue 8.6% 7.8%
------------------------------------------------ ------------ ---------------
Studio marketing costs to sales ratio
This measure allows management to assess the efficiency of our
marketing spend as we pursue our stated strategy of increasing the
profile of the Studio brand. It is calculated by dividing marketing
costs by product revenue.
2019 2018
(restated)
GBP'000 GBP'000
Marketing costs 39,694 40,741
Product revenue 307,249 284,965
-------------------------------- -------- -----------
Marketing costs to sales ratio 12.9% 14.3%
-------------------------------- -------- -----------
Net debt
This measure takes account of total borrowings less cash held by
the Group and represents our total indebtedness. Management use
this measure for assessing overall gearing.
It is calculated as follows:
2019 2018
GBP000 GBP000
---------------------------------- --------- ---------
Total bank loans 270,545 257,504
Obligations under Finance leases 498 1,069
Less cash and cash equivalents (37,603) (26,244)
---------------------------------- --------- ---------
Net debt 233,440 232,329
---------------------------------- --------- ---------
Core net debt
This measure excludes obligations under finance leases and
securitisation borrowings from net debt to show borrowings under
the revolving credit facility net of cash held by the Group. This
is our preferred measure of the indebtedness of the Group and is
relevant for covenant purposes.
It is calculated as follows:
2019 2018
GBP000 GBP000
Net Debt 233,440 232,329
Obligations under finance leases (498) (1,069)
Less securitisation borrowings* (175,545) (157,504)
Core net debt 57,397 73,756
---------------------------------- ---------- ----------
*Disclosed within bank loans
Debt funding consumer receivables
The majority of the trade receivables of Studio are eligible to
be funded in part from the securitisation facility, with the
remainder being funded from core net debt. This measure indicates
the face value of trade receivables (before any impairment
provision) capable of being funded from the securitisation
facility. It is useful to management as it demonstrates the
proportion of net debt that is supported by paying customer
receivables.
It is calculated as follows:
2019 2018
GBP000 GBP000
---------------------- -------- --------
Securitisation loans 175,545 157,504
Cash and bank 64,075 64,333
---------------------- -------- --------
Eligible receivables 239,620 221,837
---------------------- -------- --------
Adjusted free cash flow
Free cash flow generation is a key operational metric and is of
interest to investors. Consequently, it forms part of the
remuneration targets for the Executive Directors. In the prior
period, adjusted free cashflow included income taxes paid or
received. In the current period, the remuneration targets for the
Executive Directors have been amended to a pre-tax measure and
consequently the APM has been adjusted as set out below.
Adjusted free cash flow is reconciled to cash generated by
operations as follows:
2019 2018
GBP000 GBP000
-------------------------------------- --------- ---------
Adjusted free cashflow as reported
in 2018 26,947 16,371
Exclude income taxes paid/(refunded) 1,931 (581)
Adjusted free cash flow - 2019
equivalent basis 28,878 15,790
Securitisation loans drawn (18,041) (14,970)
Purchases of property plant
and equipment and software 11,545 10,595
Other (26) 24
-------------------------------------- --------- ---------
Cash generated from operating
activities 22,356 11,439
-------------------------------------- --------- ---------
Adjusted earnings per share
This measure shows the earnings per share given when
individually significant items and fair value movements on
derivative financial instruments are excluded from the profit after
tax figure. Details of how the adjusted earnings per share are
calculated can be found in note 5.
Underlying effective tax rate
This measure shows the Group's effective tax rate when the tax
impact of individually significant items and other non-recurring
items are adjusted for. This measure allows management to assess
underlying trends in the Group's tax rate. It is calculated as
follows:
2019 2018
(restated)
------------------------------------ -------- -----------
GBP000 GBP000
------------------------------------ -------- -----------
Tax charge (6,064) (2,565)
Exclude tax impact of individually (741) -
significant items
Exclude impact of additional
recognition of deferred tax
in respect of tax losses in
Education - (2,830)
Exclude impact of change in
deferred tax rate on pension
scheme surplus - 749
------------------------------------ -------- -----------
Adjusted tax charge (6,805) (4,646)
------------------------------------ -------- -----------
Profit before tax and individually
significant items 33,511 22,145
------------------------------------ -------- -----------
Underlying effective tax rate 20.3% 21.0%
------------------------------------ -------- -----------
Principal risks and uncertainties
Risk Root cause Key mitigating controls
Pressures on the levels The economic outlook The expansion of our
of disposable income is uncertain, particularly digital activity and
available to lower in relation to the impact a shift in customer
socio-economic groups, of Brexit and more broadly acquisition strategy
who form a core part changes in interest has broadened the overall
of Studio's customer rates and inflation customer footprint and
base. and wage restraint. reduced our dependency
on older, lower socio-economic
customer segments.
Successful implementation
of our strategies to
recruit and retain customers,
thereby increasing our
customer base, will
dilute this impact.
Growth in credit income Regulatory changes impacting Studio has reviewed
could slow within the customer acquisition its integrated model
financial services and credit limit management; of retail and financial
business of Studio. and our strategy to services in terms of
put the customer at both customer conduct
the heart of the business risk and financial performance
by balancing financial and developed a business
performance and customer plan on this basis.
conduct risks. The review included
stress testing various
scenarios.
These factors will require
an evolutionary change
in our business model
placing a greater requirement
on the profitability
arising from the retail
side of Studio. The
plans set out in this
Strategic Report reflect
this.
Potential disruption The business remains Resilience testing and
to our business support highly dependent upon recovery plans are in
systems and the storage legacy systems both place.
and protection of our in the support of running
customers' data. the business on a daily The business has continued
basis and the storage to invest to update
and protection of customer its technology solutions
data. as it seeks to lower
its dependency on legacy
The combination of increasing systems.
cyber activity, fraud Notable examples include
rings and the level the enhancement in website
of change being deployed capabilities at Education
in the business makes and the development
this an area of higher of the Financier platform
potential risk. at Studio.
In addition, an enhanced
fraud solution accompanied
by improved operational
practices within Studio's
customer and financial
services departments
are being deployed.
Execution and liquidity Funding growth within Appropriate facilities
risks from a substantial our integrated retail are in place for the
three-year plan of and credit business medium term and regular
transformation and model is dependent on and rigorous viability
growth at Studio. the continued availability exercises are undertaken.
of debt facilities.
Fiscal controls, including
business forecasting
in support of stock
and cash flow management.
Any weakness in project A Change Board has been
and change management established to scrutinise,
in the delivery of key prioritise and oversee
priorities. resourcing and delivery
of transformation projects.
High level of demand We are adopting an enhanced
on planning and resource process of integrated
management to ensure cash management to meet
timely and on budget the demands of (i) change
delivery. and capital deployment
within the business;
alongside
(ii) daily operational
requirements.
Attracting and retaining Limited available experienced Significant progress
the right talent in staff in key business has been made in attracting
the business, particularly and technical areas new talent to the business
in the highly competitive and high demand for resulting in the renewal
areas of digital marketing, those people, of the senior management
IT development and teams throughout the
cyber security, to Group.
support the deployment
of our high growth Developing the business
digital strategy. as a regional employer
of choice is a key objective
and as such, enhanced
personnel frameworks
and reward strategies
are being developed.
Any inability to operate While Studio has a number Appropriate disaster
from one of our key of warehouse facilities, recovery plans have
warehouse facilities there is a high dependency been developed and are
centres on its main facility periodically reviewed
in Accrington. and upgraded.
The consolidation of
Education's warehousing
into its facility at
Nottingham has concentrated
its fulfilment activities
into a single location
that could also potentially
become a point of failure
risk.
-------------------------------- ---------------------------------
Findel plc
Group financial information
Consolidated Income Statement
52-week period ended 29 March 2019
Before
individually Individually
significant significant
items items Total
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ---------
Continuing operations
Revenue 408,688 - 408,688
Credit account interest 98,119 - 98,119
------------------------------------ ------------ ------------ ---------
Total revenue (including credit
interest) 506,807 - 506,807
------------------------------------ ------------ ------------ ---------
Cost of sales (261,377) - (261,377)
Impairment losses on customer
receivables (36,623) - (36,623)
------------------------------------ ------------ ------------ ---------
Gross profit 208,807 - 208,807
------------------------------------ ------------ ------------ ---------
Trading costs (170,390) (4,158) (174,548)
Analysis of operating profit:
- EBITDA* 50,022 (4,158) 45,864
- Depreciation and amortisation (11,605) - (11,605)
Operating profit 38,417 (4,158) 34,259
Finance costs (9,656) - (9,656)
------------------------------------ ------------ ------------ ---------
Profit before tax and fair value
movements on derivative financial
instruments 28,761 (4,158) 24,603
------------------------------------ ------------ ------------ ---------
Fair value movements on derivative
financial instruments 4,750 - 4,750
------------------------------------ ------------ ------------ ---------
Profit before tax 33,511 (4,158) 29,353
Tax (expense)/income (6,805) 741 (6,064)
Profit for the period 26,706 (3,417) 23,289
------------------------------------ ------------ ------------ ---------
Earnings per ordinary share
Basic 26.98p
Diluted 26.98p
The accompanying notes are an integral part of this consolidated
income statement.
