TIDMWRKS
RNS Number : 3768A
TheWorks.co.uk PLC
23 September 2022
23 September 2022
TheWorks.co.uk plc
("The Works", the "Company" or the "Group")
Preliminary results for the 52 weeks ended 1 May 2022
The Works delivered a strong financial performance in FY22 and
made good strategic progress. There is confidence in the Group's
prospects despite the more challenging trading conditions expected
in the near term.
The Works, the multi-channel value retailer of arts and crafts,
stationery, toys, and books announces its preliminary results for
the 52 weeks ended 1 May 2022 (the "Period" or "FY22") and an
update on current trading.
Financial highlights
-- Strong underlying sales driven by solid progress against the
Group's strategic objectives, careful management of supply chain,
and increased consumer demand post COVID-19.
o Total revenue GBP264.6m, up 46.5% compared with FY21.
o Two-year LFL sales(1) up 10.5%, with positive growth online
and in stores.
o Two-year total gross sales up 12.7% (1)(2) .
-- The sales performance and the improvements made throughout
the year to operations and proposition, helped to offset the impact
of external headwinds,(3) resulting in an increased profit.
o Pre IFRS 16 Adjusted EBITDA increased to GBP16.6m (FY21:
GBP4.3m).
o Profit before tax of GBP10.2m compared with a loss of GBP2.8m
in FY21.
-- Further strengthened the balance sheet, ending the period
with net cash of GBP16.3m excluding lease liabilities (FY21: net
cash GBP0.8m). Bank facilities successfully refinanced post year
end (4) .
-- Reflecting the strong performance and its confidence in the
Group's prospects, the Board proposes a final dividend of 2.4 pence
per share in respect of FY22.
-- Trading since the Group's update on 8 August 2022 has
remained resilient however the outlook for FY23 is unchanged,
reflecting the Board's desire to remain cautious in light of the
uncertain economic conditions.
FY22 FY21
GBPm GBPm
Revenue 264.6 180.7
Revenue growth/(decline) 46.5% (19.7%)
Pre-IFRS16 Adjusted (5) EBITDA 16.6 4.3
PBT 10.2 (2.8)
Adjusted (5) PBT 10.1 (3.6)
Basic EPS (pence) 14.0 (3.7)
Adjusted (5) basic EPS (pence) 13.9 (4.9)
Net bank cash 16.3 0.8
Business highlights
We continued to make progress on our strategy of being "better,
not just bigger", including:
-- Defined the Group's new purpose and brand positioning, inspiring reading, learning, creativity
and play - making lives more fulfilled. This provides a common goal to show everybody at The
Works that they have a role to play in delivering our "better, not just bigger strategy".
-- Created a more appealing, more customer-focused product proposition, aligned to our purpose.
This included overhauling our book strategy to stock more front-list titles, capitalising
on the 'BookTok' trend and increasing ranges of popular branded products in our kids and board
games ranges.
-- Catered for increasingly 'time poor' customers, who seek greater product availability and
faster delivery times, by improving our online fulfilment capacity and delivery options.
-- Improved the quality of the store estate by opening five new stores, closing seven and relocating
six. We undertook 16 store refits as part of our strategy to refresh the store estate, as
well as enhancing the in-store experience for customers through better space planning, ranging
and merchandising.
-- Further strengthened our senior leadership team with the appointment of a new Commercial Director
and new 'Heads of' in our Buying, Brand Marketing, Digital Marketing and Profit Protection
functions.
-- Maintained our high levels of colleague engagement and 13(th) place on the 'Best Big Companies
to work for' ranking.
Trading update and FY23 outlook
When we updated on Q1 trading on 8 August 2022 we noted that
store sales had been resilient and online sales more challenging,
although significantly higher than pre-COVID levels. The more
positive pattern of trading that had developed by the end of Q1 has
continued for the subsequent 7 weeks ended Sunday 18 September
2022, with our refreshed outdoor play range performing well, a very
good 'Back to School' season and a gradual improvement in our
online performance. This resulted in store LFL sales up 7.9% and
online sales down by 10.1% (but 40% higher than pre-COVID levels),
resulting in a total LFL sales increase of 5.7% during the seven
week period. For the year to date (20 weeks ended 18 September
2022) the store LFL is up 4.0%, online sales down by 21.7%, the
overall LFL up by 0.8% and total sales were up by 2.3%.
We are encouraged by the strength of recent trading which
reinforces our confidence in the resilience of the business and
that the ongoing improvements we are making to our proposition are
resonating well with customers. Despite the positive recent
trading, we remain cautious with regard to how consumer spending
might be affected during the remainder of this financial year, by
factors such as higher inflation, and therefore the Board's
expectations regarding the FY23 result are unchanged (6) .
Gavin Peck, Chief Executive Officer of The Works, commented:
"We delivered a strong performance in FY22, with good growth in
sales and profits ahead of pre-COVID levels. This was achieved
despite some significant external operational challenges and
reflects the ongoing appeal of our proposition, the effective
execution of our strategy, a strengthened management team and the
collective efforts of our amazing colleagues. We closed the year in
a much stronger financial position and will be pleased to recommend
to shareholders the payment of a dividend.
"Since our last update in August, our online performance has
gradually improved and we continue to be encouraged by store sales,
which comprise the significant majority of our revenue and have
delivered positive LFL sales growth since June. This has all been
supported by the ongoing evolution of our proposition, including a
strong performance of our improved 'Back to School' range. We have
also had significant growth in our books category, driven by our
increased representation of front-list authors including Julia
Donaldson and Richard Osman. We are well-placed operationally for
Christmas and are gearing up to deliver for our customers,
maintaining our commitment to provide them with the products they
love at fantastic value.
"The Works is a resilient business with a proven track record of
delivering robust results during times of economic hardship,
however, given current conditions, we maintain our cautious view of
the year ahead. We remain confident in our ability to continue
making good strategic progress and to deliver growth in the
medium-term."
Preliminary results presentation
A presentation for analysts will be held today at 9.30 a.m. via
video conference call. A copy of the presentation will shortly be
made available on the Company's website (
https://corporate.theworks.co.uk/ ).
Enquiries:
TheWorks.co.uk plc
Gavin Peck, CEO via Sanctuary Counsel
Steve Alldridge, CFO
Sanctuary Counsel
Ben Ullmann +44 (0)20 7340 0395
Rachel Miller theworks@sanctuarycounsel.com
Footnotes:
(1) The like for like (LFL) sales increase has been calculated with reference to the FY20 comparative
sales figures, or two-year LFL, because the extended periods of enforced store closures during
FY21 prevent that period from forming the basis of meaningful comparisons. For the last 5
weeks of the Period, the LFL percentages were calculated with reference to the corresponding
weeks in FY19, because the equivalent weeks during FY20 were also affected by the first period
of lockdown. Similar comparison periods are also used for the total gross sales growth figures
quoted.
(2) "Total sales" referred to in this statement include VAT and are stated prior to deducting
the cost of loyalty points which are adjusted out of the sales figure in the calculation of
statutory revenue. A reconciliation between the sales figures and the statutory revenue is
included in the Financial Report section of this document.
The 52 week comparison periods used for the 2 year LFL and total sales growth calculations
uses a literal mapping of calendar weeks between FY22 and the corresponding 52 weeks two/three
years prior. Due to the inclusion of a 53rd week in FY21, the FY20/FY19 accounting periods
are one week offset from the FY22 52 week period.
(3) Primarily, uncertainty over the impact of the Omicron variant and the ongoing supply chain
challenges faced by the sector.
(4) Bank facilities increased to GBP30.0m (committed revolving credit facility) and maturity date
extended to 30 November 2025.
(5) Adjusted profit figures exclude Adjusting items. See Notes 3 and 4 of the attached condensed
financial statements.
(6) For reference, the Company compiled estimate of the market's expectation for the FY23 Adjusted
EBITDA result is approximately GBP9.0m.
Notes for editors:
The Works is one of the UK's leading multi-channel value
retailers of arts and crafts, stationery, toys, and books, offering
customers a differentiated proposition as a value alternative to
full price specialist retailers. The Group operates a network of
over 500 stores in the UK & Ireland and an online store.
Cautionary statement
The financial information set out in this statement does not
constitute the Company's statutory accounts for the periods ended 1
May 2022 or 2 May 2021, but is derived from those accounts.
Statutory accounts for FY21 have been delivered to the Registrar of
Companies and those for FY22 will be delivered in due course. The
auditor has reported on those accounts: their reports were (i)
unqualified and (ii) did not contain a statement under section 498
(2) or (3) of the Companies Act 2006. The audit of the statutory
accounts for the Period is now complete. Whilst the financial
information included in this announcement has been computed in
accordance with International Financial Reporting Standards
("IFRS") this announcement does not itself contain sufficient
information to comply with IFRS.
This announcement may contain forward-looking statements with
respect to the financial condition, results of operations, and
business of the Group. These statements and forecasts involve risk,
uncertainty and assumptions because they relate to events and
depend upon circumstances that will occur in the future. There are
a number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements. These forward looking statements are
made only as at the date of this announcement. Nothing in this
announcement should be construed as a profit forecast. Except as
required by law, the Group has no obligation to update the
forward-looking statements or to correct any inaccuracies
therein.
Chair's statement
Introduction
I have greatly enjoyed my first year as Chair of The Works and
feel very proud to be part of a business that seeks to enrich the
lives of its customers and their families, friends and communities.
I have spent a lot of my time getting to know the business, meeting
the teams and celebrating too, having joined during The Works'
40(th) anniversary year.
I have been impressed by the resilience of the business and its
ability to adapt to challenging external conditions, whilst also
delivering good strategic and financial progress. Over the course
of the last year I have also seen The Works become an increasingly
modern and efficient business that is being run, for the long-term
and in a more professional and structured way by Gavin Peck and his
strengthened leadership team. I have seen time and time again
exactly why its customers have such a strong affinity to the brand,
how it is managing to maintain its position as one of the leading
retailers in the value sector and how it has sustained a
well-earned reputation for being an incredibly supportive workplace
for colleagues.
A standout feature of The Works is its truly unique culture. It
is one of the greatest strengths of the business and has developed
as a result of strong leadership, a positive work environment and a
shared passion for delighting customers. Clarifying the Group's
purpose - To inspire reading, learning, creativity and play -
making lives more fulfilled. - has already had a positive effect on
colleagues across the business by helping them to understand the
role they can play in inspiring our customers and supporting our
communities. Given the current external environment, our purpose
has never been more relevant. It is vital that we help our
customers to be resourceful, inspire them to get creative and help
them see that having fun doesn't need to be costly or excessively
consumptive.
This has all been spearheaded by a strengthened leadership team,
led by Gavin, and supported by a team of passionate and committed
colleagues. On behalf of the Board, I would like to thank
colleagues for all they have done, and continue to do, for our
business and stakeholders, and for constantly going above and
beyond to care for one other.
Performance
All retailers have faced difficult external conditions over the
past year, particularly the increased costs and disruption caused
by the global supply chain challenges post COVID-19. The Works was
also subject to a cyber security incident in March which required
swift and extensive action to be taken to protect the business and
minimise the impact on trading. Each of these factors in isolation
would be enough to test any retailer, let alone both in one year.
However, despite the adverse impacts from these events, due to the
groundwork that Gavin and colleagues laid before the pandemic, an
improved customer proposition and effective execution of our
strategy, the business was able to deliver a strong trading
performance in FY22, which was well ahead of pre-pandemic levels.
Revenue increased to GBP264.6m (FY21: GBP180.7m), profit before tax
increased to GBP10.2m (FY21: loss before tax of GBP2.8m) and the
business delivered another record Christmas, demonstrating its
resilience in very challenging circumstances.
Strategy
The last year has also demonstrated that the refocused 'better,
not just bigger' strategy, which is already delivering tangible
results, is the right strategic direction for the business. If we
continue making progress against each of our four strategic pillars
the Board and I are confident that we will see more new customers
choose The Works as their primary destination for products to read,
learn, create and play and that we will earn increased loyalty from
existing customers. We will also be very well positioned to deliver
sustainable sales and profit growth in the medium-term and to
create value for all our stakeholders.
Environmental, Social and Governance (ESG)
The Works has been increasingly focused on its ESG agenda in
recent years and has developed three pillars to provide greater
clarity and structure, as well as a steering group to drive
progress in these areas (more information is included in the
Group's FY22 Annual Report). The business has now laid the
foundations for a more ambitious and systematic approach to ESG and
made some good early progress, but more work needs to be done. In
particular, we need to develop a detailed programme of activities
and agree metrics to measure progress and targets to reduce our
environmental impact. We must also implement the necessary changes
to ensure that our reporting is consistent with the recommendations
of the Task Force on Climate-related Financial Disclosures. The
Works' governance structure is effective and the business has a
good track record in protecting its people and supporting its
communities, however there are plenty of opportunities to enhance
these areas further, for example by promoting greater diversity and
inclusion across the business. Our colleagues have shown a desire
to engage more in our ESG strategy and already play a role in
supporting their local communities, fundraising for our charity
partners and protecting the environment, for example through
recycling and donating old stock to schools and charities. They are
by nature enthusiastic, crafty and resourceful, so will play an
important part in driving progress against our ESG pillars.
Dividend
As part of some prudent measures to strengthen the balance sheet
and manage the cost base and cash flows during the COVID-19
pandemic, dividends were suspended in FY20 and FY21. Reflecting the
Group's strong performance in FY22, and its future potential, the
Board will propose the payment of a final dividend of 2.4 pence per
share in respect of FY22, subject to shareholder approval at our
AGM on 27 October 2022, and will look to maintain the cadence of
twice yearly dividend payments thereafter. Whilst the consumer
market remains especially volatile, we will review future payment
levels based on prevailing conditions, but intend to pursue a
progressive dividend policy in due course once conditions
stabilise.
Outlook
Our success this year reflects the ongoing appeal of our
proposition and the resilience of our business and was achieved
despite some significant external challenges. In the current
economic environment, characterised by ongoing inflationary
pressure and subdued consumer sentiment, our value proposition is
more relevant than ever. We are confident that the Group will
continue to make good strategic progress in the year ahead and will
deliver growth in the medium-term, albeit that the Adjusted EBITDA
result for FY23 will be lower than in FY22.
Carolyn Bradley
Chair
23 September 2022
Chief Executive's Review
Introduction
Our financial year started shortly after we emerged from a
lengthy period of COVID-19 lockdowns, with stores having just
re-opened. Our customers were delighted to be able to shop with us
in store again, and it was a real boost to see colleagues back
doing the job they love and the retail sector starting to recover
from a period beset by disruptions. I am pleased to report that
despite the significant challenges arising from global supply chain
disruption and a cyber security incident towards the end of the
financial year, we delivered a strong financial performance and
made good strategic progress in FY22. This was due to our
colleagues, who were ready to serve our customers on their return
and continued to show incredible resilience, team spirit and
passion for the work they do. On behalf of the leadership team, I
would like to thank them for all their ongoing support. This year
has demonstrated the resilience of the business; I am proud of all
that we have achieved and remain confident about the future
prospects for The Works.
Our purpose
The Works' proposition, which resonated particularly well with
customers during the pandemic, really strengthened over the course
of FY22. To underpin the evolution of our brand, we felt the time
was right to redefine our purpose. This purpose is "to inspire
reading, learning, creativity and play - making lives more
fulfilled". This will help focus our colleagues on a common goal
and show everybody at The Works that they have a role to play as
part of our strategy to make our business better, not just bigger.
Having now succinctly articulated why we exist the next step is to
fully embed this purpose across the business. We believe it will
have a truly transformational effect on our performance over the
next three years.
Trading performance and financial results
The Works delivered a strong trading performance in FY22, well
ahead of pre-COVID levels, demonstrating the strong execution of
our strategy. Our first half performance was ahead of our
expectations and in H2 FY22 we delivered a record Christmas despite
uncertainty over the impact of the Omicron variant and the supply
chain challenges faced by the sector. Trading in the second half
remained positive, although, as expected, the rate of growth began
to slow in the latter months of the period, primarily reflecting
the impact of an increasingly challenging consumer environment, and
also a cyber security incident towards the end of FY22. Overall,
total gross sales (1) for the period were GBP298.4m, an increase of
44.7% compared with FY21 and 12.7% compared with FY20 (1) .
Two-year LFL sales increased by 10.5%, with growth online and in
stores.
This positive trading performance was driven by our 'better, not
just bigger' strategy (see below). This included a greater focus on
products that inspire and delight our customers such as front-list
books, branded products and extended online product ranges, which
engaged existing customers and attracted new ones to shop with us,
both in store and online. Our flexible business model also enabled
us to capitalise on trends like the 'summer of staycations', Fidget
Frenzy and BookTok, which boosted sales of the most in-demand
products during the year.
Retail is a sector in which challenges arise constantly but two
notable ones arose during the year, which we would not expect to
recur and are therefore worth highlighting:
1. Supply chain disruption and ongoing uncertainty surrounding possible COVID-19 related restrictions
saw some Christmas trade brought forward into September and October. Our proactive management
of the supply chain ensured that we had adequate stock overall, despite some of it arriving
later than planned, which meant that, although the sales pattern pre-Christmas was different
than in previous years, and sub-optimal compared to our plans, we were still able to deliver
a record Christmas performance.
2. We also experienced a cyber-security incident at the end of March 2022, which for a short
time impacted our till systems, replenishment deliveries to stores and delayed the fulfilment
of online orders. We took swift action to protect the business, which dealt with the immediate
threat and enabled us to continue trading online and from more than 95% of our stores. Although
the initial impact on trading was minimal, our operational recovery, which also included making
significant improvements to security arrangements, took longer than expected, and resulted
in a residual impact on sales into the early part of FY23.
Profit performance improved significantly, with FY22 EBITDA
increasing to GBP16.6m (FY21: GBP4.3m). Our improved sales
performance and the operational and proposition improvements we
have made throughout the year helped to offset the cost impact of
the external headwinds highlighted above, which were also partially
offset by GBP5.8m of COVID-19 business rates relief. On a statutory
basis, profit before tax increased to GBP10.2m (FY21: loss before
tax of GBP2.8m).
(1) See footnotes (1) and (2) in the Financial review which
describe the basis for calculating 2-year sales comparisons.
Strategy
At the FY21 preliminary results we announced an evolution of our
strategy, to be a 'better, not just bigger' version of ourselves.
Since then we have made good strategic progress, both behind the
scenes to improve our operations and efficiency, as well as more
visible changes to sharpen the proposition, improve our stores, our
product ranges and how we interact with our customers. We have also
strengthened the management team and senior leadership across the
business to support the successful execution of our strategy.
Each change made, when considered in isolation, will have a
relatively limited impact on our future performance but
collectively the changes we have made across the entire business
will, we believe, be truly game changing for The Works. These
improvements have already helped to drive top and bottom-line
growth in FY22 and we believe that if we continue to make good
progress against this strategy it will significantly increase sales
and will generate much more sustainable returns in the
long-term.
Outlined below is an overview of each of the four pillars of our
strategy, progress made against them during FY22, and our
priorities for the year ahead.
Develop our brand and increase our customer engagement
In line with our purpose, we are improving our customer
proposition to help build deeper relationships with our existing
customers, drive increased brand loyalty and inspire and attract
new customers.
In FY22 we:
-- Clarified our purpose to better reflect what we do every day. Articulating why we exist has
helped give all colleagues the same 'north star' and is ensuring that everything we do is
focused on The Works' customers.
-- Evolved our brand to create a new, more modern look and began to focus our communications
on inspiring customers.
-- Recruited a new Commercial Director to drive forward our customer proposition and further
strengthen the commercial function.
-- Recruited a new Head of Brand to improve our brand marketing and customer communications,
engagement and loyalty.
-- Made significant progress in improving our offer by taking a more strategic and customer-focused
approach to range selection. Our great value proposition is already well recognised and as
a result of the action we have taken this year we are now becoming customers' go-to destination
for reading, learning, creativity and play. We have achieved this by:
o Overhauling our book strategy, stocking many more front-list titles such as David Walliams'
Gangsta Granny Strikes Again and Richard Osman's The Man Who Died Twice. This is helping to
increase our market share in the book category, improve our credibility as a bookseller and
also drive sales of great value back-list titles which can still represent significant sales
opportunities.
o Capitalising on the BookTok trend. Our flexible business model and strengthened relationships
with publishers enable us to respond to trending books highlighted on TikTok and provide customers
with the most in-demand books at great value.
o Increasing our ranges of popular branded products in our Kids Zone, such as Peppa Pig, Paw
Patrol and Cocomelon, and board games including Scrabble, Articulate and Elf Monopoly.
In FY23 we will focus on:
-- Developing our marketing strategy, deploying our evolved brand and refreshed look to inspire
and engage with customers more effectively.
-- Ensuring our products and ranges align with our purpose - to inspire reading, learning, creativity
and play - making lives more fulfilled.
-- Further developing our product offering, including extending our range of Children's books
(including front-list authors such as Julia Donaldson being introduced) and refreshing our
own-brand Art, Craft and Stationery ranges.
-- Using data and insight more effectively so that we develop a better understanding of our customers
and their preferences.
-- Relaunching our Together loyalty programme, which has enormous untapped potential, given the
relatively low levels of penetration of the scheme (c13% of transactions in FY22).
Enhance our online proposition
We strive to become customers' go-to destination for reading,
learning, creativity and play. We believe that our online channel
will be an important part of achieving this ambition given the role
it can play in providing inspiring content and convenient shopping.
We invested in a new web platform in July 2020 which provided the
foundation for us to subsequently invest significantly in our
online fulfilment capacity and in shortening delivery times. Our
online capability is now more efficient and better able to meet
increasing customer demand.
In FY22 we:
-- Improved our fulfilment capacity and delivery capabilities for increasingly 'time poor' customers,
who seek greater product availability and faster delivery times. We extended our next day
delivery cut-off from 8pm to 11pm and reduced our standard delivery window from three to five
days to a guaranteed three days.
-- Further enhanced our complementary online ranges, focusing particularly on expanding online
ranges of larger items in our Out2Play range, which performed well during the 'summer of staycations'
in 2021, as well as offering a greater selection of front-list books, branded toys and games.
-- Started to optimise our new platform. For example, we have improved the navigation across
key product and category pages to help customers find product matches and introduced browse
attributes to reduce clicks required to purchase.
-- Recruited a Head of Digital Marketing to develop and implement campaigns across new channels,
improve efficiency, help attract more people to our website and improve our CRM.
In FY23 we will focus on:
-- Further enhancing the online customer experience, including undertaking a usability study
to better understand the customer journey and key friction points. Alongside the outputs of
this review we will improve the merchandising of products on the site and navigation through
the site, supported by better analytics and the introduction of new tooling, including multi-variate
testing.
-- Launching more targeted online range extensions, building on improvements made in our front-list
book, and branded toys and games offers in store.
-- Introducing 'Parcelshop' as an alternative delivery option, adding c.11k additional pick-up
points, improving convenience for our customers.
-- Engaging and retaining more customers through our digital marketing, including building a
team to strengthen our in-house capabilities.
-- Improving the customer experience between stores and online by making it possible for customers
to order from the website when shopping in store and performing an end-to-end review of our
click and collect journey.
Optimise our store estate
We already have a strong footprint across the UK and Ireland,
with stores conveniently located on high streets, in shopping
centres, in retail parks and concessions within garden centres. The
broad appeal of our proposition and low-cost model of our stores,
which tend to be smaller than those of our competitors, allows us
to operate in such locations which often do not suit more
specialist retailers. As a result, in these locations, there is
often very little direct high street competition.
Our main priority is to optimise our stores to create an
environment that inspires our customers, reflects the communities
we serve and encourages more shoppers to consider The Works as
their primary destination for the products we offer.
In FY22 we:
-- Further improved the quality of the store estate, opening five new stores, closing seven and
relocating six. Our opening in Bluewater, one of the UK's most high-profile shopping centres,
was a particular highlight and the store is trading successfully. As of 1 May 2022 we traded
from 525 stores.
-- Undertook 16 store refits as part of our strategy to refresh the store estate and bring all
stores up to an 'ideal' standard over the next three years. These refits will improve customer
experience by modernising the store shopping environment and improving the store layout, whilst
also making the stores easier to run operationally.
-- Enhanced the in-store experience through better space planning, ranging and merchandising.
We also improved customer experience and made our stores easier to shop, for example through
better navigation and ensuring that all stock is at an easily accessible height.
In FY23 we will focus on:
-- Continuing to grow our brand awareness with selective new store openings, focused on the top
locations that we are not yet represented in.
-- Optimising our existing stores through relocations and refits, with 40 stores expected to
benefit from this activity.
-- Further improving our use of space in store to enhance the customer experience and drive improved
sales densities, supported by the introduction of new space and merchandising software.
-- Increasing our focus on offering excellent customer service in-store, through improved training
and continuing to simplify the way we operate our stores to reduce other tasks.
Drive operational improvements
Improving our ways of working to become a more productive and
modern retailer is a core part of our "better, not just bigger"
strategy. We want to ensure we operate efficiently and in a
cost-effective way, as well as providing better product choice and
availability for our customers. The progress we have made means
that 'behind the scenes' we are already operating more effectively,
which we believe will help to generate more sustainable returns in
the future.
In FY22 we:
-- Invested in our supply chain team and systems, making improvements in our end-to-end stock
management processes, including successfully piloting a new stock allocation system that will
significantly improve on-shelf availability and drive improved stock turn.
-- Renewed our e-commerce logistics contract with iForce. The renewed contract includes additional
investment to fund the introduction of automated picking robots and an automated packing machine.
This is expected to drive productivity, help to offset the National Living Wage cost headwind
in our online fulfilment operation, whilst also reducing our waste packaging.
-- Launched a trial to deliver directly to 29 stores (rather than via a third party network),
which was subsequently expanded to cover 60 stores, significantly reducing the lead time from
picking to delivery and helping to improve on-shelf availability. This will be rolled out
to more stores in FY23 although most stores will continue to receive deliveries via a third
party network.
-- Established a Profit Protection function with an initial focus on reducing store stock loss
(e.g. through identifying and reducing high levels of theft).
-- Selected a new electronic point of sale (EPOS) solution for stores and began development of
this new system ahead of deployment later in FY23. This system replaces the existing outdated
system and provides a platform for introducing additional functionality, for example self-service
checkout and ordering from our website whilst in store.
-- Accelerated the implementation of our existing plans to strengthen IT security measures following
the cyber-security incident in March 2022.
In FY23 we will focus on:
-- Rolling out our new stock allocation system across our entire store estate.
-- Extending our scheme to deliver directly to stores.
-- Deploying the new EPOS solution across the store estate, including the functionality to order
online whilst in-store.
-- Reducing store stock loss through the execution of our profit protection plans, including
driving a colleague awareness programme, better utilising data to identify stores with high
stock losses and targeting increased activity on these higher risk stores.
-- Adopting a continuous improvement approach in relation to all operational processes across
the business.
Colleagues
In a challenging and competitive retail environment, our
colleagues are fundamental to the delivery of great customer
service. Many retail businesses make this claim, but we believe
that The Works is unique and fortunate to have a team of colleagues
who truly believe in our purpose and are passionate about the job
they do. Attracting, retaining, developing, and engaging good
people are key to our success and I was very pleased that we have
maintained our position on the Best Big Companies to Work for
National List, ranking 13(th) place.
During the year we have strengthened the leadership team through
the creation of a number of new roles. Nina Findley, our new
Commercial Director, joined the Operational Board in June 2021.
Nina has over 20 years' buying experience in highly relevant
markets, having spent her early career with Woolworths and
Superdrug and more recently holding a variety of senior roles at
Homebase. During the period we also strengthened our senior
leadership team with the appointment of new 'Heads of' in our Brand
Marketing, Digital Marketing, Buying and Profit Protection
functions.
We remain focused on further enhancing the engagement and
development of our colleagues with further exciting initiatives
planned for FY23, including introducing a new Communication and
Rewards platform ('MyWorks') and a new learning and development
system (our 'Can Do Academy').
Environmental, Social and Governance (ESG)
Having reviewed our approach last year and, as a first step,
formed a new ESG steering group, we are increasing our focus on ESG
issues and defining our ESG commitments. Working to reduce our
impact on the planet and supporting our people and communities is
not only the right thing to do, it is a key issue for our
stakeholders and will also ensure that we stay relevant as customer
demand for more sustainable products continues to grow.
We are currently developing our sustainability strategy to
ensure that it addresses environmental issues whilst supporting our
growth. We are also engaged in a programme of work to ensure our
compliance with the recommendations of the Task Force on
Climate-related Financial Disclosures. We have also signed up to
the British Retail Consortium's Diversity and Inclusion charter and
are gathering baseline data and insight to help further develop our
D&I strategy and ensuring its effectiveness.
The Works has always been a business that gives back and I am
very proud of the fundraising efforts of our colleagues and
grateful for the generosity of our customers. Our commercial and
fundraising partnership with Cancer Research UK continues and last
year we were delighted to enter into a nationwide partnership with
MIND, SAMH and Inspire - three leading charities that do incredible
work to support people's mental health.
Outlook
Overall, we are pleased with the performance delivered in FY22.
However, we are not immune from the current inflationary pressures,
which have increased business costs and we anticipate may weigh on
consumer spending levels over a much more sustained period than
initially expected. In this environment, our value proposition is
more relevant than ever, and we are confident that the Group will
continue to make good strategic progress in the year ahead and will
deliver growth in the medium-term, albeit the Adjusted EBITDA
result for FY23 will be lower than in FY22.