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
Consolidated Income Statement
52-week period ended 30 March 2018 (restated - refer to note
1)
Before
individually Individually
significant significant
items items Total
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ---------
Continuing operations
Revenue 387,702 - 387,702
Credit account interest 91,911 - 91,911
------------------------------------ ------------ ------------ ---------
Total revenue (including credit
interest) 479,613 - 479,613
Cost of sales (253,550) - (253,550)
Impairment losses on customer
receivables (28,156) - (28,156)
Gross profit 197,907 - 197,907
------------------------------------ ------------ ------------ ---------
Trading costs (161,931) - (161,931)
Analysis of operating profit:
- EBITDA* 46,395 - 46,395
- Depreciation and amortisation (10,419) - (10,419)
Operating profit 35,976 - 35,976
Finance costs (9,130) - (9,130)
------------------------------------ ------------ ------------ ---------
Profit before tax and fair value
movements on derivative financial
instruments 26,846 - 26,846
------------------------------------ ------------ ------------ ---------
Fair value movements on derivative
financial instruments (4,701) - (4,701)
------------------------------------ ------------ ------------ ---------
Profit before tax 22,145 - 22,145
Tax expense (2,565) - (2,565)
Profit for the period 19,580 - 19,580
------------------------------------ ------------ ------------ ---------
Earnings per ordinary share
Basic 22.68p
Diluted 22.68p
The accompanying notes are an integral part of this consolidated
income statement.
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
Consolidated Statement of Comprehensive Income
52-week period ended 29 March 2019
2018
2019 (restated)
GBP000 GBP000
-------------------------------------------------- ------- -----------
Profit for the period 23,289 19,580
Other Comprehensive Income
Items that may be reclassified to profit
or loss
Cash flow hedges (19) 16
Currency translation (loss)/gain arising
on consolidation (353) 293
-------------------------------------------------- ------- -----------
(372) 309
-------------------------------------------------- ------- -----------
Items that will not subsequently be reclassified
to profit or loss
Remeasurements of defined benefit pension
scheme (2,374) 5,227
Tax relating to components of other comprehensive
income 643 (2,335)
-------------------------------------------------- ------- -----------
(1,731) 2,892
-------------------------------------------------- ------- -----------
Total comprehensive income for period 21,186 22,781
-------------------------------------------------- ------- -----------
The total comprehensive income for the period is attributable to
the equity shareholders of the parent company Findel plc.
The accompanying notes are an integral part of this consolidated
statement of comprehensive income.
Consolidated Balance Sheet Company Number: 549034
at 29 March 2019
2018 2017
2019 (restated) (restated)
GBP000 GBP000 GBP000
--------------------------------- --- --------- ----------- -----------
Non-current assets
Intangible assets 24,952 25,175 26,186
Property, plant and equipment 45,511 45,350 44,416
Derivative financial instruments 6 41 32
Retirement benefit surplus - 2,205 -
Deferred tax assets 10,556 8,904 8,524
81,025 81,675 79,158
------------------------------------- --------- ----------- -----------
Current assets
Inventories 48,757 54,375 58,410
Trade and other receivables 235,923 230,802 210,742
Derivative financial instruments 604 6 556
Cash and cash equivalents 37,603 26,244 29,173
Current tax assets - 451 1,748
322,887 311,878 300,629
------------------------------------- --------- ----------- -----------
Total assets 403,912 393,553 379,787
-------------------------------------- --------- ----------- -----------
Current liabilities
Trade and other payables (72,592) (67,047) (63,474)
Obligations under finance
leases (498) (572) (545)
Derivative financial instruments - (4,147) -
Provisions (3,325) (9,424) (27,770)
Current tax liabilities (1,762) - -
(78,177) (81,190) (91,789)
------------------------------------- --------- ----------- -----------
Non-current liabilities
Bank loans (270,545) (257,504) (252,534)
Obligations under finance
leases - (497) (1,069)
Provisions (7,753) (10,605) (12,767)
Retirement benefit obligation (68) - (5,415)
Deferred tax liabilities (3,849) (4,564) -
(282,215) (273,170) (271,785)
------------------------------------- --------- ----------- -----------
Total liabilities (360,392) (354,360) (363,574)
-------------------------------------- --------- ----------- -----------
Net assets 43,520 39,193 16,213
-------------------------------------- --------- ----------- -----------
Equity
Share capital 48,644 48,644 48,644
Translation reserve 764 1,117 824
Hedging reserve (54) (35) (51)
Accumulated losses (5,834) (10,533) (33,204)
Total equity 43,520 39,193 16,213
-------------------------------------- --------- ----------- -----------
The accompanying notes are an integral part of this consolidated
balance sheet.
Consolidated Cash Flow Statement
52-week period ended 29 March 2019
2018
2019 (restated)
GBP000 GBP000
---------------------------------------------- --- -------- -----------
Profit for the period 23,289 19,580
Adjustments for:
Income tax 6,064 2,565
Finance costs 9,656 9,130
Depreciation of property, plant and equipment 9,438 8,423
Amortisation of intangible assets 2,167 1,996
Share-based payment expense 926 199
Loss on disposal of property, plant and
equipment - 192
Fair value movements on financial instruments
net of premiums paid (4,784) 4,648
Pension contributions less income statement
charge (40) (2,500)
Operating cash flows before movements
in working capital 46,716 44,233
Decrease in inventories 5,618 4,547
Increase in receivables (26,549) (20,573)
Increase in payables 5,522 3,894
Decrease in provisions (8,951) (20,662)
--------------------------------------------------- -------- -----------
Cash generated from operations 22,356 11,439
Income taxes (paid)/refunded (1,931) 581
Interest paid (10,017) (8,482)
Net cash from operating activities 10,408 3,538
--------------------------------------------------- -------- -----------
Investing activities
Interest received - 177
Proceeds on disposal of property, plant
and equipment - 50
Purchases of property, plant and equipment,
software and IT development costs and
intangible assets (11,545) (10,595)
Acquisition of subsidiary, net of cash
acquired - (450)
Net cash used in investing activities (11,545) (10,818)
--------------------------------------------------- -------- -----------
Financing activities
Repayments of obligations under finance
leases (571) (545)
Bank loans repaid (5,000) (10,000)
Securitisation loan drawn 18,041 14,970
Net cash from financing activities 12,470 4,425
--------------------------------------------------- -------- -----------
Net increase/(decrease) in cash and cash
equivalents 11,333 (2,855)
Cash and cash equivalents at the beginning
of the period 26,244 29,173
Effect of foreign exchange rate changes 26 (74)
Cash and cash equivalents at the end of
the period 37,603 26,244
--------------------------------------------------- -------- -----------
The accompanying notes are an integral part of this consolidated
cash flow statement.
Consolidated Statement of Changes in Equity
52-week period ended 29 March 2019
Translation Hedging Accumulated
Share capital reserve reserve losses Total equity
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ------------- ----------- -------- ----------- ------------
At 31 March 2017 (as
reported) 48,644 824 (51) (32,714) 16,703
Effect of adopting IFRS
15 (note 1) - - - (490) (490)
---------------------------- ------------- ----------- -------- ----------- ------------
At 31 March 2017 (restated) 48,644 824 (51) (33,204) 16,213
Total comprehensive income
for the period (restated) - 293 16 22,472 22,781
Share-based payments - - - 199 199
At 30 March 2018 (restated) 48,644 1,117 (35) (10,533) 39,193
Adjustment on initial
application of IFRS 9
(net of tax) - - - (17,785) (17,785)
---------------------------- ------------- ----------- -------- ----------- ------------
Restated balance at 30
March 2018 48,644 1,117 (35) (28,318) 21,408
Total comprehensive income
for the period - (353) (19) 21,558 21,186
Share-based payments - - - 926 926
---------------------------- ------------- ----------- -------- ----------- ------------
At 29 March 2019 48,644 764 (54) (5,834) 43,520
---------------------------- ------------- ----------- -------- ----------- ------------
The total equity is attributable to the equity shareholders of
the parent company Findel plc.
The accompanying notes are an integral part of this consolidated
statement of changes in equity.
Findel plc
Notes to the Group Financial Information
1 Basis of preparation of consolidated financial information
The financial information set out herein does not constitute the
Company's statutory financial statements for the periods ended 29
March 2019 or 30 March 2018, but is derived from those financial
statements. Statutory financial statements for 2018 have been
delivered to the Registrar of Companies, and those for 2019 will be
delivered in due course. The financial statements were approved by
the Board of directors on 4 June 2019. The auditors have reported
on those financial statements; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under Section 498 (2)
or (3) of the Companies Act 2006.
Copies of the Company's statutory financial statements will be
available on the Group's corporate website. Additional copies will
be available upon request from Findel plc, Church Bridge House,
Accrington, BB5 4EE.
The Group financial information has been prepared in accordance
with International Financial Reporting Standards ("IFRS") as
adopted for use within the European Union and in accordance with
the accounting policies included in the Annual Report for the
period ended 30 March 2018 except as stated below.
Going concern
In determining whether the Group's financial statements for the
period ended 29 March 2019 can be prepared on a going concern
basis, the Directors considered all factors likely to affect its
future development, performance and its financial position,
including its cash flows, liquidity position and borrowing
facilities and the risks and uncertainties relating to its business
activities in the current economic climate.