Gavin Peck
Chief Executive Officer
23 September 2022
Financial review
The FY22 accounting period relates to the 52 weeks ended 1 May
2022 (also referred to as the Period) and the comparative FY21
accounting period relates to the 53 weeks ended 2 May 2021.
As is described in the financial statements, the Group tracks a
number of alternative performance measures (APMs), as it believes
that these provide management and other stakeholders with
additional helpful information. APMs used in this report include
EBITDA, Adjusted EBITDA and like for like ("LFL") sales .
The Group made a profit before tax of GBP10.2m (FY21: loss
before tax of GBP2.8m). Adjusting items in FY22 were insignificant
and the adjusted profit before tax was GBP10.1m (FY21: adjusted
loss before tax of GBP3.6m). The adjusting items related to net
impairment reversals.
The pre IFRS 16 Adjusted EBITDA was GBP16.6m (FY21:
GBP4.3m).
Overview
The Group delivered a strong performance in FY22, the first year
under the leadership of the new management team that was relatively
unaffected by COVID-19 disruption. FY22's performance was
characterised by the following factors:
-- Strong underlying sales throughout the year driven by solid
progress against the Group's strategic objectives beginning to
leverage the inherent strength of the proposition.
-- Significant disruption to global freight operations in the
autumn of 2021 resulted in much higher freight costs and a less
than ideal flow of stock into the business, despite which, the
Group achieved a record Christmas trading period.
-- A cyber security incident occurred at the end of March 2022.
Operations in the last month of the financial year (and the
beginning of FY23) were intentionally restricted to allow the
deployment of strengthened system security measures alongside a
carefully staged system recovery plan.
-- As the effects of COVID-19 reduced, the level of Government
financial support reduced correspondingly, although the Group
received GBP5.8m of business rates relief during FY22.
-- The effects of inflation began to have an impact,
particularly in the form of higher freight costs and an increase in
the National Living Wage.
EBITDA bridge between FY21 and FY22 GBPm
-------
FY21 adjusted EBITDA (pre IFRS 16) 4.3
-------
Increased gross margin due to year-on-year increase
in sales 51.9
-------
Lower gross product margin % (including impact
of freight costs) (6.6)
-------
Government furlough relief received in FY21 (nil
in FY22) (15.4)
-------
Lower level of COVID-19 business rates relief received
in FY22 (8.3)
-------
COVID-19 business grants received in FY21 (nil
in FY22) (1.8)
-------
Resumption of normal operating costs and inflation (7.5)
FY22 adjusted EBITDA (pre IFRS 16) 16.6
=======
The strong financial performance resulted in another year of
healthy cash generation, even allowing for favourable working
capital timing differences which slightly flattered the comparison;
the closing net cash balance was GBP16.3m, which compares well with
the GBP0.8m balance at the end of FY21 (and, for reference, GBP7.1m
of net debt at the end of FY20).
Despite the healthy cash position and our confidence in the
inherent ability of the Group to generate strong positive cash
flow, with the increasingly bleak tone of external predictions
about the near-term economic outlook, we considered it prudent to
buttress the Group's financial position by refinancing the Group's
bank facilities. This was formally completed shortly after the year
end and increases the size of the facility to GBP30.0m and extends
the expiration date to the end of November 2025.
As a further indication of the Board's confidence in the
prospects of The Works, dividends will be reinstated, assuming that
shareholders at the AGM approve the Board's recommendation of a 2.4
pence per share dividend in respect of FY22.
Due to rounding, numbers presented throughout this document may
not add up precisely to the totals provided and percentages may not
precisely reflect the absolute figures.
Revenue analysis
Total revenue increased by 46. 5% to GBP264.6 million (FY21:
GBP180.7 million).
The enforced closure of stores during certain periods in FY21
prevents meaningful comparisons of FY22's sales performance with
that year, so FY20 is used as a comparison period for trading
performance. Total gross sales (1) in FY22 increased by 12.7%
compared to FY20 and two-year LFL sales (2) increased by 10.5%,
with positive growth continuing both online and in stores.
2 year LFL sales growth Stores Online Total
------------------------- ------- ------- ------
Q1 5.7% 96.8% 13.4%
Q2 8.6% 71.0% 15.5%
H1 7.3% 80.6% 14.5%
Q3 (0.3%) 70.0% 7.9%
Q4 3.2% 42.5% 6.8%
H2 0.9% 62.1% 7.5%
Full year 3.7% 69.7% 10.5%
======= ======= ======
-- Q1 highlights
o Pent up demand following the recent re-opening of stores (in
April 2021) was supported by a sale which was larger than usual as
it included stock we were unable to sell in January/February 2021
when we would normally have held a post-Christmas sale.
o During summer 2021, "fidget frenzy" stock became very popular
at the end of Q1, which then combined with a strong back to school
performance in August to create a positive start to Q2.
-- Q2 highlights
o Sales during September and October were stronger than
expected, likely to have been helped by Christmas demand beginning
early. We hypothesise that customers sought to minimise risks of
not being able to shop before Christmas and/or of stocks being
scarce due to widely reported issues with supplies due to the
global freight/supply chain challenges.
-- Q3 highlights
o Record Christmas despite the overall stock mix and its
distribution to stores not being as well executed as we had planned
due to the supply chain disruption, for example, Christmas
accessories did not arrive until early in December. The Omicron
COVID-19 variant may have reduced sales from consumers who were
being more cautious about going out.
o The January sale event was smaller than planned because
terminal stock levels were low and we had not bought stock
specifically for the sale period.
-- Q4 highlights
o Developments to the product proposition, with front list books
and branded toys and games being highlights, sold well as we
emerged from the January sale.
o A cyber security incident at the end of March caused limited
immediate/direct interruption to trading, but the cautious approach
taken to the recovery affected sales in April (and into the
beginning of FY23).
The table below shows the reconciliation of LFL sales used for
year-on-year comparisons, with statutory revenue.
FY22 FY21 Variance Variance
GBPm GBPm GBPm %
---------------------------------- ------- ------- --------- ---------
Total LFL sales for Period (one
year LFL) 261.1 191.0 70.1 36.7%
Sales from new/closed stores 37.3 15.2 22.1 145.8%
------- ------- --------- ---------
Total Gross Sales 298.4 206.2 92.2 44.7%
VAT (33.5) (24.3) (9.2) 38.0%
Loyalty points redeemed (0.3) (1.2) 0.9 (77.0)%
------- ------- --------- ---------
Revenue (per statutory accounts) 264.6 180.7 83.9 46.4%
======= ======= ========= =========
(1) "Total sales" include VAT and are stated prior to deducting the cost of loyalty points which
are adjusted out of the sales figure in the calculation of statutory revenue. The 52-week
comparison periods used for the LFL and total sales growth calculations use a literal mapping
of calendar weeks between FY22 and the corresponding 52 weeks two/three years prior. Due to
the inclusion of a 53(rd) week in FY21, the FY20/FY19 statutory accounting periods are one
week offset from the 52-week period used in the LFL and total sales comparisons.
(2) LFL sales increase has been calculated with reference to the FY20 comparative sales figures,
or two-year LFL, because the extended periods of enforced store closures during FY21 prevent
that period from forming the basis of meaningful comparisons. For the last 5 weeks of the
Period, the LFL percentages are calculated using the corresponding weeks in FY19, because
the equivalent weeks during FY20 were also affected by the first period of enforced store
closures. Similar comparison periods are also used for the total sales growth figures quoted.
The number of stores trading reduced by two during the period,
from 527 to 525. Despite this small change in the net number of
stores at the year end, the sales from new/closed stores in the
previous table shows a significant increase compared with the prior
year due to the relative timing of store openings/closures as well
as the effect of the periods of enforced store closures in FY21.
The one-year LFL percentage growth is relatively low by comparison,
because a significant one-year LFL decline in online sales
partially offset a high store LFL (also due to the periods of
closure in FY21).
Most of the capital cost of opening the new stores continued to
be funded via capital contributions from landlords, reducing the
impact on the Group's cashflow. The new stores are trading
successfully with sales levels above their financial appraisal
targets.
Store numbers FY22 FY21
----- -----
Stores at beginning of period 527 534
Opened in the period 5 4
Closed in the period (7) (11)
Relocated (excluded from opened/closed above,
NIL net effect on store numbers) 6 2
Stores at end of period 525 527
===== =====
The cost of loyalty points redeemed during the year increased as
expected, in line with the sales increase, but the reported cost
reduced due to the write back of points previously issued and
accounted for, which have subsequently expired, and can no longer
be redeemed.
We have noted that books sold well during FY22, increasing their
participation of total sales. As they are zero rated for VAT, this
benefited the effective VAT rate which was 11.2% compared with
11.8% in FY21 .
Gross profit
FY22 FY21 (Restated
*)
GBPm % of GBPm % of Variance Variance
revenue revenue GBPm %
------ --------- ------ --------- --------- ---------
Revenue 264.6 180.7 84.0 46.5
Less: Cost of goods sold 107.7 69.0 38.7 56.1
Product gross margin 157.0 59.3 111.7 61.8 45.3 40.5
Other costs included in statutory
cost of sales
Store payroll 43.6 16.5 37.7 20.8 5.9 15.7
Store property and establishment
costs 43.7 16.5 36.7 20.3 7.0 19.1
Store PoS & transaction
fees 2.1 0.8 1.4 0.8 0.7 47.7
Store depreciation 5.0 1.9 5.2 2.9 (0.2) (4.0)
Online variable costs 18.7 7.1 24.5 13.6 (5.8) (23.8)
IFRS16 impact (4.7) (1.8) (4.2) (2.3) (0.5) 11.1
Adjusting items - - (1.0) (0.5) 0.9 (97.0)
------ --------- ------ --------- --------- ---------
Total non-product related
cost of sales 108.4 41.0 100.4 55.6 8.0 8.0
Gross profit per financial
statements 48.6 18.4 11.3 6.3 37.2 328.8
====== ========= ====== ========= ========= =========
(*) See Note 5 of condensed financial statements
The product gross margin decreased by 250bps to 59.3% (FY21:
61.8%).
-- The gross margin was affected by much higher freight costs
than normal, particularly in H2 FY22 (these have remained high into
FY23 but we expect them to abate in FY24, offsetting the adverse
effect of a weaker pound).
-- The FY21 comparative included unusually low discounting,
particularly online, when the stores were closed due to
restrictions.
-- The product mix included a greater proportion of front-list
books and branded games and toys, which sell at a lower percentage
margin, although contribute positively to the cash margin.
Store payroll costs increased due to the National Living Wage
increase, which was partially mitigated by operational efficiencies
and reduced tasking in the stores. Also, in FY21, when colleagues
were furloughed, only 80 % of the normal wage rate was paid.
Store property and establishment costs increased due to a
year-on-year reduction in the value of COVID-19 business rates
relief received (GBP5.8m was received in FY22) and higher energy
costs, which were partially offset by further rent savings (energy
costs have also increased significantly in FY23, although this is
factored into our forecast).
The increase in store point of sale (PoS) and transaction fees,
which are volume related costs, was broadly in line with the
increase in sales.
Although on a two year LFL basis, online sales grew by 69.7%, on
a one year LFL basis, compared to the exceptionally high sales
levels in FY21 when stores were closed, online sales declined, with
a corresponding decrease in volume related costs including
marketing and fulfilment costs .
Other operating income/expense
The other operating expense was GBP0.1m (FY21: other operating
income of GBP17.1m). In FY21 the income related to the Government
Coronavirus Job Retention Scheme and the COVID-19 Retail,
Hospitality and Leisure Grant Fund (the COVID-19 rates relief
received is netted off rates costs within the cost of sales, as
described in the previous section).
FY22 FY21
Other operating income GBPm % of GBPm % of Variance Variance
revenue revenue GBPm %
----- -------- ------ ---------- -------- --------
Coronavirus Job Retention
Scheme grants (0.1) - 15.3 8.5 (15.4) (100.7)
COVID 19 retail business
grant - - 1.8 1.0 (1.8) (100.0)
----- -------- ------ ---------- -------- --------
(0.1) - 17.1 9.4 (17.2) (100.7)
===== ======== ====== ========== ======== ========
Distribution costs
FY22 FY21 (Restated
*)
GBPm % of GBPm % of Variance Variance
revenue revenue GBPm %
------- --------- ------ --------- --------- ---------
Adjusted distribution costs 9.0 3.4 6.4 3.5 2.7 42.5
Depreciation 0.1 - 0.1 0.1 - (16.0)
IFRS 16 impact - - - - - (91.0)
------- --------- ------ --------- --------- ---------
Distribution costs per
statutory accounts 9.1 3.4 6.4 3.6 2.7 41.8
======= ========= ====== ========= ========= =========
(*) See Note 5 of condensed financial statements
Retail distribution costs were higher during the period as the
stores were trading throughout, in contrast to the prior year, and
therefore volume driven labour and pallet delivery costs increased.
In addition, the increase in the National Living Wage rate
increased staff costs although some of the inflationary increase
was mitigated by operating/efficiency improvements.
Administration costs
FY22 FY21 (Restated
*)
GBPm % of GBPm % of Variance Variance
revenue revenue GBPm %
--------- ------------- ------ ------------ ------------ ------------
Pre-IFRS 16, Adjusted administration
costs 23.2 8.8 17.8 9.9 5.4 30.1
Depreciation 1.2 0.5 1.7 0.9 (0.5) (28.2)
IFRS 16 impact (0.4) (0.1) (0.4) (0.2) 0.0 (6.9)
Adjusting items - - 0.2 0.1 (0.2) (100.0)
--------- ------------- ------ ------------ ------------ ------------
Administration costs per
statutory accounts 24.0 9.1 19.3 10.7 4.7 24.5
========= ============= ====== ============ ============ ============
(*) See Note 5 of condensed financial statements
The increase in administrative costs reflects investments made
to strengthen the senior leadership team and key functions
including supply chain and IT, and an accrual for FY22 bonus (there
was no bonus cost in respect of FY21). There were also higher
software maintenance/licence costs and the cost of resuming normal
activities such as travel which were suppressed for periods during
FY21.
IFRS 16 Leases
The Group continues to include information to enable
stakeholders to see the effect of IFRS 16. The net impact of IFRS
16 was to increase the profit before tax in FY22 by GBP0.9m (FY21:
GBP0.7m increase).
FY22 FY21
(Restated
*)
GBPm GBPm
------ ----------
Profit/(loss) before tax before IFRS 16 9.3 (3.5)
Profit/(loss) before tax post IFRS 16 10.2 (2.8)
------ ----------
Net impact on profit/(loss) 0.9 0.7
====== ==========
(*) See Note 5 of condensed financial statements
Net financing expense
Net financing costs in the period were GBP5.2m (FY21: GBP5.5m),
mostly relating to notional IFRS 16 lease interest.