The Directors have reviewed the Group's trading and cash flow
forecasts as part of their going concern assessment, including
considering the potential impact of reasonably possible downside
sensitivities which take into account the uncertainties in the
current operating environment, including, amongst other matters,
demand for the Group's products, its available financing
facilities, and regulatory licensing and compliance. Although at
certain times, under the downside sensitivities, the level of
facility and/or covenant headroom reduces to a level which requires
cash flow initiatives to be introduced to ensure that the funding
requirements do not exceed the committed facilities or result in
non-compliance with covenants, management are confident that such
actions are supportable, and that further controllable mitigating
actions are available that could be implemented if required. The
Group's current banking facilities mature in December 2020.
Taking into account the above circumstances, the Directors have
formed a judgement that there is a reasonable expectation, and
there are no material uncertainties, that the Group and the Company
have adequate resources to continue in operational existence for a
period of at least 12 months.
Accordingly, they continue to adopt the going concern basis in
preparing the Group's annual consolidated financial statements.
Impact of accounting standards that have become effective during
the current period
The Group has initially applied IFRS 9 Financial Instruments and
IFRS 15 Revenue from Contracts with Customers with effect from 31
March 2018, being the first day of the current accounting
period.
-- IFRS 9 'Financial Instruments' ("IFRS 9")
IFRS 9 sets out requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items. This standard replaces IAS 39
Financial Instruments: Recognition and Measurement.
As a result of the adoption of IFRS 9, the Group has adopted
consequential amendments to IAS 1 Presentation of Financial
Statements, which require separate presentation in the Consolidated
Income Statement of interest income calculated using the effective
interest rate method and impairment of financial assets.
Previously, the Group's approach was to include interest income
calculated using the effective interest rate method within revenue
and impairment of financial assets within cost of sales.
Consequently, the Group has reclassified interest income of
GBP98,119,000 (2018: GBP91,911,000) from revenue to "credit account
interest" and GBP36,623,000 (2018: GBP28,156,000) from cost of
sales to "impairment losses on customer receivables" in the
consolidated income statement.
i) Classification - financial assets and liabilities
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics.
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income ("FVOCI") and fair value through profit
and loss ("FVTPL"). The standard eliminates the existing IAS 39
categories of held to maturity, loans and receivables and available
for sale.
A financial asset will be measured at amortised cost if both the
following conditions are met and it has not been designated as at
FVTPL:
-- the asset is held within a business model whose objective is
to hold the asset to collect its contractual cash flows; and
-- the contractual terms of the financial asset give rise to
cash flows on specified dates that represent payments of solely
principal and interest on the outstanding.
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities.
The adoption of IFRS 9 has not had a significant effect on the
Group's accounting policies related to financial liabilities and
derivative financial instruments. The impact of IFRS 9 on the
classification and measurement of financial assets at 31 March 2018
is set out in the table below:
Original
Original New carrying New carrying
classification classification amount amount
under IAS under under under
39 IFRS 9 IAS 39 IFRS 9
Financial Assets GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------------- ---------------- --------- ------------
Loans and Amortised
Trade receivables receivables cost 212,897 191,469
Loans and Amortised
Other receivables and prepayments receivables cost 17,905 17,905
Loans and Amortised
Cash and cash equivalents receivables cost 26,244 26,244
The following table reconciles the carrying amounts of financial
assets under IAS 39 to the carrying amounts under IFRS 9 on
transition on 31 March 2018:
Carrying Carrying
amount amount
under under
IAS 39 at IFRS 9 at
30 March 31 March
2018 Remeasurement 2018
Financial Assets GBP000 GBP000 GBP000
---------------------------------- ---------- ------------- ----------
Trade receivables 212,897 (21,428) 191,469
Other receivables and prepayments 17,905 - 17,905
Cash and cash equivalents 26,244 - 26,244
Studio's trade receivables that were classified as loans and
receivables under IAS 39 are now classified at amortised cost. An
increase in the allowance for impairment over these trade
receivables of GBP21,428,000 was recognised in opening accumulated
losses at 31 March 2018 as a result. A corresponding deferred tax
asset of GBP3,643,000 was also recognised in accumulated losses at
31 March 2018.
Financial assets classified at amortised cost are subsequently
measured at amortised cost using the effective interest method. The
amortised cost is reduced by impairment losses (see point ii)
below). Interest income, foreign exchange gains and losses and
impairment are recognised in profit and loss. Any gain or loss on
derecognition is recognised in profit or loss.
ii) Impairment of financial assets
IFRS 9 replaces the incurred loss model in IAS 39 with a
forward-looking expected credit loss ("ECL") model and therefore
materially changes the way in which the Group calculates its
provision for impairment in respect of Studio Retail's trade
receivables. Under IFRS 9, credit losses are recognised earlier
than under IAS 39.
As the Group has determined there is a significant financing
component, the ECL model introduces the concept of staging:
-- Stage 1: Where there is no evidence of significant increase
in credit risk since the origination of the financial asset. Stage
1 applies from the initial recognition of the financial asset
unless it was credit impaired when purchased or originated;
-- Stage 2: Where there is evidence of significant increase in
credit risk since origination of the financial asset; and
-- Stage 3: Where the financial asset becomes credit impaired.
Under IFRS 9, loss allowances are measured on the following
bases:
-- 12-month ECLs: these are ECLs that result from possible
default events within the 12 months after the reporting date;
and
-- lifetime ECLs: these are ECLs that result from all possible
default events over the expected life of a financial
instrument.
12-month ECLs are used for Stage 1 performing assets and a
lifetime ECL is used for stages 2 and 3. An asset will move from
Stage 1 to Stage 2 when there is evidence of significant increase
in credit risk since the asset originated and into Stage 3 when it
is credit impaired. Should the credit risk improve so that the
assessment of credit risk at the reporting date is considered not
to be significant any longer, assets return to an earlier stage in
the ECL model.
The Group assumes that the credit risk on a financial asset has
increased significantly if it is more than 30 days past due, has
been placed on an arrangement to pay less than the standard
required minimum payment or has had interest suspended.
The Group considers a financial asset to be in default when it
is more than 120 days past due and/or when the borrower is unlikely
to pay its obligations in full.
When determining whether the credit risk of a financial asset
has increased significantly since initial recognition and when
estimating ECLs, the Group considers reasonable and supportable
information that is relevant and available without undue cost or
effort. This includes both quantitative and qualitative information
and analysis based on the Group's historical experience and
informed credit assessment including forward looking
information.
Estimation uncertainty
The key assumptions in the ECL calculations are:
Probability of Default ("PD") - an estimate of the likelihood of
default over 12 months and the expected lifetime of the debt;
Exposure at Default ("EAD") - an estimate of the exposure at a
future default date, taking into account expected changes in the
exposure after the reporting date, including repayments of
principal and interest, whether scheduled by the contract or
otherwise and accrued interest from missed payments; and
Loss Given Default ("LGD") - an estimate of the loss arising in
the case where a default occurs at a given time. It is based on the
difference between the contractual cash flows due and those that
the Group would expect to receive, discounted at the original
effective interest rate.
Incorporation of forward-looking information
The Group incorporates forward-looking information into its
measurement of ECLs. This is achieved by developing four potential
economic scenarios and modelling ECLs for each scenario. The
outputs from each scenario are combined; using the estimated
likelihood of each scenario occurring to derive a probability
weighted ECL.
Management judgement is required in setting assumptions around
probabilities of default and the weighting of economic scenarios in
particular which have a material impact on the results indicated by
the ECL model.
Presentation
Loss allowances for financial assets are deducted from the gross
carrying amount of the asset. Impairment losses related to Studio
Retail's trade receivables are separately in the consolidated
income statement.
Impact of new impairment model
The Group has determined that the application of IFRS 9's
impairment requirements at 31 March 2018 results in an additional
impairment provision in respect Studio Retail's trade receivables
as follows:
GBP000
-------------------------------------------------- --------------
Impairment provision at 30 March 2018 under
IAS 39 (55,084)
Additional impairment provision recognised
on adoption of IFRS 9 (21,428)
-------------------------------------------------- --------------
Impairment provision at 31 March 2018 under
IFRS 9 (76,512)
-------------------------------------------------- --------------
iv) Transition
Changes in accounting policies resulting from the adoption of
IFRS 9 have been applied retrospectively, except that the Group has
taken an exemption not to restate comparative information for prior
periods with respect to classification and measurement (including
impairment) requirements. Differences in the carrying amounts of
financial assets resulting from the adoption of IFRS 9 are
recognised in accumulated losses as at 31 March 2018. Accordingly,
the information presented for the period to 30 March 2018 reflects
the requirements of IAS 39 rather than IFRS 9.
-- IFRS 15 'Revenue from Contracts with Customers' ("IFRS 15")
IFRS 15 replaced IAS 18 Revenue, IAS 11 Construction Contracts
and related interpretations, and it applies to all revenue arising
from contracts with customers, unless those contracts are in the
scope of other standards.
The standard introduces a five-step approach to the recognition
of revenue as follows:
1. Identify the contract(s) with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations
in the contract; and
5. Recognise revenue when (or as) the entity satisfied a
performance obligation.
The Group has performed a detailed impact assessment,
identifying all current sources of revenue in scope of the new
standard and assessing their treatment under the five-step
model.
The principal impact of adopting the new standard is a change in
the point at which revenue is recognised in respect of the supply
of products to customers (including delivery charges) from the
point of despatch to the point of delivery. This is on the basis
that the performance obligations identified in these transactions
are the supply and delivery of products and that these obligations
are not deemed to be completed until the customer obtains control
of the products (i.e. on delivery). The supply and delivery of
products are not deemed to be separable performance obligations as
the customer is obliged to make use of the Group's delivery
arrangements in most cases.
The impact of this change is to delay the recognition of revenue
(and gross profit) by an average of 1 to 3 days, reflecting the
Group's standard delivery timeframes.
The Group has adopted IFRS 15 using the fully retrospective
method of adoption. Consequently, the comparative Consolidated
Income Statement for the period ended 30 March 2018 and the
Consolidated Balance Sheets at 31 March 2017 and 30 March 2018 have
been restated to reflect the requirements of IFRS 15. The impact of
adopting IFRS 15 on the current and comparative periods shown is
summarised in the following tables.
Impact on the Consolidated Income Statement and Comprehensive
Income
52-week period ended 29 March 2019
Amounts Impact of As reported
prior to IFRS 15
adoption adoption
of IFRS
15
GBP000 GBP000 GBP000
-------------------------------------------- --------- --------- -----------
Continuing operations
Revenue 408,071 617 408,688
Credit account interest 98,119 98,119
-------------------------------------------- --------- --------- -----------
Total revenue (including credit interest) 506,190 617 506,807
Cost of sales (260,866) (511) (261,377)
Impairment losses on customer receivables (36,623) (36,623)
Gross profit 208,701 106 208,807
-------------------------------------------- --------- --------- -----------
Trading costs (174,424) (124) (174,548)
-------------------------------------------- --------- --------- -----------
Analysis of operating profit:
- EBITDA* 45,882 (18) 45,864
- Depreciation and amortisation (11,605) - (11,605)
-------------------------------------------- --------- --------- -----------
Operating profit 34,277 (18) 34,259
Finance costs (9,656) - (9,656)
-------------------------------------------- --------- --------- -----------
Profit before tax and fair value movements
on derivative financial instruments 24,621 (18) 24,603
-------------------------------------------- --------- --------- -----------
Fair value movements on derivative
financial instruments 4,750 - 4,750
-------------------------------------------- --------- --------- -----------
Profit before tax 29,371 (18) 29,353
Tax expense (6,064) - (6,064)
Profit for the period 23,307 (18) 23,289
-------------------------------------------- --------- --------- -----------
Total comprehensive income for the
period 21,204 (18) 21,186
-------------------------------------------- --------- --------- -----------
Earnings per ordinary share
Basic 27.00p (0.02)p 26.98p
Diluted 27.00p (0.02)p 26.98p
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
52-week period ended 30 March 2018
Amounts Impact of As reported
prior to IFRS 15
adoption adoption
of IFRS
15
GBP000 GBP000 GBP000
-------------------------------------------- --------- --------- -----------
Continuing operations
Revenue 387,048 654 387,702
Credit account interest 91,911 91,911
-------------------------------------------- --------- --------- -----------
Total revenue (including credit interest) 478,959 654 479,613
Cost of sales (253,020) (530) (253,550)
Impairment losses on customer receivables (28,156) (28,156)
Gross profit 197,783 124 197,907
-------------------------------------------- --------- --------- -----------
Trading costs (161,832) (99) (161,931)
-------------------------------------------- --------- --------- -----------
Analysis of operating profit:
- EBITDA* 46,370 25 46,395
- Depreciation and amortisation (10,419) - (10,419)
-------------------------------------------- --------- --------- -----------
Operating profit 35,951 25 35,976
Finance costs (9,130) - (9,130)
-------------------------------------------- --------- --------- -----------
Profit before tax and fair value movements
on derivative financial instruments 26,821 25 26,846
-------------------------------------------- --------- --------- -----------
Fair value movements on derivative
financial instruments (4,701) - (4,701)
-------------------------------------------- --------- --------- -----------
Profit before tax 22,120 25 22,145
Tax expense (2,542) (23) (2,565)
Profit for the period 19,578 2 19,580
-------------------------------------------- --------- --------- -----------
Total comprehensive income for the
period 22,779 2 22,781
-------------------------------------------- --------- --------- -----------
Earnings per ordinary share
Basic 22.68p 0.00p 22.68p
Diluted 22.68p 0.00p 22.68p
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
Impact on the Consolidated Balance Sheet
at 29 March 2019
Amounts prior Impact of As reported
to adoption IFRS 15 adoption
of IFRS 15
GBP000 GBP000 GBP000
--------------------------------- ------------- ----------------- -----------
Non-current assets 81,025 - 81,025
---------------------------------- ------------- ----------------- -----------
Current assets
Inventories 47,526 1,231 48,757
Trade and other receivables 237,751 (1,828) 235,923
Derivative financial instruments 604 - 604
Cash and cash equivalents 37,603 - 37,603
323,484 (597) 322,887
--------------------------------- ------------- ----------------- -----------
Total assets 404,509 (597) 403,912
---------------------------------- ------------- ----------------- -----------
Current liabilities
Trade and other payables (72,592) - (72,592)
Obligations under finance
leases (498) - (498)
Provisions (3,325) - (3,325)
Current tax liabilities (1,853) 91 (1,762)
---------------------------------- ------------- ----------------- -----------
(78,268) 91 (78,177)
--------------------------------- ------------- ----------------- -----------
Non-current liabilities (282,215) - (282,215)
---------------------------------- ------------- ----------------- -----------
Total liabilities (360,483) 91 (360,392)
---------------------------------- ------------- ----------------- -----------
Net assets 44,026 (506) 43,520
---------------------------------- ------------- ----------------- -----------
Equity
Share capital 48,644 - 48,644
Translation reserve 764 - 764
Hedging reserve (54) - (54)
Accumulated losses (5,328) (506) (5,834)
Total equity 44,026 (506) 43,520
---------------------------------- ------------- ----------------- -----------
at 30 March 2018
Amounts prior Impact of As reported
to adoption IFRS 15 adoption
of IFRS 15
GBP000 GBP000 GBP000
--------------------------------- ------------- ----------------- -----------
Non-current assets
Intangible assets 25,175 - 25,175
Property, plant and equipment 45,350 - 45,350
Derivative financial instruments 41 - 41
Retirement benefit surplus 2,205 - 2,205
Deferred tax assets 8,813 91 8,904
81,584 91 81,675
--------------------------------- ------------- ----------------- -----------
Current assets
Inventories 53,091 1,284 54,375
Trade and other receivables 232,665 (1,863) 230,802
Derivative financial instruments 6 - 6
Cash and cash equivalents 26,244 - 26,244
Current tax receivable 451 - 451
312,457 (579) 311,878
--------------------------------- ------------- ----------------- -----------
Total assets 394,041 (488) 393,553
---------------------------------- ------------- ----------------- -----------
Current liabilities (81,190) - (81,190)
---------------------------------- ------------- ----------------- -----------
Non-current liabilities (273,170) - (273,170)
---------------------------------- ------------- ----------------- -----------
Total liabilities (354,360) - (354,360)
---------------------------------- ------------- ----------------- -----------
Net assets 39,681 (488) 39,193
---------------------------------- ------------- ----------------- -----------
Equity
Share capital 48,644 - 48,644
Translation reserve 1,117 - 1,117
Hedging reserve (35) - (35)
Accumulated losses (10,045) (488) (10,533)
Total equity 39,681 (488) 39,193
---------------------------------- ------------- ----------------- -----------
at 31 March 2017
Amounts prior Impact of As reported
to adoption IFRS 15 adoption
of IFRS 15
GBP000 GBP000 GBP000
--------------------------------- ------------- ----------------- -----------
Non-current assets
Intangible assets 26,186 - 26,186
Property, plant and equipment 44,416 - 44,416
Derivative financial instruments 32 - 32
Deferred tax assets 8,410 114 8,524
79,044 114 79,158
--------------------------------- ------------- ----------------- -----------
Current assets
Inventories 57,108 1,302 58,410
Trade and other receivables 212,648 (1,906) 210,742
Derivative financial instruments 556 - 556
Cash and cash equivalents 29,173 - 29,173
Current tax receivable 1,748 - 1,748
301,233 (604) 300,629
--------------------------------- ------------- ----------------- -----------
Total assets 380,277 (490) 379,787
---------------------------------- ------------- ----------------- -----------
Current liabilities (91,789) - (91,789)
---------------------------------- ------------- ----------------- -----------
Non-current liabilities (271,785) - (271,785)
---------------------------------- ------------- ----------------- -----------
Total liabilities (363,574) - (363,574)
---------------------------------- ------------- ----------------- -----------
Net assets 16,703 (490) 16,213
---------------------------------- ------------- ----------------- -----------
Equity
Share capital 48,644 - 48,644
Translation reserve 824 - 824
Hedging reserve (51) - (51)
Accumulated losses (32,714) (490) (33,204)
Total equity 16,703 (490) 16,213
---------------------------------- ------------- ----------------- -----------
The adoption of IFRS 15 did not have a material impact on the
Group's cash flows in either the current or comparative
periods.