Actual interest payable was GBP0.7m, in relation to the Group's
bank facilities (FY21: GBP0.6m), and comprised facility
availability charges and the amortisation of the initial costs of
establishing the bank facility in August 2020 (the cost of the new
facility will be amortised from FY23).
FY22 FY21
GBPm GBPm
----- -----
Bank interest payable (including non-utilisation
costs) 0.4 0.3
Other interest payable (amortisation of facility
set-up costs) 0.3 0.3
IFRS 16 notional interest on lease liabilities 4.5 4.9
----- -----
Total finance expense 5.2 5.5
===== =====
Tax
FY22 FY21
GBPm GBPm
----- -----
Current tax expense 2.1 0.0
Deferred tax credit (0.6) (0.5)
----- -----
Total tax expense/credit 1.4 (0.5)
===== =====
The UK corporation tax rate for FY22 and FY21 was 19.0%. The UK
corporation rate is due to increase from 19% to 25% on 1 April
2023, although we understand that this decision is now under
review.
Deferred tax assets and liabilities are recognised based on the
corporation tax rate applicable when they are anticipated to
unwind. Therefore, the deferred tax assets and liabilities have
been largely recognised at a rate of 25.0% (FY21: 19.0%), which
creates a deferred tax credit that reduced the Group's effective
tax rate for FY22.
The total tax expense was GBP1.4m (FY21: credit of GBP0.5m). The
effective tax rate was 14.1% (FY21: 17.9% on the loss before
tax).
Earnings per share
The basic EPS for the year was 14.0 pence (FY21: loss per share
of 3.7 pence) and the diluted EPS was 13.7 pence (FY21: diluted
loss per share of 3.7 pence).
Capital expenditure
FY22 FY21 Variance
GBPm GBPm GBPm
----------- ----- ---------
New stores and relocations 0.5 0.6 (0.1)
Store refits and maintenance 0.9 0.7 0.2
IT hardware and software 1.2 0.6 0.6
Online development expenditure 0.2 0.5 (0.3)
Other 0.2 0.1 0.1
----------- ----- ---------
Total capital expenditure 3.0 2.4 0.6
=========== ===== =========
Capital expenditure in the Period was GBP3.0m (FY21: GBP2.4m)
and comprised
-- The cost of opening five new stores and relocating six others
to new sites. Most of the new store capex was funded by landlord
contributions.
-- Store maintenance including 16 refits.
-- Increased IT development expenditure, reflecting the
implementation of the Group's strategy to improve its systems.
FY23 capex is expected to be approximately GBP7.5m.
Inventory
Stock levels were GBP29.4m at the end of FY22 (FY21: 29.1m), an
increase of 1.0%.
FY22 FY21 Provisions as % of
Variance Variance gross stock
GBPm GBPm FY22
GBPm % % FY21 %
------ ------ ---------- ---------- -------- -------
Gross stock 29.8 31.0 (1.2) (3.9%)
Shrinkage provision (1.9) (2.6) 0.7 (26.9%) 6.4% 8.4%
Obsolescence provision (1.3) (1.8) 0.5 (27.8%) 4.4% 5.8%
Total provisions (3.2) (4.4) 1.2 (27.3%) 10.7% 14.2%
Net stock on hand 26.6 26.7 0.1 0.4%
Stock in transit 2.8 2.5 0.3 13.9%
Stock per balance
sheet 29.4 29.1 0.3 1.0%
====== ====== ========== ==========
Stock levels at the end of FY22 were as planned and were not
affected as they had been at the previous two year ends by issues
related to COVID-19. The level of stock provisions has reduced
significantly since the end of FY21:
-- The provision for unrecognised stock loss (shrinkage) is
lower as, unlike in FY21, it was possible during FY22 to complete
store stock counts which enabled stock adjustments to be made
during the year to recognise losses, requiring a lower unrecognised
loss provision at the Period end.
-- The obsolescence provision is lower because a significant
quantity of terminal stock was sold or written off during FY22
which resulted in a lower level requiring a provision at the end of
the year.
Cash flow
The table shows a summarised non IFRS 16 presentation cash flow;
the financial statements include a statutory consolidated cash flow
statement. The net cash inflow for the year was GBP15.5m (FY21:
GBP7.9m).
FY22 FY21 Variance
GBPm GBPm GBPm
------ ------- ---------
Cash flow pre-working capital 19.3 14.8 4.5
Net movement in working capital 7.4 (1.2) 8.6
Capex (3.0) (2.4) (0.6)
Tax paid (0.2) 0.0 (0.2)
Interest and financing costs (0.3) (0.9) 0.6
Dividends 0.0 0.0 0.0
------ ------- ---------
Cash flow before loan movements 23.2 10.3 12.9
Drawdown/(repayment) of CLBILS loan (7.5) 7.5 (15.0)
Drawdown/(repayment) of RCF 0.0 (10.0) 10.0
Exchange rate movements (0.1) 0.2 (0.3)
------ ------- ---------
Net increase in cash and cash equivalents 15.5 7.9 7.7
====== ======= =========
Opening net cash balance excluding IAS
17 leases 0.8 (7.1)
Closing net cash balance excluding IAS
17 leases 16.3 0.8
-- The cash flow pre working capital shown in the table deducts
IFRS 16 notional lease and interest payments from the statutory
operating cash flow before changes in working capital, and adds
back the GBP7.5m CLBILS loan repayment.
-- The tax paid in FY22 was lower than we would expect to pay in
relation to normal years, due to previous low levels of taxable
profits.
-- During the year the Group repaid its GBP7.5m CLBILS term loan.
The year end cash balance was higher than expected as it
included favourable working capital timing differences, most of
which have unwound in FY23. The cash position provides the Group
with a high degree of available liquidity and comfortably allows
for the payment of the final dividend the Board will recommend at
the AGM.
Bank facilities and financial position
The financial position of the Group continued to improve during
the period, at the end of which, there were no borrowings.
At the period end, the Group held net cash (excluding lease
liabilities) of GBP16.3m (FY21: GBP0.8m) resulting in headroom of
approximately GBP35.0m within its previous bank facility limit.
The Group's bank facilities were renewed shortly after the
period end and now comprise a larger revolving credit facility
('RCF') of GBP30.0m which expires on 30 November 2025. The facility
includes standard financial covenants in relation to leverage and
fixed charge cover.
Dividend
In light of the strong performance in FY22, the robust balance
sheet, and its confidence in the future prospects of the business
despite the short-term concerns as regards the external economic
environment, the Board will be recommending a 2.4 pence per share
dividend in respect of FY22, which will be subject to shareholder
approval at our AGM on 27 October 2022. If approved by
shareholders, the dividend will be paid on 24 November 2022 to
shareholders on the register on the record date of 4 November
2022.
We hope to maintain the cadence of twice yearly dividend
payments thereafter; whilst the consumer market remains especially
volatile, we will review future payment levels based on conditions
at the time, but intend to resume a progressive dividend policy in
due course once conditions stabilise.
Steve Alldridge
Chief Financial Officer
23 September 2022
Consolidated income statement
For the period ended 1 May 2022
53 weeks to 2 May 2021
52 weeks to 1 May 2022 (Restated - Note 3, Note 5)
-------------------------------------- ---------------------------------------
Result before Adjusting Result before Adjusting
Adjusting items items Total Adjusting items items Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ---- ---------------- --------- --------- ----------------- --------- ---------
Revenue 264,630 - 264,630 180,680 - 180,680
Cost of sales (216,082) 29 (216,053) (170,342) 975 (169,367)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Gross profit 48,548 29 48,577 10,338 975 11,313
Other operating income 2 (111) - (111) 17,081 - 17,081
Distribution expenses (9,128) - (9,128) (6,440) - (6,440)
Administrative
expenses (24,004) - (24,004) (19,088) (199) (19,287)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Operating profit 5 15,305 29 15,334 1,891 776 2,667
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Finance income 16 - 16 18 - 18
Finance expenses (5,192) - (5,192) (5,486) - (5,486)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Net financing expense (5,176) - (5,176) (5,468) - (5,468)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Profit/(loss) before
tax 10,129 29 10,158 (3,577) 776 (2,801)
Taxation 6 (1,436) - (1,436) 502 - 502
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Profit/(loss) for the
period 8,693 29 8,722 (3,075) 776 (2,299)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Profit/(loss) before
tax and IFRS 16 3 9,525 (241) 9,284 (3,395) (94) (3,489)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Basic earnings per
share (pence) 8 13.9 14.0 (4.9) (3.7)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Diluted earnings per
share (pence) 8 13.7 13.7 (4.9) (3.7)
---------------------- ---- ---------------- --------- --------- ---------------- --------- -----------
Profit for the Period is attributable to equity holders of the
Parent.
Consolidated statement of comprehensive income
For the period ended 1 May 2022
FY22 FY21
GBP000 GBP000
-------------------------------------------------- ------- -------
Profit/(loss) for the year 8,722 (2,299)
Items that may be recycled subsequently into
profit and loss
Cash flow hedges - changes in fair value 4,181 (2,865)
Cash flow hedges - reclassified to profit and
loss (321) 252
Cost of hedging reserve - changes in fair value (83) (90)
Cost of hedging reserve - reclassified to profit
and loss 94 (160)
Tax relating to components of other comprehensive
income - 536
-------------------------------------------------- ------- -------
Other comprehensive income/(expense) for the
period, net of income tax 3,871 (2,327)
-------------------------------------------------- ------- -------
Total comprehensive income/(expense) for the
period 12,593 (4,626)
-------------------------------------------------- ------- -------
Consolidated statement of financial position
As at 1 May 2022
FY21
(Restated -
FY22 Note 10)
Note GBP000 GBP000
---------------------------------------------------- ------ -------- ------------
Non-current assets
Intangible assets 9 2,672 2,463
Property, plant and equipment 10 13,970 17,524
Right-of-use assets 10, 11 94,351 112,542
Deferred tax assets 12 3,477 2,852
---------------------------------------------------- ------ -------- ------------
114,470 135,381
---------------------------------------------------- ------ -------- ------------
Current assets
Inventories 13 29,387 29,132
Trade and other receivables 14 8,427 6,913
Derivative financial asset 2,393 -
Current tax asset - 704
Cash and cash equivalents 15 16,280 8,315
---------------------------------------------------- ------ -------- ------------
56,487 45,064
---------------------------------------------------- ------ -------- ------------
Total assets 170,957 180,445
---------------------------------------------------- ------ -------- ------------
Current liabilities
Interest-bearing loans and borrowings 16 - 7,095
Lease liabilities 11, 16 25,434 31,552
Trade and other payables 17 35,958 26,188
Provisions 204 718
Derivative financial liability - 1,649
Current tax liability 1,115 -
---------------------------------------------------- ------ -------- ------------
62,711 67,202
---------------------------------------------------- ------ -------- ------------
Non-current liabilities
Lease liabilities 11, 16 85,702 104,362
Provisions 913 -
Derivative financial liability - 53
---------------------------------------------------- ------ -------- ------------
86,615 104,415
---------------------------------------------------- ------ -------- ------------
Total liabilities 149,326 171,617
---------------------------------------------------- ------ -------- ------------
Net assets 21,631 8,828
---------------------------------------------------- ------ -------- ------------
Equity attributable to equity holders of the Parent
Share capital 625 625
Share premium 28,322 28,322
Merger reserve (54) (54)
Share-based payment reserve 2,252 1,601
Hedging reserve 2,227 (1,203)
Retained earnings (11,741) (20,463)
---------------------------------------------------- ------ -------- ------------
Total equity 21,631 8,828
---------------------------------------------------- ------ -------- ------------
Consolidated statement of changes in equity
Attributable to equity holders of the Company
-----------------------------------------------------------------------
Share-based Hedging
Share Share Merger payment reserve Retained Total
capital premium reserve reserve (1) earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Balance at 26 April 2020 625 28,322 (54) 1,506 1,171 (18,164) 13,406
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Total comprehensive income
for the period
Loss for the period - - - - - (2,299) (2,299)
Other comprehensive income/(expense) - - - 14 (2,341) - (2,327)
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Total comprehensive income/(expense)
for the period - - - 14 (2,341) (2,299) (4,626)
Hedging gains and losses
and costs of hedging transferred
to the cost of inventory - - - - (33) - (33)
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Transactions with owners
of the Company
Share-based payment charges - - - 81 - - 81
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Total transactions with
owners - - - 81 - - 81
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Balance at 2 May 2021 625 28,322 (54) 1,601 (1,203) (20,463) 8,828
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Total comprehensive income
for the period
Profit for the period - - - - - 8,722 8,722
Other comprehensive income - - - - 3,871 - 3,871
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Total comprehensive income
for the period - - - - 3,871 8,722 12,593
Hedging gains and losses
and costs of hedging transferred
to the cost of inventory - - - - (441) - (441)
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Transactions with owners
of the Company
Share-based payment charges - - - 651 - - 651
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Total transactions with
owners - - - 651 - - 651
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
Balance at 1 May 2022 625 28,322 (54) 2,252 2,227 (11,741) 21,631
------------------------------------- -------- -------- -------- ----------- -------- --------- -------
1. Hedging reserve includes GBP175,956 (FY21: GBP155,124) in
relation to changes in forward points which are recognised in other
comprehensive income and accumulated as a cost of hedging within
the hedging reserve.
Consolidated cash flow statement
For the period ended 1 May 2022
FY21
(Restated
-
FY22 Note 10)
GBP000 GBP000
-------------------------------------------------------- -------- ----------
Profit/(loss) for the year (including Adjusting
items) 8,722 (2,299)
Adjustments for:
Depreciation of property, plant and equipment 5,005 5,187
Impairment of property, plant and equipment 416 957
Reversal of impairment of property, plant and equipment (175) (1,000)
Depreciation of right-of-use assets 20,029 23,311
Impairment of right-of-use assets 710 4
Reversal of impairment of right-of-use assets (980) (874)
Amortisation of intangible assets 806 947
Derivative exchange gain 289 (444)
Financial income (16) (18)
Financial expense 692 617
Interest on lease liabilities 4,500 4,869
Loss on disposal of property, plant and equipment 244 262
Loss on disposal of right-of-use assets 2,066 373
Profit on disposal of lease liability (2,340) (464)
Loss on disposal of intangible assets - 311
Share-based payment charges 651 81
Taxation 1,436 (502)
-------------------------------------------------------- -------- ----------
Operating cash flows before changes in working
capital 42,055 31,318
(Increase)/decrease in trade and other receivables (1,514) 1,217
Increase in inventories (892) (2,284)
Increase in trade and other payables 9,336 167
Increase/(decrease) in provisions 399 (261)
-------------------------------------------------------- -------- ----------
Cash flows from operating activities 49,384 30,157
Corporation tax paid (222) (30)
-------------------------------------------------------- -------- ----------
Net cash inflow from operating activities 49,162 30,127
-------------------------------------------------------- -------- ----------
Cash flows from investing activities
Acquisition of property, plant and equipment (1,936) (1,869)
Acquisition of intangible assets (1,015) (526)
Interest received 16 18
-------------------------------------------------------- -------- ----------
Net cash outflow from investing activities (2,935) (2,377)
-------------------------------------------------------- -------- ----------
Cash flows from financing activities
Payment of lease liabilities (capital) (25,969) (14,327)
Payment of lease liabilities (interest) (4,500) (4,869)
Payment of RCF fees - (619)
Other interest paid (157) (279)
Repayment of bank borrowings (7,500) (10,000)
Issue of bank loan - 7,500
-------------------------------------------------------- -------- ----------
Net cash outflow from financing activities (38,126) (22,594)
-------------------------------------------------------- -------- ----------
Net increase in cash and cash equivalents 8,101 5,156
Exchange rate movements (136) 218
Cash and cash equivalents at beginning of year 8,315 2,941
-------------------------------------------------------- -------- ----------
Cash and cash equivalents at end of year 16,280 8,315
-------------------------------------------------------- -------- ----------
Notes
(Forming part of the condensed financial statements)
1. Accounting policies
Where accounting policies are particular to an individual note,
narrative regarding the policy is included with the relevant
note.