Impact of accounting standards not yet effective
-- IFRS 16 'Leases' ("IFRS 16")
IFRS 16 is effective for all accounting periods beginning on or
after 1 January 2019. For Findel plc the first reported accounting
period under IFRS 16 will be the 2019/20 financial year.
On the adoption of IFRS 16, lease agreements will give rise to
both a right of use asset and a lease liability for future lease
payables. The right of use asset will be depreciated on a
straight-line basis over the life of the lease. Interest will be
recognised on the lease liability, resulting in a higher interest
expense in the earlier years of the lease term. The total expense
recognised over the life of the lease will be unaffected by the new
standard. However, IFRS 16 will result in the timing of lease
expense recognition being accelerated for leases which would be
currently accounted for as operating leases. It will also affect
presentation of costs in the Consolidated Income Statement.
The adoption of IFRS 16 has no effect on how the business is
run, nor on the overall cash flows for the Group.
Transition
The Group has decided to adopt the modified retrospective
transition approach. The Group will apply the practical expedient
to grandfather the definition of a lease on transition and apply
the recognition exemption for both short term and low value
assets.
Findel plc has established a working group to ensure we take all
necessary steps to comply with the requirements of IFRS 16,
reporting regularly to the Audit Committee. Significant work has
been completed, including collection of relevant data, changes to
processes, and the determination of relevant accounting
policies.
At March 2019 the weighted average discount rate, based on
incremental borrowing rates, across the Group lease portfolio is
approximately 3.6%. This is on the basis that the Group's
borrowings are secured by fixed and floating charges and would
therefore be similar in risk profile to lending secured against a
leased asset.
Impact to financial statements
The modified retrospective approach does not require a
restatement of the prior period comparatives. There will be no
adjustment to FY20 opening retained earnings, but Findel plc will
recognise an opening right of use asset in the region of GBP42m and
a lease liability in the region of GBP50m. The models and business
processes used to calculate these indicative figures are still
under development. They therefore reflect management's best
estimates at this stage and as such, are subject to final
verification.
The opening right of use asset is lower than the opening lease
liability as it takes into account onerous lease provisions which
are reflected as impairments of the opening right of use asset. On
an ongoing basis, if indicators of impairment exist, then the right
of use lease asset will be tested for impairment as per IAS 36.
We do not expect the adoption of IFRS 16 to have a material
impact on the Group's effective tax rate.
There will be no impact on cash flows, although the presentation
of the Cash Flow Statement will change significantly, with an
increase in net cash inflows from operating activities being offset
by an increase in net cash outflows from financing activities
(interest paid).
Segmental reporting
IFRS 8 requires operating segments to be identified on the basis
of the internal financial information reported to the CODM who is
primarily responsible for the allocation of resources to segments
and the assessment of performance of the segments. The CODM is the
Board of Findel plc.
The Group's operations are organised into a central cost centre
and two operating segments as follows:
-- Studio (formerly Express Gifts); and
-- Education.
The CODM assess the operating performance of each segment by
reference to revenue and gross margin by revenue stream, and
operating profit after distribution, marketing and administration
costs, depreciation and amortisation.
Critical accounting judgements and key sources of estimation
uncertainty
In the course of applying the Group's accounting policies, no
judgements have been made that have had a significant effect on the
reported amounts of assets, liabilities, income and expenses, other
than those involving estimations stated below.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are as follows:
Studio's trade receivables
Studio's trade receivables are recognised on the balance sheet
at amortised cost (i.e. net of provision for expected credit loss).
At 29 March 2019 trade receivables with a gross value of GBP295.5m
(2018 restated: GBP259.1m) were recorded on the balance sheet, less
a provision for impairment of GBP87.9m (2018: GBP55.1m).
An appropriate allowance for expected credit loss in respect of
trade receivables is derived from estimates and underlying
assumptions such as the Probability of Default and the Loss Given
Default, taking into consideration forward looking macro-economic
assumptions. Changes in the assumptions applied such as the value
and frequency of future debt sales in calculating the Loss Given
Default, and the estimation of customer repayments and Probability
of Default rates, as well as the weighting of the macro-economic
scenarios applied to the impairment model could have a significant
impact on the carrying value of trade receivables.
As a result, these assumptions are continually assessed for
relevance and adjusted appropriately. Revisions to estimates are
recognised prospectively.
Valuation of indefinite-lived intangibles
The Group has significant investments in indefinite lived
intangible assets at 29 March 2019 as a result of acquisitions of
businesses and purchases of such assets. The carrying value of
indefinite-lived intangible assets at 29 March 2019 was GBP17.3m
(2018: GBP17.3m). These assets are held at cost less provisions for
impairment and are tested annually for impairment. Tests for
impairment are primarily based on the calculation of a value in use
for each cash generating unit. This involves the preparation of
discounted cash flow projections, which require an estimate of both
future operating cash flows and an appropriate discount rate.
Other key accounting estimates which, although important
estimates, are not considered to be a significant risk of resulting
in a material adjustment within the next financial year are as
follows:
Inventory provisioning
The Group carries significant amounts of inventory against which
there are provisions for slow moving and delisted products. At 29
March 2019 a provision of GBP2.5m (2018: GBP1.9m) was held against
a gross inventory value of GBP51.2m (2018 restated: GBP56.3m).
Provisions are made against inventory based upon its location,
the planned method of sale and the level of holding compared to
forecast sales levels. The provisioning calculations require a high
degree of judgement in assessing which lines require provisioning
against and the use of estimates around historical recovery rates
for slow moving and delisted products.
If a further 10% of lines were assessed as being slow moving,
then the provision required would increase by approximately
GBP250,000. If the recovery rate assumed decreased by 10% then the
provision would increase by approximately GBP800,000. These
sensitivities reflect management's assessment of reasonably
possible changes to key assumptions which could result in
adjustments to the level of provision within the next financial
year.
Provisions for Financial Services redress
At 29 March 2019 a provision of GBP2.2m (2018: GBP8.6m) remains
provided in the balance sheet in respect of redress and refunds for
flawed financial services products.
Provisions totalling GBP29m were built up in FY16 and FY17 in
relation to the anticipated refund of premiums and interest to
customers in respect of historic flawed credit and insurance
products. Those provisions contained assumptions and judgements on
the likely level of customer response and the quantum of refund due
to each responding customer. This programme has also been refined
over the last two years to include new guidance from the FCA on
refund matters, including the treatment of commissions following
the "Plevin" ruling. This refined scope, together with slightly
higher response levels than originally anticipated, has led to an
increase in the provision required at 29 March 2019 of
GBP4,157,000. This has been partially offset by the recognition of
a receivable balance of GBP1,239,000 (recorded in other debtors) in
respect of contributions expected to be received from underwriters
and the recovery of VAT on the operational costs of the exercise
which were originally assumed to be irrecoverable. The net charge
to the Consolidated Income statement in the current period is
therefore GBP2,918,000. Due to the scale of the charge incurred,
and the fact that the issues to which the redress and refund
programmes relate did not arise in the current period, management
have concluded that the additional charge should be separately
disclosed as an individually significant item in the Consolidated
Income Statement.
Whilst the refund programme is now substantially concluded, the
amount that remains provided, particularly in respect of the
treatment of commissions following the Plevin ruling, is based on
an assumed response rate to a mailing exercise completed after the
year end. An increase of 5% in this assumed response rate would
increase the provision required by c.GBP0.1m. This sensitivity
analysis reflects management's assessment of a reasonably possible
change to key assumptions which could result in adjustments to the
level of provision within the next financial year.
Provisions for onerous leases
At 29 March 2019 a provision of GBP8.8m (2018: GBP11.4m) was
recorded in the balance sheet in respect of onerous leases for
unoccupied areas of the Group's premises at Enfield and Hyde. The
provisions represent the net of the remaining unavoidable lease
rentals, less an assumed level of sublet income over the remaining
terms of the leases of between nine and fifteen years. Because of
the long-term nature of the liabilities, the cash flows have been
discounted using a discount rate that reflects the risks inherent
in the future cash flows. Cash outflows have been discounted at a
risk-free rate of 3%, inflows from subleases that have been agreed
at 29 March 2019 have been discounted at 4%, whilst assumed inflows
from future subleases that have yet to be agreed have been
discounted at 6%.
Management have made estimates as to the timing and quantum of
sublet income expected to be received based on an assessment of
subleases agreed at the balance sheet date and local market
conditions, as well as applying judgement in discounting the cash
inflows at between 4% and 6%. During the year an agreement was
reached to sublease the vacant property at Enfield. Since the level
of sublet income was higher than anticipated, and the reduced risk
around the sublease inflows has led to a reduced 4% discount rate
being applied, a reduction in provision of GBP1.2m was indicated.
Consequently, a credit has been recorded in the Consolidated Income
Statement in this regard. Since this item does not relate to
trading in the current period and the original provision was
created as the result of costs classified as individually
significant items, management have concluded that the credit should
be separately disclosed as an individually significant item in the
Consolidated Income Statement.
The level of provision required is sensitive to the key
assumptions set out above. If the Hyde property remained vacant for
one further year than planned then the provision required would
increase by approximately GBP1.4m, whilst 1% increase in the
discount rate applied to the assumed sublease income would increase
the provision by approximately GBP0.7m. These sensitivities reflect
management's assessment of reasonably possible changes to key
assumptions which could result in adjustments to the level of
provision within the next financial year.