(a) General information
TheWorks.co.uk plc is one of the UK's leading multi-channel
value retailers of arts and crafts, stationery, toys and books,
offering customers a differentiated proposition as a value
alternative to full price specialist retailers. The Group operates
a network of over 500 stores in the UK & Ireland and an online
store.
TheWorks.co.uk plc (the 'Company') is a UK-based public limited
company (11325534) with its registered office at Boldmere House,
Faraday Avenue, Hams Hall Distribution Park, Coleshill, Birmingham
B46 1AL.
These consolidated financial statements for the 52 weeks ended 1
May 2022 (FY22 or the 'Period') comprise the results of the Company
and its subsidiaries (together referred to as the 'Group'), and are
presented in pounds sterling. All values are rounded to the nearest
thousand (GBP000), except when otherwise indicated.
(b) Basis of preparation
The financial statements have been prepared in accordance with
UK-adopted international accounting standards.
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of policies, and the reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience, future budgets and
forecasts, and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods. The Group's
significant judgements and estimates relate to going concern and
the inventory shrinkage provision; these are described in Note 1(b)
and 13, respectively.
(i) Going concern
The financial statements have been prepared on a going concern
basis, which the Directors consider appropriate for the reasons set
out below.
The Directors have assessed the prospects of the Group, taking
into account its current position and the potential impact of the
principal risks documented at the end of this report.
The Group has prepared cash flow forecasts for a period of at
least twelve months from the date of approval of these financial
statements, based on the Board's forecast for FY23 and its 3 Year
Plan, referred to as the 'Base Case' scenario. In addition, a
'severe but plausible' 'Downside Case' sensitivity has been
prepared to support the Board's conclusion regarding going concern,
by stress testing the Base Case to indicate the financial headroom
resulting from applying more pessimistic assumptions.
In assessing the basis of preparation the Directors have
considered:
-- the external environment;
-- the Group's financial position including the quantum and
expectations regarding availability of bank facilities;
-- the potential impact on financial performance of the risks
described in the Strategic report;
-- the output of the Base Case scenario, which represents the
Group's estimate of the most likely financial performance over the
forecast period;
-- measures to maintain or increase liquidity in the event of a
significant downturn in trading;
-- the resilience of the Group to these risks having a more
severe impact, evaluated via the Downside Case which shows the
impact on the Group's cash flows, bank facility headroom and
covenants; and
-- the response to situations in which consumer market
conditions are even more severe than the Downside Case.
These factors are described below.
External environment
The risks which were most prominent in the Board's consideration
of going concern are those relating to the economy and the market,
with the nature of these risks having altered significantly since
last year's Annual Report. COVID-19 was the dominant factor in
making this judgement in relation to the financial statements for
FY20 and FY21, but the Board's assessment is that there is now only
a residual risk associated with this. Instead, the risk of weaker
consumer demand is now considered to be the greatest risk, due to
the factors that have been widely reported externally in recent
months, including a much higher level of inflation and concerns
about its effect on household budgets and consumer spending on
discretionary items.
The potential adverse impact on trading in the event of a
further weakening of consumer demand due to general economic or
market weakness is considered to be of a smaller magnitude than the
impact of the full national lockdowns which were experienced during
periods of the COVID-19 pandemic.
Risks relating to Brexit are not considered significant for the
Group and therefore are not expected to have any bearing on the
basis of preparation of the financial statements.
Financial position and bank facilities
The cash and borrowings of the Group at the period end are shown
in the financial statement Notes 19 (Cash and cash equivalents) and
20 (Borrowings). In addition, Note 25 (Financial instruments)
describes the Group's objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and
its exposure to credit risk and liquidity risk.
At 1 May 2022 the Group held net cash (excluding lease
liabilities) of GBP16.3m (FY21: net cash (excluding lease
liabilities) of GBP0.8m).
The Group's bank facilities were renewed in June 2022, and now
comprise a larger revolving credit facility (RCF), increased to
GBP30.0m which terminates at the end of November 2025. The facility
includes two financial covenants which are structured in a way that
is typical for a retail business of this size. The covenants are
tested quarterly:
1. the level of net debt to LTM (last twelve months' rolling) EBITDA (maximum ratio 2.5x).
2. the "Fixed Charge Cover" or ratio of LTM EBITDA prior to
deducting rent and interest, to LTM rent and interest (minimum
ratio 1.20x until 31 October 2023, 1.25x until 31 October 2024 and
1.30x thereafter).
The bank facility is larger than the Group expects to use, and
has been sized in this way to provide the Board and stakeholders
with additional assurance as to the availability of liquidity,
given the current heightened levels of uncertainty as regards the
economy and external environment, and to provide such assurance
beyond the going concern period.
Potential impact of risks on Base Case and Downside Case
scenarios
The 'Principal risks and uncertainties' are set out at the end
of this report and represent the main risks that the Board
considers could threaten the Group's business model, future
performance, solvency or liquidity.
It is considered unlikely that all the risks would manifest
themselves to adversely affect the business at the same time. The
Directors have estimated what the most likely combination of risks
might be that could materialise within the going concern assessment
period and how the business might be affected; this combination of
risks is reflected in the Base Case assumptions. As noted above,
the most prominent risk in the near term is considered to be the
risk of lower consumer spending due to a weakened economy, which
could affect sales, costs and liquidity.
During FY22 the Group experienced a cyber security incident.
This had a limited immediate/direct impact on trading towards the
end of FY22 and there was a residual effect on trading during early
FY23 as the Group took the decision to implement a very cautious
and low risk approach to reinstating its systems, whilst
simultaneously introducing significantly strengthened cyber
security measures. As a result of these measures the Board
considers that the risk of a material impact from any future cyber
security attack is lessened.
The Downside Case scenario takes into consideration the same
risks as the Base Case but assumes that their effects are more
severe, especially the level of disruption that could be
experienced if consumer spending weakens significantly from its
already reduced level, during the coming peak trading season.
Base Case scenario
The Base Case scenario assumptions are aligned with the Group's
internal forecast:
-- during FY22 sales were adversely impacted during the peak
trading season by significant disruptions to the flow of stock into
the business due to problems in the ocean freight system and store
sales were also affected by the Omicron COVID-19 variant. The Base
Case assumes that sales are not affected by these factors during
the going concern period;
-- online sales levels during the early part of FY23 have been
lower than expected. The Base Case assumes that online sales
improve from their recent levels but not to the level initially
expected, despite the fact that the Group plans to implement
measures to improve online sales;
-- the gross margin assumptions include provision for the
continuation for a longer period than initially expected of higher
than normal ocean container freight costs, until the end of FY23.
Thereafter it is assumed that any reduction in freight rates will,
broadly, be offset by a less favourable currency exchange rate than
the hedged rate during FY23;
-- the Base Case provides for known or expected inflationary
increases including those associated with significantly higher
electricity prices which are assumed to double and not to reduce
during the going concern period, and wage rates including further
increases in the National Living Wage;
-- capital expenditure levels are in line with the Group's
strategic plan, which would enable a reduction in capital
expenditure in the event of a Downside scenario occurring;
-- the plan allows for the resumption of dividend payments.
Under the Base Case scenario, the Group's forecasts show that it
will not draw on its bank facility at any point. Whilst it may not
be relevant given it is not envisaged that the facility would be
used under the Base Case scenario, nevertheless the Base Case
indicates that the financial covenants are complied with at all
times.
The output of the Base Case model scenario therefore indicates
that the Group would have sufficient financial resources to
continue to meet its liabilities as they fall due over the going
concern period.
Measures to maintain or increase liquidity in the event of a
significant downturn in trading
During the COVID-19 pandemic the Group demonstrated that it was
capable of taking measures to maintain or improve liquidity, and
subsequently, during FY22, the Group has continued to generate
positive cashflow.
If deemed necessary, mitigating actions would be taken in
response to a significant downturn in trading, which would increase
liquidity. These may include, for example, delaying and reducing
stock purchases, stock liquidation, reductions in capital
expenditure, the review of payment terms and the review of dividend
levels. Some of these potential mitigations have been built into
the Downside Case model, and some have been noted as additional
measures that may be taken in practice in the event of that
scenario, or worse, actually occurring.
Severe but plausible Downside Case scenario
The Downside Case makes the following assumptions to reflect
more adverse conditions compared to the Base Case:
-- store LFL sales are assumed to be 5% lower than the Base Case
during the peak period prior to Christmas 2022, to allow for the
possibility that consumer spending is adversely affected for the
reasons described above. Recent store sales levels have been
slightly above the Base Case level;
-- online sales are assumed to be lower than in the Base Case,
reflecting the possibility that the recent performance is due to
external factors beyond our control, such as a shift in consumer
shopping patterns away from online sales, and/or the failure by the
Group to successfully implement some or all of its plans to improve
the online sales performance;
-- the gross margin assumptions are consistent with the Base
Case, which the Board believes already takes a sufficiently
cautious view of expected freight rates, even allowing for a severe
but plausible Downside scenario;
-- volume related costs in the Downside Case are lowered where
they move directly with sales levels, for example, online
fulfilment and marketing costs are assumed to reduce to correspond
with the lower online sales. The model also reflects certain steps
which could be taken to mitigate the effect of lower sales levels,
depending on management's assessment of the situation at the time.
These include adjustments to stock purchases, reducing capital
expenditure, reductions in headcount or labour usage, a reduction
in discounts allowed as part of the Group's loyalty scheme and
suspending the payment of dividends.
Under the Downside Case scenario, due to the mitigations built
into the model, the Group's forecasts show that it will not draw on
its bank facility at any point during the going concern period.
Again, whilst it may not be relevant if the facility is not
actually required, nevertheless the Downside Case also indicates
that the financial covenants are complied with at all times.
Having considered the output of the Downside Case and the
additional mitigating steps available, the Board's conclusion is
that the business would continue to have adequate resources to
continue in operation under this severe but plausible set of
assumptions.
Consideration of more severe scenarios
Given the current rate of inflation and its potential impact on
consumer confidence and spending, the Board believes that the Works
value proposition positions it well to benefit from any tendency
consumers may have to trade down in pursuit of better value.
However, the Board also recognises that more severe downside
scenarios than those modelled might arise.
Accordingly, it has considered a range of more severe
possibilities than are reflected in the Downside Case, including a
10% reduction in sales between January 2023 and April 2024 on the
basis that consumers may prioritise Christmas, but cut back on
spending thereafter if their disposable incomes reduce for a
sustained period. In these circumstances, in addition to the
measures included in the Downside Case, further mitigating measures
would be required and are available which when implemented, would
generate additional profit and/or cash and provide further
liquidity headroom and/or further headroom in relation to the
financial covenants. Such measures could include further reductions
in capital expenditure and further reductions in discretionary
expenditure in areas such as travel, training and professional
fees.
Conclusion regarding basis of preparation
The current economic environment, characterised by higher
inflation than has been experienced for a number of years, and a
high level of uncertainty about how long the situation will persist
and whether it will become worse before it improves, creates a
higher than normal level of uncertainty with regard to the strength
of consumer spending. However, the Board's assessment is that,
despite this, the overall level of risk is not as high as was
represented by COVID-19, which resulted in a complete inability to
operate the majority of the Group's business for significant
periods of time. The resilience demonstrated by the business during
those periods, in very challenging conditions, provides additional
assurance about the Group's ability to continue as a going concern
in the event of an extended economic downturn due to high inflation
etc.
Consequently, the Directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least twelve months from the date of approval of
the financial statements and have therefore prepared the financial
statements on a going concern basis.
(ii) New accounting standards
The Group has applied the following new standards and
interpretations for the first time for the annual reporting period
commencing 3 May 2021:
-- COVID-19 Related Rent Concessions (Amendments to IFRS 16)
-- Interest Rate Benchmark Reform; Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The adoption of the standards and interpretations listed above
has not led to any changes to the Group's accounting policies or
had any other material impact on the financial position or
performance of the Group.
As at the date of approval of these financial statements, the
following standards and interpretations, which have not been
applied in these financial statements, were in issue, but not yet
effective:
-- IFRS 17 - Insurance Contracts
-- Property, Plant and Equipment - Proceeds Before Intended Use (Amendments to IAS 16)
-- Reference to the Conceptual Framework (Amendments to IFRS 3)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements to IFRS Standards 2018-2020
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
-- Definition of Accounting Estimates (Amendments to IAS 8)
-- Deferred Tax Related to Assets and Liabilities Arising From a
Single Transaction (Amendments to IAS 12)
-- Classification of Liabilities as Current or Non-Current
(Amendments to IAS 1 Presentation of Financial Statements)
The adoption of the standards and interpretations listed above
is not expected to have a material impact on the financial position
or performance of the Group.
(c) Key sources of estimation uncertainty
The preparation of consolidated financial statements requires
the Group to make estimates and judgements that affect the
application of policies and reported amounts.
Critical judgements represent key decisions made by management
in the application of the Group accounting policies.
Where a significant risk of materially different outcomes exists
due to management assumptions or sources of estimation uncertainty,
this will represent a key source of estimation uncertainty.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
Key sources of estimation uncertainty which are material to the
financial statements are described in the context of the matters to
which they relate, in the following notes:
Description Note
-------------------------------- ----
Going concern 1(b)
Inventory - shrinkage provision 13
-------------------------------- ----
2. Other operating income
Accounting policy
The business was classified as a 'non-essential retailer' and
was therefore required to close its shops during periods of
lockdown in the prior financial year. Accordingly, the Group made
full use of the support schemes available from the Government, to
partially mitigate the loss of profit caused by the various periods
of closure of the retail stores. Support was received through three
mechanisms, described below, and as summarised in the table:
1. the Coronavirus Job Retention Scheme (CJRS), the Government's
support measure relating to employment. This provided grants to
cover wages of furloughed colleagues with payments available of up
to 80% of colleagues' wages, up to a maximum of GBP2,500 per month
plus National Insurance and auto-enrolled pension contributions, to
the extent these could be claimed;
2. business rates relief; and
3. local business support grants.
Amounts received relating to the CJRS scheme and local business
support grants must be classified as a government grant and
accounted for in accordance with IAS 20 Government Grants. Such
grants are recognised in the income statement in the period in
which the associated costs for which the grants are intended to
compensate are incurred. The grant income is reported as 'other
operating income' in the income statement. The GBP119k charge noted
below is a correction of an immaterial overstatement of the CJRS
income reported in respect of the prior period.
The total business rates relief received during the year was
GBP5,828k (FY21: GBP14,165k).
FY22 FY21
GBP000 GBP000
------------------------------------------- ------- -------
COVID-19 furlough scheme grants receivable (119) 15,309
COVID-19 business grants receivable - 1,765
Rent receivable 8 7
------------------------------------------- ------- -------
(111) 17,081
------------------------------------------- ------- -------
3. Alternative performance measures (APMs)
Accounting policy
The Group tracks a number of APMs in managing its business,
which are not defined or specified under the requirements of IFRS
because they exclude amounts that are included in, or include
amounts that are excluded from, the most directly comparable
measure calculated and presented in accordance with IFRS, or are
calculated using financial measures that are not calculated in
accordance with IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance
of the business. They are consistent with how the business
performance is planned and reported internally, and are also
consistent with how these measures have been reported historically.
Some of the APMs are also used for the purpose of setting
remuneration targets.
The APMs should be viewed as supplemental to, but not as a
substitute for, measures presented in the consolidated financial
statements prepared in accordance with IFRS. The Group believes
that the APMs are useful indicators of its performance but they may
not be comparable with similarly titled measures reported by other
companies due to the possibility of differences in the way they are
calculated.
Like-for-like (LFL) sales
LFL sales are normally defined by the Group as the year-on-year
growth in gross sales from stores which have been opened for a full
63 weeks (but excluding sales from stores closed for all or part of
the relevant period or prior year comparable period), and from the
Company's online store, calculated on a calendar week basis. The
LFL sales increase has been calculated with reference to the FY20
comparative sales figures, or two-year LFL, because the extended
periods of enforced store closures during FY21 prevent that period
from forming the basis of meaningful comparisons. For the last 5
weeks of the Period, it has been necessary to calculate the LFL
percentages with reference to the corresponding weeks in FY19,
because the equivalent weeks during FY20 were also affected by the
first period of enforced store closures. Similar comparison periods
are also used for the total sales growth figures quoted. The
measure is used widely in the retail industry as an indicator of
sales performance.
A reconciliation of IFRS revenue to sales on a LFL basis is set
out below:
FY22 FY21
GBP000 GBP000
------------------------------------------------- -------- --------
LFL store sales when stores were open 219,308 128,901
Online sales 41,747 62,084
------------------------------------------------- -------- --------
Total LFL 261,055 190,985
------------------------------------------------- -------- --------
Non-LFL store sales 37,360 15,176
------------------------------------------------- -------- --------
Total gross sales 298,415 206,161
------------------------------------------------- -------- --------
VAT (33,511) (24,290)
Loyalty points (274) (1,191)
------------------------------------------------- -------- --------
Revenue per consolidated income statement 264,630 180,680
------------------------------------------------- -------- --------
Memo: total store gross sales (LFL plus non-LFL) 256,668 144,077
------------------------------------------------- -------- --------
EBITDA, Adjusted EBITDA and Adjusted profit after tax
EBITDA is defined by the Group as earnings before interest, tax,
depreciation, amortisation and profit/loss on the disposal of fixed
assets. Adjusted EBITDA is calculated by adding back or deducting
Adjusting items to EBITDA. See Note 4 for a description of
Adjusting items.
The Group also reports another measure of Adjusted EBITDA, which
removes the impact of IFRS 16, to provide a measure that is
consistent with internal reporting and is as used by the Group in
its investment appraisals. The table provides a reconciliation of
Adjusted EBITDA to profit/(loss) after tax and the impact of IFRS
16:
FY22 FY21
GBP000 GBP000
--------------------------------------------------- -------- --------
Non-IFRS 16 Adjusted EBITDA 1 16,562 4,285
IAS 17 income statement charges not recognised
under IFRS 16 24,433 27,454
Foreign exchange difference on euro leases 120 59
--------------------------------------------------- -------- --------
Post-IFRS 16 Adjusted EBITDA 1 41,115 31,798
Loss on disposal of right-of-use assets recognised
under IFRS 16 (2,066) (353)
Profit on disposal of lease liability recognised
under IFRS 16 2,340 464
Loss on disposals of property, plant and equipment (244) (262)
Loss on disposals of intangible assets - (311)
Depreciation of property, plant and equipment (5,005) (5,187)
Depreciation of right-of-use assets (20,029) (23,311)
Amortisation (806) (947)
Finance expenses (5,192) (5,486)
Finance income 16 18
Tax (charge)/credit (1,436) 502
--------------------------------------------------- -------- --------
Adjusted profit/(loss) after tax 8,693 (3,075)
Adjusting items (including impairment charges
and reversals) 29 776
Tax charge - -
--------------------------------------------------- -------- --------
Profit/(loss) after tax 8,722 (2,299)
--------------------------------------------------- -------- --------
1. Also adjusted for profit and loss on disposal of right-of-use
assets and liabilities, property, plant and equipment and
intangible assets.
Profit before tax and IFRS 16
The table provides a reconciliation of profit/(loss) before tax
and IFRS 16 adjustments to profit/(loss) before tax.
FY22 FY21 (Restated(1) )
-------- --------- -------- -------------------------------
Adjusting Adjusting
Adjusted items Total Adjusted items Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- --------- -------- -------- --------- --------
Profit/(loss) before tax before
IFRS 16 adjustments 9,525 (241) 9,284 (3,395) (94) (3,489)
------------------------------------ -------- --------- -------- -------- --------- --------
Remove IAS 17 rental charge 24,306 - 24,306 27,331 - 27,331
Remove hire costs from hire
of equipment 126 - 126 124 - 124
Remove depreciation charged
on the existing assets 276 - 276 329 - 329
Remove interest charged on
the existing liability 31 - 31 44 - 44
Depreciation charge on right-of-use
assets (20,029) - (20,029) (23,311) - (23,311)
Interest cost on lease liability (4,500) - (4,500) (4,869) - (4,869)
Loss on disposal of right-of-use
assets (2,066) - (2,066) (353) - (353)
Profit on disposal of lease
liability 2,340 - 2,340 464 - 464
Foreign exchange difference
on euro leases 120 - 120 59 - 59
Additional impairment charge
under IAS 36 - 270 270 - 870 870
------------------------------------ -------- --------- -------- -------- --------- --------
Net impact on profit/(loss) 604 270 874 (182) 870 688
------------------------------------ -------- --------- -------- -------- --------- --------
Profit/(loss) before tax 10,129 29 10,158 (3,577) 776 (2,801)
------------------------------------ -------- --------- -------- -------- --------- --------
1 In the prior year financial statements, the allocation of
fixed asset impairment charges between the right-of-use asset and
property, plant and equipment categories was incorrect. The prior
year balances have therefore been restated, resulting in an
increase in the right-of-use asset balance of GBP801k, and a
decrease in the property, plant and equipment balances of GBP801k.
As such, this has increased the prior year loss before tax before
IFRS 16 adjustments by GBP801k.
Adjusted profit metrics
Key profit measures including operating profit, profit before
tax, profit for the period and earnings per share are calculated on
an adjusted basis by adding back or deducting Adjusting items.
These adjusted metrics are included within the consolidated income
statement and consolidated statement of other comprehensive income,
with further details of Adjusting items included in Note 4.
4. Adjusting items
Adjusting items are those items of income and expenditure that,
by reference to the Group, are material in size and unusual in
nature or incidence and that in the judgement of the Directors
should be disclosed separately on the face of the financial
statements to ensure both that the reader has a proper
understanding of the Group's financial performance and that there
is comparability of financial performance between periods.
The Directors believe that the Adjusted profit and earnings per
share measures included in this report provide additional useful
information to shareholders. These measures are consistent with how
business performance is measured internally. The profit before tax
and Adjusting items measure is not a recognised profit measure
under IFRS and may not be directly comparable with adjusted profit
measures used by other companies.
If a transaction or related series of transactions has been
treated as an Adjusting item in one accounting period, the same
treatment will be applied consistently year-on-year.
In relation to FY22, the items classified as 'Adjusting', as
shown below, related to impairments and impairment reversals.
FY22 FY21
GBP000 GBP000
----------------------------------------- ------- -------
Cost of sales
Impairment charges1 1,126 961
Impairment reversals1 (1,155) (1,873)
HMRC duty provision2 - (63)
----------------------------------------- ------- -------
Total cost of sales (29) (975)
----------------------------------------- ------- -------
Administrative expenses
Salary and other costs3 - 322
Packaging waste costs provision release4 - (123)
----------------------------------------- ------- -------
Total administrative expenses - 199
----------------------------------------- ------- -------
Total Adjusting items (29) (776)
----------------------------------------- ------- -------
1. These relate to fixed asset impairment charges and reversals
of prior year impairment charges.
2. This related to a provision recognised regarding a HMRC review of the Group's duty rates.
3. Salary and other costs related to payments to past Directors, and other associated costs.
4. This related to the release of a provision recognised
regarding packaging waste cost penalties from FY18.
5. Operating profit
Operating profit (before Adjusting items) is stated after
charging/(crediting) the following items:
FY22 FY21
GBP000 GBP000
-------------------------------------------------- ------- -------
Loss on disposal of property, plant and equipment 244 262
Loss on disposal of intangible assets - 310
Loss on disposal of right-of-use assets 2,066 353
Profit on disposal of lease liability (2,340) (464)
Depreciation 25,034 28,498
Amortisation 806 947
Adjusting items (see Note 4) (29) (776)
Operating lease payments:
- Hire of plant and machinery1 389 392
- Other operating leases1 1,549 439
Net foreign exchange losses (128) 135
Cost of inventories recognised as an expense 106,954 69,364
Staff costs 60,031 49,989
-------------------------------------------------- ------- -------
1. These balances relate to non-IFRS 16 operating lease rentals
during the year; please refer to Note 15 for further details of
these balances.
Expenses reclassification
Certain online costs relating to fulfilment and website
maintenance previously treated as distribution or administrative
expenses have been reclassified to cost of sales in the FY22
accounts as this more accurately reflects their nature. The prior
year balances have been reclassified to maintain consistency; the
effect on gross profit, distribution expenses and administrative
expenses is summarised in the table below:
Per FY21 financial FY21 restated
statements Adjustment balance
GBP000 GBP000 GBP000
------------------------ ------------------ ------------ -------------
Cost of sales (159,758) (9,609) (169,367)
------------------------ ------------------ ------------ -------------
Gross profit 20,922 (9,609) 11,313
Other operating income 17,081 - 17,081
Distribution expenses (15,075) 8,635 (6,440)
Administrative expenses (20,261) 974 (19,287)
------------------------ ------------------ ------------ -------------
Operating profit 2,667 - 2,667
------------------------ ------------------ ------------ -------------
6. Taxation
Accounting policy
The tax expense represents the sum of the tax currently payable
and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable
future. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be
sufficient taxable profits against which to utilise the benefits of
the temporary differences and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted at the balance sheet date. Deferred tax is
charged or credited in the income statement, except when it relates
to items charged or credited in other comprehensive income, in
which case the deferred tax is also dealt with in other
comprehensive income.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the
current and deferred tax are also recognised in other comprehensive
income or directly in equity, respectively. Where current tax or
deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the
business combination.
Recognised in consolidated income statement
FY22 FY21
GBP000 GBP000
-------------------------------------------------- ------- -------
Current tax expense
Current year 2,059 -
Adjustments for prior years 3 22
-------------------------------------------------- ------- -------
Current tax expense 2,062 22
-------------------------------------------------- ------- -------
Deferred tax credit
Origination and reversal of temporary differences (17) (423)
Increase in tax rate (825) -
Adjustments for prior years 216 (101)
-------------------------------------------------- ------- -------
Deferred tax credit (626) (524)
-------------------------------------------------- ------- -------
Total tax expense/(credit) 1,436 (502)
-------------------------------------------------- ------- -------
The UK corporation tax rate for FY22 and FY21 was 19.0%. Tax for
other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
Deferred tax assets and liabilities are recognised based on the
corporation tax rate applicable when they are anticipated to
unwind. An increase in the UK corporation rate from 19% to 25%
(effective 1 April 2023) was substantively enacted on 24 May 2021
(although this is now under review). The deferred tax liability as
at 1 May 2022 was therefore calculated using a 25% rate.
Assets and liabilities arising on foreign operations have been
recognised at the applicable overseas tax rates.
Reconciliation of effective tax rate
FY22 FY21
GBP000 GBP000
----------------------------------------------- ------- -------
Profit/(loss) for the year 10,158 (2,801)
----------------------------------------------- ------- -------
Tax using the UK corporation tax rate of 19% 1,930 (532)
Non-deductible expenses 182 105
Effect of tax rates in foreign jurisdictions (40) 4
Tax under/(over) provided in prior periods 219 (79)
Utilisation of unrecognised tax losses brought
forward (116) -
Deferred tax not recognised 86 -
Change in tax rate (825) -
----------------------------------------------- ------- -------
Total tax expense/(credit) 1,436 (502)
----------------------------------------------- ------- -------
The Group's total income tax expense in respect of the period
was GBP1,436k (FY21: credit of GBP502k). The effective tax rate on
the total profit before tax was 14.1% (FY21: 17.9% on the loss
before tax) whilst the effective tax rate on the total profit
before Adjusted items was 14.2% (FY21: 14.0% on the loss before
Adjusted items). The difference between the total effective tax
rate and the Adjusted tax rate relates to fixed asset impairment
charges and reversals within Adjusting items being non-deductible
for tax purposes.
7. Dividends
Accounting policy
At the balance sheet date, dividends are only recognised as a
liability if they are appropriately authorised and are no longer at
the discretion of the Company. Unpaid dividends that do not meet
these criteria are disclosed in the notes to the financial
statements.
No dividends were paid to shareholders during FY21 or FY22.
Dividend equivalents totalling GBP175k (FY21: GBP74k) were
accrued in the year in relation to share-based long-term incentive
schemes.
The Board has recommended the payment of a 2.4 pence per share
final dividend in respect of FY22 (FY21: GBPNil).
8. Earnings per share
Basic earnings per share is calculated by dividing the profit or
loss for the period, attributable to ordinary shareholders, by the
weighted average number of ordinary shares in issue during the
period.