Discount rate for pension scheme liabilities
At 29 March 2019 the Group's defined benefit pension scheme
showed a deficit of GBP0.1m (2018: surplus of GBP2.2m). Management
makes use of the PwC Single Agency corporate bond yield curve to
derive the discount rate applied to the scheme's projected cash
flows, in the calculation of its liabilities under IAS 19. Changes
to the discount rate applied could lead to significant changes in
the level of liabilities recognised.
The carrying amounts of the assets and liabilities detailed
above are sensitive to the underlying assumptions used by
management in their calculation. It is reasonably possible that the
outcomes within the next financial year could differ from the
assumptions made, which would impact upon the carrying values
assumed.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any of the future
periods affected.
2 Segmental analysis
52 weeks ended 29 March 2019
Studio Education Central Total
GBP000 GBP000 GBP000 GBP000
---------- ---------- -------- ----------
Product revenue 307,249 82,081 - 389,330
Other financial services
revenue 19,332 - - 19,332
Credit account interest 98,119 - - 98,119
---------- ---------- -------- ----------
Financial services revenue 117,451 - - 117,451
Sourcing revenue 26 - - 26
---------- ---------- -------- ----------
Reportable segment revenue 424,726 82,081 - 506,807
---------- ---------- -------- ----------
Product cost of sales (208,344) (53,015) - (261,359)
Financial services cost
of sales (36,623) - - (36,623)
Sourcing cost of sales (18) - - (18)
---------- ---------- -------- ----------
Total cost of sales (244,985) (53,015) - (298,000)
---------- ---------- -------- ----------
Gross profit 179,741 29,066 - 208,807
---------- ---------- -------- ----------
Marketing costs (39,694) (2,803) - (42,497)
Distribution costs (38,396) (8,836) - (47,232)
Administrative costs (53,723) (12,552) (2,781) (69,056)
---------- ---------- -------- ----------
EBITDA* 47,928 4,875 (2,781) 50,022
---------- ---------- -------- ----------
Depreciation and amortisation (8,480) (1,658) (1,467) (11,605)
---------- ---------- -------- ----------
Operating profit/(loss)
before individually significant
items 39,448 3,217 (4,248) 38,417
---------- ---------- -------- ----------
Individually significant
items (2,918) 526 (1,766) (4,158)
---------- ---------- -------- ----------
Operating profit/(loss) 36,530 3,743 (6,014) 34,259
---------- ---------- -------- ----------
Finance costs (9,656)
---------- ---------- -------- ----------
Profit before tax and
fair value movements on
derivative financial instruments 24,603
---------- ---------- -------- ----------
Fair value movements on
derivative financial instruments 4,750
---------- ---------- -------- ----------
Profit before tax 29,353
---------- ---------- -------- ----------
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
52 weeks ended 30 March 2018 (restated)
Studio Education Central Total
GBP000 GBP000 GBP000 GBP000
---------- ---------- -------- ----------
Product revenue 284,965 86,336 - 371,301
Other financial services
revenue 16,205 - - 16,205
Credit account interest 91,911 - - 91,911
---------- ---------- -------- ----------
Financial services revenue 108,116 - - 108,116
Sourcing revenue 196 - - 196
---------- ---------- -------- ----------
Reportable segment revenue 393,277 86,336 - 479,613
---------- ---------- -------- ----------
Product cost of sales (198,021) (55,251) - (253,272)
Financial services cost
of sales (28,156) - - (28,156)
Sourcing cost of sales (205) (73) - (278)
---------- ---------- -------- ----------
Total cost of sales (226,382) (55,324) - (281,706)
---------- ---------- -------- ----------
Gross profit 166,895 31,012 - 197,907
---------- ---------- -------- ----------
Marketing costs (40,741) (3,393) - (44,134)
Distribution costs (35,183) (10,013) - (45,196)
Administrative costs (47,189) (13,183) (1,810) (62,182)
---------- ---------- -------- ----------
EBITDA* 43,782 4,423 (1,810) 46,395
---------- ---------- -------- ----------
Depreciation and amortisation (7,455) (1,488) (1,476) (10,419)
---------- ---------- -------- ----------
Operating profit/(loss)
before individually significant
items 36,327 2,935 (3,286) 35,976
---------- ---------- -------- ----------
Individually significant - - - -
items
---------- ---------- -------- ----------
Operating profit/(loss) 36,327 2,935 (3,286) 35,976
---------- ---------- -------- ----------
Finance costs (9,130)
---------- ---------- -------- ----------
Profit before tax and
fair value movements on
derivative financial instruments 26,846
---------- ---------- -------- ----------
Fair value movements on
derivative financial instruments (4,701)
---------- ---------- -------- ----------
Profit before tax 22,145
---------- ---------- -------- ----------
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
3 Individually significant items
An analysis of individually significant items arising during the
current period is as follows:
2019
GBP000
-------
Studio financial services redress and
refund costs (2,918)
Reduction in onerous lease provisions 1,220
GMP equalisation adjustment (2,460)
-------
(4,158)
Tax credit in respect of individually
significant items 741
Total (3,417)
-------
Individually significant costs totalling GBP29m were recorded in
FY16 and FY17 in relation to the creation of provisions for the
anticipated refund of premiums and interest to customers in respect
of historic flawed credit and insurance products. Those provisions
contained assumptions and judgements on the likely level of
customer response and the quantum of refund due to each responding
customer. The refund programme has also been refined over the last
two years to include new guidance from the FCA on refund matters,
including the treatment of commissions following the "Plevin"
ruling. This refined scope, together with slightly higher response
levels than originally anticipated, has led to an increase in the
provision required at 29 March 2019 of GBP4,157,000. This has been
partially offset by the recognition of a receivable balance of
GBP1,239,000 (recorded in other debtors) in respect of
contributions expected to be received from underwriters and the
recovery of VAT on the operational costs of the exercise, which
were originally assumed to be irrecoverable. The net charge to the
Consolidated Income statement in the current period is therefore
GBP2,918,000.
During the current period, an agreement was reached to sublease
the vacant property at Enfield. Since the level of sublet income
was higher than anticipated, and the reduced risk around the
sublease inflows has led to a reduced 4% discount rate being
applied, a reduction in provision of GBP1.2m was indicated.
Consequently, a credit has been recorded in the Consolidated Income
Statement in this regard. Please refer to note 1 for further
details.
In October 2018, the High Court handed down a judgement
involving the Lloyds Banking Group's defined benefit pension
schemes. The judgement concluded that the schemes should be amended
to equalise pension benefits for men and women in relation to
guaranteed minimum pension ("GMP") benefits. The issues determined
by the judgement arise in relation to many other defined benefit
pension schemes, including the Findel Group Pension Fund. After
discussion with the trustees, actuaries and legal advisors of our
fund, a past service cost of GBP2,460,000 has been recognised,
increasing the total scheme liabilities by approximately 1.7%, to
address this historical issue.
There were no individually significant items identified in the
prior period.
4 Current taxation
(a) Tax charged/(credited) in the income statement
2018
2019 (restated)
GBP000 GBP000
---------------------------------------- ------ -----------
Current tax expense/(income):
Current period (UK tax) 3,879 1,404
Current period (overseas tax) 123 63
Adjustments in respect of prior periods
(UK tax) (1) 143 (751)
4,145 716
---------------------------------------- ------ -----------
Deferred tax expense:
Origination and reversal of temporary
differences 1,775 328
Adjustments in respect of prior periods
(1) 144 772
Effect of tax rate change on opening
balance (2) - 749
1,919 1,849
---------------------------------------- ------ -----------
Tax expense 6,064 2,565
---------------------------------------- ------ -----------
(1) The prior period adjustment in FY18 related to the tax
treatment of a post balance sheet event recorded in the statutory
accounts of Studio Retail Limited, which resulted in the Group's
current tax liability for 2016/17 being lower than the level
assumed in the FY17 accounts. This led a to a reduction in the
level of brought forward losses, which resulted in a corresponding
adjustment to deferred tax.
(2) The prior period figure related to the recognition of
deferred tax liabilities in respect of the group section of the
Findel Group Pension Fund, which moved into a surplus position
during FY18. Consequently, the deferred tax liability was
calculated at a tax rate of 35% in FY18, which reflects the rate of
tax payable on any return of defined benefit pension surpluses,
rather than the 17% rate assumed in FY17.
The Group believes that its accruals for tax liabilities are
adequate for all open tax years based on its assessment of many
factors, including interpretations of tax law and prior
experience.
(b) Tax recognised directly in other comprehensive income
2019 2018
GBP000 GBP000
------------------------------------- ------ ------
Deferred tax:
Tax on defined benefit pension plans (643) 2,335
------------------------------------- ------ ------
(c) Reconciliation of the total tax charge/(income)
The tax expense in the income statement for the period differs
from the standard rate of corporation tax in the UK of 19% (2018:
19%).