Diluted earnings per share is based on the weighted average
number of shares in issue for the period, Adjusted for the dilutive
effect of potential ordinary shares. Potential ordinary shares
represent shares that may be issued in connection with employee
share incentive awards.
The Group has chosen to present an Adjusted earnings per share
measure, with profit adjusted for Adjusting items (see Note 4 for
further details) to reflect the Group's underlying profit for the
year.
FY22 FY21
Number Number
------------------------------------------------ ----------- ----------
Number of shares in issue 62,500,000 62,500,000
Number of dilutive share options 940,673 -
------------------------------------------------ ----------- ----------
Number of shares for diluted earnings per share 63,440,673 62,500,000
------------------------------------------------ ----------- ----------
GBP000 GBP000
--------------------------------------------------- ------ -------
Profit/(loss) for the financial period 8,722 (2,299)
Adjusting items (29) (776)
Total Adjusted profit/(loss) for Adjusted earnings
per share 8,693 (3,075)
--------------------------------------------------- ------ -------
pence pence
------------------------------------ ----- -----
Basic earnings per share 14.0 (3.7)
Diluted earnings per share 13.7 (3.7)
Adjusted basic earnings per share 13.9 (4.9)
Adjusted diluted earnings per share 13.7 (4.9)
------------------------------------ ----- -----
9. Intangible assets
Accounting policy
Goodwill
Goodwill arising on consolidation represents any excess of the
consideration paid and the amount of any non-controlling interest
in the acquiree over the fair value of the identifiable assets and
liabilities (including intangible assets) of the acquired entity at
the date of the acquisition. Goodwill is recognised as an asset and
assessed for impairment annually or as triggering events occur. Any
impairment in value is recognised within the income statement.
Software
Where computer software is not an integral part of a related
item of computer hardware, the software is treated as an intangible
asset. Capitalised software costs include external direct costs of
goods and services, as well as internal payroll related costs for
employees who are directly associated with the project. Internal
payroll related costs are capitalised if the recognition criteria
of IAS 38 Intangible Assets are met or are expensed as incurred
otherwise.
Capitalised software development costs are amortised on a
straight-line basis over their expected economic lives, normally
between three and seven years. Computer software under development
is held at cost less any recognised impairment loss. Any impairment
in value is recognised within the income statement.
Goodwill Software Total
GBP000 GBP000 GBP000
--------------------------------- -------- -------- -------
Cost
Balance at 3 May 2021 16,180 8,043 24,223
Additions - 1,015 1,015
Balance at 1 May 2022 16,180 9,058 25,238
--------------------------------- -------- -------- -------
Amortisation and impairment
Balance at 3 May 2021 16,180 5,580 21,760
Amortisation charge for the year - 806 806
Balance at 1 May 2022 16,180 6,386 22,566
--------------------------------- -------- -------- -------
Net book value
At 3 May 2021 - 2,463 2,463
--------------------------------- -------- -------- -------
At 1 May 2022 - 2,672 2,672
--------------------------------- -------- -------- -------
Goodwill Software Total
GBP000 GBP000 GBP000
--------------------------------- -------- -------- -------
Cost
Balance at 27 April 2020 16,180 8,415 24,595
Additions - 526 526
Disposals - (898) (898)
--------------------------------- -------- -------- -------
Balance at 2 May 2021 16,180 8,043 24,223
--------------------------------- -------- -------- -------
Amortisation and impairment
Balance at 27 April 2020 16,180 5,221 21,401
Amortisation charge for the year - 947 947
Disposals - (588) (588)
--------------------------------- -------- -------- -------
Balance at 2 May 2021 16,180 5,580 21,760
--------------------------------- -------- -------- -------
Net book value
At 27 April 2020 - 3,194 3,194
--------------------------------- -------- -------- -------
At 2 May 2021 - 2,463 2,463
--------------------------------- -------- -------- -------
Goodwill impairment testing
Goodwill of GBP16.2m was impaired to GBPNil in FY20, therefore,
no further impairment testing is necessary in relation to this.
10. Property, plant and equipment
Accounting policy
Items of property, plant and equipment are stated at their cost
of acquisition or production, less accumulated depreciation and
accumulated impairment losses.
Depreciation is charged on a straight-line basis over the
estimated useful lives as follows:
-- Leasehold property improvements: over the life of the lease.
-- Fixtures and fittings: 15% per annum straight line or
depreciated on a straight-line basis over the remaining life of the
lease, whichever is shorter.
-- Computer equipment: 25 to 50% per annum straight line.
The assets' residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date, with the
effect of any changes in estimate accounted for on a prospective
basis. An asset's carrying amount is written down immediately to
its recoverable amount if the asset's carrying amount is greater
than its estimated recoverable amount.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. The gain or loss arising on
the disposal or scrappage of an asset is determined as the
difference between the sales proceeds and the carrying amount of
the asset and is recognised in profit or loss.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
the profit or loss in the period in which they are incurred.
IFRS 16
IFRS 16 creates the concept of right-of-use assets. The
accounting policy and description of the accounting treatment in
respect of IFRS 16 is included within Note 11.
Impairment of tangible and intangible assets
The carrying amounts of the Group's tangible and intangible
assets with a definite useful life are reviewed at each balance
sheet date to determine whether there is any indication of
impairment to their value. If such an indication exists, the
asset's recoverable amount is estimated and compared to its
carrying value. Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the
recoverable amount of the CGU to which the asset belongs. The
Directors consider an individual retail store to be a cash
generating unit (CGU).
The recoverable amount of an asset is the greater of its fair
value less disposal cost and its value in use (the present value of
the future cash flows that the asset is expected to generate). In
determining value in use, the present value of future cash flows is
discounted using a pre-tax discount rate that reflects current
market assessments of the time value of money in relation to the
period of the investment and the risks specific to the asset
concerned. Where the carrying value exceeds the recoverable amount
a provision for the impairment loss is established with a charge
being made to the income statement. When the reasons for a write
down no longer exist, the write down is reversed in the income
statement up to the net book value that the relevant asset would
have had if it had not been written down and if it had been
depreciated. For intangible assets that have an indefinite useful
life the recoverable amount is estimated at each annual balance
sheet date.
Measuring recoverable amounts
The key assumptions for the value in use calculations are those
regarding the growth rates of sales and gross margins, operating
costs, long-term growth rates, maintenance capital expenditure and
the pre-tax discount rate used to discount the assumed cash flows
to present value.
Impairment triggers
In FY21, due to COVID-19 and its impact on the UK economy and
the Group, an impairment review was performed on all stores. As at
1 May 2022 only stores with an indicator of impairment have been
included within the impairment assessment, including 38 stores with
a budgeted loss at EBITDA level and an additional 30 stores which
have historically been loss making and management is considering
the closure or relocation of the store at the lease break date. An
additional 50 stores with a prior year impairment charge have also
been included in the FY22 assessment.
Key assumptions
The key financial assumptions used in the estimation of the
recoverable amount are set out below. The values assigned to the
key assumptions represent management's assessment of current market
conditions and future trends and have been based on historical data
from both external and internal sources. Management determined the
values assigned to these financial assumptions as follows:
The pre-tax discount rate is derived from the Group's weighted
average cost of capital, which has been estimated using the capital
asset pricing model, the inputs of which include a country
risk-free rate, equity risk premium, Group size premium, a
forecasting risk premium and a risk adjustment (beta). The post-tax
WACC is subsequently adjusted to reflect the specific amount and
timing of the future tax cash flows.
FY22 FY21
---------------------- ----- -----
Pre-tax discount rate 17.9% 16.8%
Long-term growth rate 2.0% 2.0%
---------------------- ----- -----
Cash flow forecasts are derived from the most recent
Board-approved corporate plans that form the Base Case on which the
value in use calculations are based, and which are described in
Note 1(b)(i) (Going concern).
The assumptions used in the estimation of future cash flows
are:
-- rates of growth in sales and gross margins, which have been
determined on the basis of the factors described in Note 1(b)(i)
(Going concern);
-- operating cost estimates reflect expected changes in the
variables that underpin them and, in particular, expected increases
in the National Living Wage; and
-- maintenance capital expenditure includes estimates of ongoing
capital expenditure required to maintain the store network, but
excludes any significant growth capital initiatives not
committed.
Cash flows beyond the corporate plan period (2026 and beyond)
have been determined using the long-term growth rate; this is based
on management's future expectations, reflecting, amongst other
things current market conditions and future trends and has been
based on historical data from both external and internal sources.
Severe weather has been considered when modelling forecasts and it
is not deemed to have a material affect on the projected numbers in
the impairment review.
Impairment charge
As at the end of FY21, an impairment charge of GBP2,588k was
recorded against right-of-use assets, property, plant and equipment
relating to 80 stores. Evidence is available from internal
reporting that indicates that the economic performance of 48 of
these stores has improved and is expected to continue to do so. As
a result, an impairment reversal of GBP1,155k has been recognised
relating to these stores. Conversely, during FY22 an impairment
charge of GBP1,126k was recognised against 39 stores, reflecting
the underperformance of these stores for a variety of reasons. A
net reversal of GBP29k has therefore been shown as an Adjusting
item on the face of the consolidated income statement.
Sensitivity analysis
Whilst the Directors believe the assumptions adopted are
realistic, reasonably possible changes in key assumptions could
occur which would cause the recoverable amount of certain stores to
be lower or higher than the carrying amount. The Directors consider
that the only key assumption, that could reasonably be different
and cause a material change in the impairment charge, is sales
growth. A reduction in sales of 5% from the Base Case plan to
reflect a potential downside scenario would result in an increase
in the impairment charge of GBP422k relating to a total of 41
stores, and a decrease in the impairment reversal of GBP212k
relating to 46 stores. An increase in sales of 5% from the Base
Case plan would increase the impairment reversal by GBP189k
relating to 53 stores and decrease the impairment charge by GBP321k
to relating to 33 stores.
Reasonably possible changes to other key assumptions, including
a 200 basis point increase in the pre-tax discount rate across all
stores, or a 200 basis point reduction in the long-term growth rate
would not result in a significant change to the impairment charges
or reversals, either individually or in combination.
Whilst the Directors consider their assumptions to be realistic,
should actual results, including the rates of growth in sales, be
different from expectations, then it is possible that the value of
property, plant and equipment included in the balance sheet could
become materially different to the estimates used.
RoUA - Fixtures
RoUA - plant and Land and Plant and and
property equipment buildings equipment fittings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- --------- ---------- ---------- ---------- --------- --------
Cost
Balance at 3 May
2021 154,047 1,913 10,682 3,376 26,167 196,185
Additions 3,126 508 (38) 476 1,498 5,570
Disposals (5,768) - (229) (34) (407) (6,438)
--------------------- --------- ---------- ---------- ---------- --------- --------
Balance at 1 May
2022 151,405 2,421 10,415 3,818 27,258 195,317
--------------------- --------- ---------- ---------- ---------- --------- --------
Depreciation and
impairment
Balance at 3 May
2021 42,442 976 5,555 2,762 14,384 66,119
Depreciation charge
for the year 19,597 432 808 640 3,557 25,034
Impairment charge 710 - 155 15 246 1,126
Impairment reversals (980) - (54) (8) (113) (1,155)
Disposals (3,702) - (147) (21) (258) (4,128)
--------------------- --------- ---------- ---------- ---------- --------- --------
Balance at 1 May
2022 58,067 1,408 6,317 3,388 17,816 86,996
--------------------- --------- ---------- ---------- ---------- --------- --------
Net book value
At 3 May 2021 111,605 937 5,127 614 11,783 130,066
--------------------- --------- ---------- ---------- ---------- --------- --------
At 1 May 2022 93,338 1,013 4,098 430 9,442 108,321
--------------------- --------- ---------- ---------- ---------- --------- --------
RoUA - Fixtures
RoUA - plant and Land and Plant and and
property equipment buildings equipment fittings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- --------- ---------- ---------- ---------- --------- -------
Cost
Balance at 27 April
2020 140,992 1,724 10,591 2,539 25,738 181,584
Additions 18,404 189 151 859 859 20,462
Disposals (Restated(1)
) (5,349) - (60) (22) (430) (5,861)
--------------------------- --------- ---------- ---------- ---------- --------- -------
Balance at 2 May
2021 (Restated(1)
) 154,047 1,913 10,682 3,376 26,167 196,185
--------------------------- --------- ---------- ---------- ---------- --------- -------
Depreciation and
impairment
Balance at 27 April
2020 25,494 459 4,586 2,185 11,036 43,760
Depreciation charge
for the year 22,794 517 975 594 3,618 28,498
Impairment charge
(Restated(2) ) 4 - 150 49 758 961
Impairment reversals (874) - (149) (49) (802) (1,874)
Disposals (Restated(1)
) (4,976) - (7) (17) (226) (5,226)
--------------------------- --------- ---------- ---------- ---------- --------- -------
Balance at 2 May
2021 (Restated(1)
) 42,442 976 5,555 2,762 14,384 66,119
--------------------------- --------- ---------- ---------- ---------- --------- -------
Net book value
At 27 April 2020 115,498 1,265 6,005 354 14,702 137,824
--------------------------- --------- ---------- ---------- ---------- --------- -------
At 2 May 2021 (Restated(2)
) 111,605 937 5,127 614 11,783 130,066
--------------------------- --------- ---------- ---------- ---------- --------- -------
1. In the prior year financial statements leases which had
expired and had a nil net book value were not captured within the
IFRS 16 disposals assessment. The carried forwards property
right-of-use asset cost and depreciation figures were incorrectly
grossed up by GBP4,725k; as such these prior year balances have
been adjusted. Note that this adjustment has no impact on the FY21
closing net book value of the right-of-use assets or property,
plant and equipment.
2. In the prior year financial statements, the allocation of
fixed asset impairment charges between the right-of-use asset and
property, plant and equipment categories was incorrect. The prior
year balances have therefore been restated, resulting in an
increase in the right-of-use asset balance of GBP801k, and a
decrease in the property plant and equipment balances of
GBP801k:
Per FY21 Adjustment FY21 restated
financial balance
statements
GBP000 GBP000 GBP000
---------------- ----------- ---------- -------------
Right-of-use
assets 111,741 801 112,542
Property, plant
and equipment 18,325 (801) 17,524
----------------- ----------- ---------- -------------
11. IFRS 16
Accounting policy
IFRS 16 establishes principles for the recognition, measurement,
presentation and disclosure of leases.
IFRS 16 requires the use of a single definition of leases, which
recognises a right-of-use asset (RoUA) and a lease liability for
all leases, with exceptions only permitted for short-term and
low-value leases. Accordingly, the impact of IFRS 16 is to require
recognition of a lease liability and a corresponding RoUA in
relation to leases previously classified as operating leases, which
were hitherto accounted for via a single charge to the profit and
loss account.