The differences are reconciled below:
2018
2019 (restated)
GBP000 GBP000
--------------------------------------------- ------ -----------
Profit before tax 29,353 22,145
Tax calculated at standard corporation
tax rate of 19% (2018: 19%) 5,577 4,208
Effects of:
Expenses not deductible for tax purposes 429 264
Higher tax rates on overseas earnings 178 135
Deferred tax asset not previously recognised
(3) (407) (2,812)
Impact of change in rate of corporation
tax - 749
Adjustments in respect of prior periods 287 21
--------------------------------------------- ------ -----------
Total tax expense for the period 6,064 2,565
--------------------------------------------- ------ -----------
(3) (In FY18, the group increased the value of deferred tax
recognised in respect of tax losses in Education, based on
management's judgement that it is probable that Education will have
sufficient future taxable profits against which to utilise these
losses.)
5 Earnings per share
Weighted average number of shares
----------------------------------------------- ---------- ----------
2019 2018
----------------------------------------------- ---------- ----------
Ordinary shares in issue 86,442,534 86,442,534
Effect of own shares held (114,808) (114,808)
----------------------------------------------- ---------- ----------
Weighted average number of shares - basic
and diluted 86,327,726 86,327,726
----------------------------------------------- ---------- ----------
Profit attributable to ordinary shareholders
2019 2018
(restated)
----------------------------------------------- ---------- ----------
GBP000 GBP000
----------------------------------------------- ---------- ----------
Net profit attributable to equity holders
for the purposes of basic earnings per share 23,289 19,580
----------------------------------------------- ---------- ----------
Individually significant items (net of tax) 3,417 -
Fair value movements on derivative financial
instruments (net of tax) (3,847) 3,808
----------------------------------------------- ---------- ----------
Net profit attributable to equity holders
for the purposes of adjusted earnings per
share 22,859 23,388
----------------------------------------------- ---------- ----------
Earnings per share
----------------------------------------------- ---------- ----------
Earnings per share - basic 26.98p 22.68p
----------------------------------------------- ---------- ----------
Earnings per share - adjusted* basic 26.48p 27.09p
----------------------------------------------- ---------- ----------
Earnings per share - diluted 26.98p 22.68p
----------------------------------------------- ---------- ----------
Earnings per share - adjusted* diluted 26.48p 27.09p
----------------------------------------------- ---------- ----------
* Adjusted to remove the impact individually significant items
and fair value movements on derivative financial instruments.
The earnings per share attributable to convertible ordinary
shareholders is GBPnil. The convertible shares have not converted
at 29 March 2019 or subsequently and are therefore not dilutive
from an earnings per share perspective.
6 Intangible assets
(a) Intangible assets
Software and
IT Customer
development
costs Brand names relationships Total
GBP000 GBP000 GBP000 GBP000
---------------------------- ------------ ----------- ------------- ------
Cost
At 31 March 2017 17,589 21,704 20,940 60,233
Additions 985 - - 985
At 30 March 2018 18,574 21,704 20,940 61,218
---------------------------- ------------ ----------- ------------- ------
Additions 684 - - 684
Transfer from tangible
assets 1,260 - - 1,260
---------------------------- ------------ ----------- ------------- ------
At 29 March 2019 20,518 21,704 20,940 63,162
---------------------------- ------------ ----------- ------------- ------
Accumulated amortisation
and impairment
At 31 March 2017 15,044 3,913 15,090 34,047
Amortisation for the period 867 109 1,020 1,996
At 30 March 2018 15,911 4,022 16,110 36,043
---------------------------- ------------ ----------- ------------- ------
Amortisation for the period 1,039 108 1,020 2,167
At 29 March 2019 16,950 4,130 17,130 38,210
---------------------------- ------------ ----------- ------------- ------
Carrying amount
Net book value at 29 March
2019 3,568 17,574 3,810 24,952
Net book value at 30 March
2018 2,663 17,682 4,830 25,175
---------------------------- ------------ ----------- ------------- ------
Brand names, which arise from the acquisition of businesses, and
are deemed to have an indefinite life, are subject to annual
impairment tests, on the basis that they are expected to be
maintained indefinitely and are expected to continue to drive value
for the Group. The Spa 4 Schools brand is being amortised over a
useful economic life of 5 years.
The amortisation period for customer relationships, which arose
from the acquisition of businesses, is between 2 and 20 years.
Management do not consider that any customer relationships are
individually material.
Brand names acquired in a business combination are allocated, at
acquisition, to the CGUs that are expected to benefit from that
business combination. The carrying amount of brand names has been
allocated as follows:
2019 2018
GBP000 GBP000
---------- ------ ------
Education 17,574 17,682
17,574 17,682
---------- ------ ------
(b) Impairment testing
The Group tests indefinite-lived brand names for impairment
annually, or more frequently if there are indicators of
impairment.
The recoverable amount of the Education CGU was determined from
a value in use calculation.
Significant judgements, assumptions and estimates
In determining the value in use of the Education CGU it is
necessary to make a series of assumptions to estimate the present
value of future cash flows. These key assumptions have been made by
management reflecting past experience, current trends, and where
applicable, are consistent with relevant external sources of
information. The key assumptions are as follows:
Operating cash flows
Management has prepared cash flow forecasts for a three-year
period derived from the approved budget for financial year 2019/20.
These forecasts include assumptions around sales prices and
volumes, specific customer relationships and operating costs and
working capital movements.
Risk adjusted discount rates
The pre-tax rate used to discount the forecast cash flows is
17.7% (2018: 17.7%). This discount rate is derived from the Group's
weighted average cost of capital as adjusted for the specific risks
related to the Education CGU.
Long term growth rate
To forecast beyond the detailed cash flows into perpetuity, a
long-term average growth rate of 1.6% (2018: 1.6%) has been used.
This is not greater than the published International Monetary Fund
average growth rate in gross domestic product for the next
five-year period in the territories where the CGU operates.
Results
The estimated recoverable amount of Education CGU exceeded the
carrying value by approximately GBP6,970,000 (2018: GBP4,931,000)
and as such no impairment was necessary.
Sensitivity analysis
The results of the Group's impairment tests are dependent upon
estimates and judgements made by management, particularly in
relation to the key assumptions described above. A reasonably
possible change in key assumptions could lead to the carrying value
of the Education CGU exceeding its recoverable amount. Sensitivity
analysis to potential changes in operating cash flows and risk
adjusted discount rates has therefore been reviewed.
The table below shows the risk adjusted discount rate and
forecast operating cash flow assumptions used in the calculation of
value in use for the Education CGU and the changes in these
assumptions required for the recoverable amount to equal the
carrying value:
CGU Education
--------------------------------------------------- ---------------
Value in excess over carrying value (GBP000) 6,970
Assumptions used in the calculation of
value in use
Pre-tax discount rate 17.7%
Total pre-discounted forecast operating
cash flow (GBP000) 61,684
Change required for the recoverable amount
to equal the carrying value
Pre-tax discount rate 2.4%
Total pre-discounted forecast operating
cash flow (11,536)
--------------------------------------------------- ---------------
7 Trade and other receivables
2018
2019 (restated)
GBP000 GBP000
----------------------------------- -------- -----------
Gross trade receivables 304,279 268,106
Allowance for expected credit loss (88,030) (55,209)
Trade receivables 216,249 212,897
Other debtors 5,347 2,467
Prepayments 14,327 15,438
----------------------------------- -------- -----------
235,923 230,802
----------------------------------- -------- -----------
Trade receivables are measured at amortised cost. The directors
consider that the Group's maximum exposure to credit risk is the
carrying value of the trade and other receivables and that their
carrying amount approximates their fair value.
Certain of the Group's trade receivables are funded through a
securitisation facility arranged by HSBC Bank plc and funded
through a vehicle owned by GRE Trust Company (Ireland) Limited. The
facility is secured against those receivables and is without
recourse to any of the Group's other assets. The finance provider
will seek repayment of the finance, as to both principal and
interest, only to the extent that collections from the trade
receivables financed allows and the benefit of additional
collections remains with the Group. At the period end, receivables
of GBP239,620,000 (2018: GBP221,837,000) were funded through the
securitisation facility, and the facilities utilised were
GBP175,545,000 (2018: GBP157,504,000).
Due to the different nature of trade receivables within the
Studio operating segment compared to those in the rest of the
Group, the following analysis of trade receivables has been split
between Studio and the rest of the Group.
Studio
The average credit period taken on sales of goods is 212 days
(2018 restated: 200 days). On average, interest is charged at 3.1%
(2018: 3.1%) per month on the outstanding balance.
Before accepting any new customer, Studio uses an external
credit scoring system to assess the potential customer's credit
quality and affordability of the credit and defines credit limits
by customer. Limits and scoring attributed to customers are
continually reviewed. There are no customers who represent more
than 1% of the total balance of the Group's trade receivables.
The Group uses a number of forbearance measures to assist those
customers approaching, or at the point of experiencing, financial
difficulties. Such measures include arrangement to pay less than
the minimum payment and the suspension of interest charges to help
the customer pay off their debt. We expect customers to resume
normal payments where they are able. At the balance sheet date
forbearance measures were in place on 16,922 accounts (2018:
19,429) with total gross balances of GBP10,429,000 (2018:
GBP10,973,000). Provisions are assessed as detailed above.
During the current period, overdue receivables with a gross
value of GBP35,492,000 (2018: GBP69,889,000) were sold to third
party debt collection agencies. As a result of the sales, the
contractual rights to receive the cash flows from these assets were
transferred to the purchasers.
The following tables provide information about the exposure to
credit risk and ECLs for trade receivables from individual
customers as at 29 March 2019:
2019 2018 (restated)
Trade
Trade receivables receivables
Trade on forbearance Trade on forbearance
receivables arrangements Total receivables arrangements Total
Ageing of trade receivables GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ----------- ----------------- -------- ----------- --------------- --------
Not past due 213,568 8,148 221,716 195,282 9,002 204,284
Past due:
0 - 60 days 25,422 1,837 27,259 25,461 1,967 27,428
60 - 120 days 13,727 444 14,171 12,286 4 12,290
120+ days 32,327 - 32,327 15,110 - 15,110
---------------------------- ----------- ----------------- -------- ----------- --------------- --------
Gross trade receivables 285,044 10,429 295,473 248,139 10,973 259,112
Allowance for expected
credit loss (81,358) (6,548) (87,906) (47,370) (7,714) (55,084)
---------------------------- ----------- ----------------- -------- ----------- --------------- --------
Carrying value 203,686 3,881 207,567 200,769 3,259 204,028
---------------------------- ----------- ----------------- -------- ----------- --------------- --------
2019 2018
------------------------------------- --------
Stage
1 Stage 2 Stage 3 Total Total
----------------------------------- ------- -------- -------- -------- --------
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------- -------- -------- -------- --------
Gross trade receivables 117,512 113,371 64,590 295,473 259,112
----------------------------------- ------- -------- -------- -------- --------
Allowance for doubtful debts
----------------------------------- ------- -------- -------- -------- --------
Opening balance (2019 figure
restated to reflect GBP21,428,000
impact of IFRS 9 adoption) (8,217) (30,430) (37,865) (76,512) (83,449)
Impairment charge (1,043) 163 (35,743) (36,623) (28,156)
Utilised in the period - - 25,229 25,229 56,521
----------------------------------- ------- -------- -------- -------- --------
Closing balance (9,260) (30,267) (48,379) (87,906) (55,084)
----------------------------------- ------- -------- -------- -------- --------
Carrying value 108,252 83,104 16,211 207,567 204,028
----------------------------------- ------- -------- -------- -------- --------
Allowance for expected credit loss
An appropriate allowance for expected credit loss in respect of
trade receivables is derived from estimates and underlying
assumptions such as the Probability of Default and the Loss Given
Default, taking into consideration forward looking macro-economic
assumptions. Changes in the assumptions applied such as the value
and frequency of future debt sales in calculating the Loss Given
Default, and the estimation of customer repayments and Probability
of Default rates, as well as the weighting of the macro-economic
scenarios applied to the impairment model could have a significant
impact on the carrying value of trade receivables.
Sensitivity analysis
Management judgement is required in setting assumptions around
probabilities of default, cash recoveries and the weighting of
macro-economic scenarios applied to the impairment model, which
have a material impact on the results indicated by the model.
A 1% increase/decrease in the probability of default would
increase/decrease the provision amount by approximately
GBP2.1m.
A 1p increase in the assumed recoveries rate would result in the
impairment provision decreasing by approximately GBP1.1m.
Changing the weighting of macro-economic scenarios applied to
the impairment model so that the base-case scenario's weighting is
doubled at the expense of the various stress scenarios would result
in the impairment provision decreasing by approximately
GBP1.0m.
These sensitivities reflect management's assessment of
reasonably possible changes to key assumptions which could result
in a material adjustment to the level of provision within the next
financial year.
Rest of Group
The average credit period taken on sales of goods is 33 days
(2018 restated: 32 days). Trade receivables are provided for based
on estimated irrecoverable amounts from the sale of goods,
determined by reference to past default experience.
Given the nature of the public-sector customer base within the
Education operating segment, it is not considered necessary to
utilise formal credit scoring. However, credit references are
sought for all new customers prior to extending credit. There are
no customers who represent more than 1% of the total balance of the
Group's trade receivables.
Included in the rest of the Group's trade receivables balance
are debtors with a carrying amount of GBP123,000 (2018: GBP125,000)
which are past due at the reporting date which are partially
provided against. There has not been a significant change in credit
quality and the amounts are still considered recoverable. The Group
does not hold any collateral over these balances. The average age
of these receivables is 152 days (2018: 155 days).
The carrying value of not past due trade receivables which are
unimpaired is GBP5,593,000 (2018 restated: GBP5,336,000).
The aged analysis of the carrying values of past due trade
receivables which are unimpaired is as follows:
2019 2018
GBP000 GBP000
-------------- ------ ------
0 - 60 days 1,909 2,554
60 - 120 days 849 529
120+ days 208 325
Total 2,966 3,408
-------------- ------ ------
The aged analysis of the carrying values of past due trade
receivables which are impaired is as follows:
2019 2018
GBP000 GBP000
-------------- ------ ------
0 - 60 days - -
60 - 120 days - -
120+ days 123 125
Total 123 125
-------------- ------ ------
Movement in allowance for expected credit losses
Studio Rest of
Retail Group Total
GBP000 GBP000 GBP000
------------------------------------- -------- ------- --------
Balance at 31 March 2017 (restated) 83,449 184 83,633
Impairment losses recognised 28,156 70 28,226
Amounts written off as uncollectible (56,521) (129) (56,650)
Balance at 30 March 2018 (restated) 55,084 125 55,209
Adjustment to opening balance on
adoption of IFRS 9 21,428 - 21,428
Impairment losses recognised 36,623 55 36,678
Amounts written off as uncollectible (25,229) (56) (25,285)
Balance at 29 March 2019 87,906 124 88,030
------------------------------------- -------- ------- --------
8 Provisions
Studio financial Restructuring
services provision
Onerous redress
leases and refunds Total
GBP000 GBP000 GBP000 GBP000
----------------------- --------- ---------------- ------------- --------
At 31 March 2017 13,902 25,482 1,153 40,537
Utilised in the period (2,646) (16,860) (1,153) (20,659)
Unwind of discount 151 - - 151
----------------------- --------- ---------------- ------------- --------
At 30 March 2018 11,407 8,622 - 20,029
Released during the
period (1,220) - - (1,220)
Provided during the
period - 4,157 - 4,157
Utilised in the period (1,344) (10,544) - (11,888)
At 29 March 2019 8,843 2,235 - 11,078
----------------------- --------- ---------------- ------------- --------
2019
Analysed as:
Current 1,090 2,235 - 3,325
Non-current 7,753 - - 7,753
------------- ----- ----- ------
8,843 2,235 -11,078
------------- ----- ----- ------
2018
Analysed as:
Current 802 8,622 - 9,424
Non-current 10,605 - -10,605
--------------- ------- ----- ------
11,407 8,622 -20,029
--------------- ------- ----- ------
Onerous Leases
A provision was made in prior periods for onerous leases
regarding vacated leasehold properties. Refer to note 1 for further
details.
Studio financial services redress and refunds
Provisions totaling GBP29m were built up in FY16 and FY17 in
relation to the anticipated refund of premiums and interest to
customers in respect of historic flawed credit and insurance
products. The amount provided was increased by GBP4,157,000 in the
current period. Refer to note 1 for details. The provision is
expected to be utilised within 12 months.
Restructuring provision
A provision was made in FY17 in respect of the restructuring
exercise undertaken to relocate the head office function from Hyde
to Studio's offices in Accrington. The provision was fully utilised
in the prior financial year.
9 Related parties
During the current and prior periods, the Group made purchases
in the ordinary course of business from Brands Inc. Limited and
Firetrap Limited, subsidiaries of Sports Direct International plc,
which is considered to be a related party as it is a significant
shareholder in the ultimate parent company, Findel plc. The Group
also provided consultancy services to Sports Direct International
plc itself in the current period on arm's-length terms. The value
of purchases made, and consultancy fees charged in the current and
prior periods and amounts owed at the 29 March 2019 and 30 March
2018 were as follows:
Brands Inc. Limited
2019 2018
GBP000 GBP000
------------- ------- -------
Purchases 196 175
Amounts owed 22 15
------------- ------- -------
Firetrap Limited
2019 2018
GBP000 GBP000
------------- ------- -------
Purchases 176 822
Amounts owed - 125
------------- ------- -------
Sports Direct International plc
2019 2018
GBP000 GBP000
-------------------------- ------- -------
Consultancy fees received 93 -
Amounts due - -
-------------------------- ------- -------
Transactions between Findel plc and its subsidiaries, which are
related parties of Findel plc, have been eliminated on
consolidation and are not discussed in this note. All transactions
and outstanding balances between group companies are priced on an
arm's-length basis and are settled in the ordinary course of
business.
Compensation of key management personnel
The remuneration of the Directors including consultancy
contracts and share-based payments, who are the key management of
the Group, is set out in the audited part of the Directors'
Remuneration Report is summarised below.
2019 2018
GBP000 GBP000
------------------------------------- ------ ------
Short-term employee benefits 1,730 1,540
Company pension contributions 123 111
Termination payments 7 365
------------------------------------- ------ ------
1,860 2,016
Share-based payments charge/(credit) 642 138
2,502 2,154
------------------------------------- ------ ------
By order of the Board
P B Maudsley S M Caldwell
Group CEO Group CFO
4 June 2019 4 June 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSLESLFUSEDM
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