The most significant impact is that the Group's retail store
operating leases are recognised on the balance sheet as
right-of-use assets representing the economic benefits of the
Group's right to use the underlying leased assets, together with
the associated future lease liabilities.
Under IFRS 16, the Group recognises right-of-use assets and
lease liabilities at the lease commencement date.
Identifying an IFRS 16 lease
At the inception of a contract, the Group assesses whether it
is, or contains, a lease. A contract is, or contains, a lease if it
conveys the right to control the use of an asset for a period of
time, in exchange for consideration. Control is conveyed where the
Group has both the right to direct the asset's use and to obtain
substantially all the economic benefits from that use. For each
lease or lease component, the Group follows the lease accounting
model as per IFRS 16, unless the permitted recognition exceptions
can be used.
Recognition exceptions
The Group leases many assets, including properties, IT equipment
and warehouse equipment.
The Group has elected to account for lease payments as an
expense on a straight-line basis over the lease term or another
systematic basis for the following types of leases:
(i) leases with a term of twelve months or less; and
(ii) leases where the underlying asset has a low value.
For leases where the Group has taken the short-term lease
recognition exemption and there are any changes to the lease term
or the lease is modified, the Group accounts for the lease as a new
lease.
For leases where the Group has taken a recognition exemption as
detailed above, rentals payable under these leases are charged to
income on a straight-line basis over the term of the relevant lease
except, where another more systematic basis is more representative
of the time pattern in which economic benefits from the lease asset
are consumed.
Lessee accounting under IFRS 16
Upon lease commencement the Group recognises a right-of-use
asset and a lease liability.
Initial measurement
The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset, or to restore the
underlying asset or the site on which it is located at the end of
the lease, less any lease incentives received.
The lease liability is initially measured at the present value
of the lease payments payable over the lease term, discounted at
the rate implicit in the lease if that can be readily determined.
If that rate cannot be readily determined, the Group uses the
incremental borrowing rate.
Variable lease payments that depend on an index or a rate are
included in the initial measurement of the lease liability and are
initially measured using the index or rate as at the commencement
date. Amounts expected to be payable by the Group under residual
value guarantees are also included. Variable lease payments that
are not included in the measurement of the lease liability are
recognised in profit or loss in the period in which the event or
condition that triggers payment occurs, unless the costs are
included in the carrying amount of another asset under another
accounting standard.
The Group has applied judgement to determine the lease term for
some lease contracts that include renewal options. The assessment
of whether the Group is reasonably certain to exercise such options
impacts the lease term, which significantly affects the value of
lease liabilities and right-of-use assets recognised.
The payments related to leases are presented under cash flows
from financing activities and cash flows from operating activities
in the cash flow statement.
Subsequent measurement
After lease commencement, the Group values right-of-use assets
using a cost model. Under the cost model a right-of-use asset is
measured at cost less accumulated depreciation and accumulated
impairment.
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payments made.
It is re-measured to reflect changes in: the lease term (using a
revised discount rate); the assessment of a purchase option (using
a revised discount rate); the amounts expected to be payable under
residual value guarantees (using an unchanged discount rate); and
future lease payments resulting from a change in an index or a rate
used to determine those payments (using an unchanged discount
rate).
The re-measurements are matched by adjustments to the
right-of-use asset. Lease modifications may also prompt
re-measurement of the lease liability unless they are determined to
be separate leases.
Depreciation of right-of-use assets
The right-of-use asset is subsequently depreciated using the
straight-line method, from the commencement date to the earlier of
either the end of the useful life of the right-of-use asset or the
end of the lease term. The estimated useful lives of right-of-use
assets are determined on the same basis as those of property, plant
and equipment. In addition, the right-of-use asset is reduced by
impairment losses, if any, and adjusted for certain re-measurements
of the lease liability.
Extension and termination options
Extension and termination options are included in a number of
property leases across the Group. These terms are used to maximise
operational flexibility. The Group has applied judgement to
determine the lease term for some lease contracts in which it is a
lessee that includes renewal options and break clauses. The
assessment of whether the Group is reasonably certain to exercise
such options impacts the lease term, and therefore the amount of
lease liabilities and right-of-use assets recognised.
Judgements in determining the lease term
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not to exercise a termination option.
Extension options (or periods after termination options) are only
included in the lease term if the lease is reasonably certain to be
extended (or not terminated).
For property leases the following factors are the most
relevant:
-- The profitability of the leased store and future plans for the business.
-- If there are any significant penalties to terminate (or not
extend), the Group is typically reasonably certain to extend.
COVID-19 concessions
The Group elected to account for qualifying COVID-19 related
rent concessions as variable lease payments, recognising the
concession in the period in which the event or condition that
triggers the payments occurs. Rent concessions are qualifying if
the following conditions are met:
(i) the concession was a direct consequence of the COVID-19 pandemic;
(ii) the change in lease payments resulted in revised
consideration for the lease that is substantially the same as, or
less than, the consideration for the lease immediately preceding
the change;
(iii) the reduction in lease payments only affects payments due
on or before 30 June 2022; and
(iv) there is no substantive change to other terms and
conditions of the lease.
The Group has applied this practical expedient consistently to
all lease contracts with similar characteristics and in similar
circumstances.
Amounts recognised in the balance sheet
Right-of-use assets
FY21
FY22 (Restated - Note 10)
GBP000 GBP000
-------------------------- ------- ---------------------
Land and buildings 93,338 111,605
Plant and equipment 1,013 937
-------------------------- ------- ---------------------
Total right-of-use assets 94,351 112,542
-------------------------- ------- ---------------------
Additions to the right-of-use assets during FY22 were GBP3,634k
(FY21: GBP18,593k).
Lease liabilities
Lease liabilities included in the statement of financial
position as at the financial year end:
FY22 FY21
GBP000 GBP000
------------ -------- --------
Current 25,434 31,552
Non-current 85,702 104,362
------------ -------- --------
111,136 135,914
------------ -------- --------
Maturity analysis - contractual undiscounted cash flows:
FY22 FY21
GBP000 GBP000
------------------------------------- -------- --------
Less than one year 31,592 35,978
Two to five years 83,017 86,601
More than five years 21,862 30,158
------------------------------------- -------- --------
Total undiscounted lease liabilities 136,471 152,737
------------------------------------- -------- --------
Amounts recognised in the statement of profit and loss:
FY21
FY22 (Restated - Note 10)
GBP000 GBP000
----------------------------------------------------------------------- -------- ---------------------
Depreciation charge on right-of-use assets (RoUA) 20,029 23,311
Interest cost on lease liability 4,500 4,869
Loss on disposal of RoUA 2,066 353
Profit on disposal of lease liability (2,340) (464)
Foreign exchange difference on euro leases 120 59
Additional impairment charge under IAS 36 (270) (870)
----------------------------------------------------------------------- -------- ---------------------
Operating lease rentals - hire of plant and equipment
- Low-value leases 389 392
----------------------------------------------------------------------- -------- ---------------------
Total plant and equipment operating lease rentals 389 392
----------------------------------------------------------------------- -------- ---------------------
Operating lease rentals - store leases
- Stores with variable lease rentals 454 20
- Concession leases (the landlord has substantial substitution rights) 943 1,310
- Low-value leases (11) (23)
- Lease is expiring within 12 months or has rolling break clauses 87 98
- Lease has expired 484 149
- Variable lease payments as a result of COVID-19 concessions (408) (1,115)
----------------------------------------------------------------------- -------- ---------------------
Total store operating lease rentals 1,549 439
----------------------------------------------------------------------- -------- ---------------------
Depreciation of right-of-use asset by class:
FY22 FY21
GBP000 GBP000
-------------------------------------- ------- -------
Land and buildings 19,597 22,794
Plant and equipment 432 517
-------------------------------------- ------- -------
Total right-of-use asset depreciation 20,029 23,311
-------------------------------------- ------- -------
Other lease rental commitments:
Non-cancellable operating lease rentals for leases excluded from
the IFRS 16 assessment are as follows:
FY22 FY21
------------- ------------- ------ ------------- ------------- ------
Motor vehicle Concession Motor vehicle Concession
leases store leases Total leases store leases Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------- ------------- ------ ------------- ------------- ------
Less than one year 386 589 975 247 326 573
Between one and five years 200 729 929 230 51 281
More than five years - - - - - -
---------------------------------- ------------- ------------- ------ ------------- ------------- ------
Total operating lease commitments 586 1,318 1,904 477 377 854
---------------------------------- ------------- ------------- ------ ------------- ------------- ------
12. Deferred tax assets
Recognised deferred tax assets
Deferred tax assets are attributable to the following:
Assets Liabilities
---------------- ----------------
FY22 FY21 FY22 FY21
GBP000 GBP000 GBP000 GBP000
------------------------------ ------- ------- ------- -------
Property, plant and equipment 1,637 732 - -
Leases 1,645 1,420
Temporary timing differences 195 372 - -
Financial assets/liabilities - 328 - -
------------------------------ ------- ------- ------- -------
Tax assets 3,477 2,852 - -
------------------------------ ------- ------- ------- -------
Movement in deferred tax during the year
Temporary Financial
timing assets/
Fixed assets Leases differences liabilities Total
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------------ ------- ------------ ------------ -------
At 3 May 2021 732 1,420 372 328 2,852
Adjustment in respect of
prior years - - (216) - (216)
Deferred tax credit/(charge)
to profit and loss 905 225 39 (328) 841
Deferred tax credit/(charge) - - - - -
in equity profit and loss
----------------------------- ------------ ------- ------------ ------------ -------
At 1 May 2022 1,637 1,645 195 - 3,477
----------------------------- ------------ ------- ------------ ------------ -------
13. Inventories
Accounting policy
Inventories comprise stocks of finished goods for resale and are
valued on a weighted average cost basis and carried at the lower of
cost and net realisable value. 'Cost' includes all direct
expenditure and other attributable costs incurred in bringing
inventories to their present location and condition.
The process of purchasing inventories may include the use of
cash flow hedges to manage foreign exchange risk. Where hedge
accounting applies, an adjustment is applied such that the cost of
stock reflects the hedged exchange rate.
Inventory summary
FY22 FY21
GBP000 GBP000
------------------------------------------------------ ------- -------
Gross stock value 29,817 31,045
Less: stock provisions for shrinkage and obsolescence (3,252) (4,391)
------------------------------------------------------ ------- -------
Goods for resale net of provisions 26,565 26,654
Stock in transit 2,822 2,478
------------------------------------------------------ ------- -------
Inventory 29,387 29,132
------------------------------------------------------ ------- -------
The cost of inventories recognised as an expense during the
period was GBP107.7m (FY21: GBP69.0m).
Stock provisions
The Group makes provisions in relation to stock quantities, due
to stock losses not yet reflected in the accounting records,
commonly referred to as shrinkage and, in relation to stock value,
where the net realisable value of an item is expected to be lower
than its cost, due to obsolescence.
The calculation of stock provisions entails the use of estimates
and judgements combined with mechanistic calculations and
extrapolations. The shrinkage provision represents a key source of
estimation uncertainty.
Shrinkage provision
As at the end of FY21 the unrecognised shrinkage provision was
GBP2.6m, which was significantly higher than the amount usually
required in a normal, non-COVID-19 impacted year. This was due to
the closure of stores for extended periods of FY21, which
significantly interrupted the stock counting process and the
corresponding routine process of correcting the stock file.
During the course of FY22, the Group has carried out 'tactical'
(perpetual inventory basis) stock counts in its retail stores on a
regular basis, such that at the end of the financial year a
significant proportion of stock in stores had been counted and
stock file adjustments made to correct errors indicated by the
counts. In addition, full four wall counts (i.e. a controlled count
of all stock in a store) were performed in 71 stores during the
last 6 weeks of the financial year, and an additional 53 four wall
counts were performed in the month following the financial year
end. Through these processes, the Group establishes that its
accounting records are maintained to reflect the actual quantities
of stock in stores. This process also provides the Group with an
indication of the typical percentage of stock loss, which is used
to calculate, by extrapolation, unrecognised shrinkage at the
balance sheet date.
The stock records were updated to reflect the results of stock
counts during the financial year, as a result of which the
provision required for unrecognised shrinkage materially decreased
compared with the value at the end of FY21, by GBP0.7m, to
GBP1.9m.
The percentages used in calculating the unrecognised shrinkage
provision were based on data obtained from the full 4-wall counts
performed towards the end of the financial year and during the
first month of FY23. The shrinkage provision was GBP1.9m at the
period end (FY21: GBP2.6m), representing 8.6% of gross store stock
(FY21: 12.3%). The provision relates to store stock with a value of
GBP22.2m (FY21: GBP21.2m). This represents management's best
estimate of the likely level of stock losses experienced, but the
actual level of stock loss will only be established once all
products in all locations have been counted. A 20% increase /
(decrease) in the shrinkage percentage used would result in an
increase / (decrease) to the shrinkage provision of GBP334k to
GBP2.3m / (GBP1.6m). This represents a reasonably possible range of
estimation uncertainty with regard to the unrecognised shrinkage
provision
The shrinkage provision has been estimated based on the results
the four wall counts which may not be representative of the store
population as a whole. Due to the level of the provisions, combined
with the risk that the sample on which it is based may not be
representative of the populations as a whole, the calculation of
the stock shrinkage provision is considered a key source of
estimation uncertainty for the FY22 financial statements.
Obsolescence provision
Generally, the Group's inventory does not comprise a large
proportion of stock with a 'shelf life'. Stock lines which are slow
selling because they have been less successful than planned or
which have sold successfully and become fragmented as they reach
the natural end of their planned selling period, are usually
discounted and sold during 'sale' events, for example the January
sale. This stock is referred to as terminal stock.
During the prior financial year, the closures of the stores due
to the COVID-19 pandemic interrupted the orderly process of selling
through terminal stock, particularly during the UK-wide lockdown
implemented between January and April 2021, which coincided with
the period when the January sale would normally have taken place.
As a result, at the end of FY21, the Group carried a higher than
normal level of terminal stock and the obsolescence provision was
higher than normal, at GBP1.8m.
During FY22 a high degree of focus has been placed on clearing
terminal stock and at the period end the Group held significantly
less terminal stock than the prior year. Consequently, the
obsolescence provision has reduced by GBP0.5m to GBP1.3m.
14. Trade and other receivables
FY22 FY21
GBP000 GBP000
---------------------------- ------- -------
Current
Trade receivables 2,606 2,214
Other receivables 1,793 423
Prepayments 4,028 3,362
Accrued income - 914
---------------------------- ------- -------
Trade and other receivables 8,427 6,913
---------------------------- ------- -------
Trade receivables are attributable to sales which are paid for
by credit card and are classified as finance assets at amortised
cost; they are all current. No credit is provided to customers. The
value and nature of trade receivables is such that no material
credit losses occur; therefore no loss allowance has been recorded
at the period end (FY21: GBPNil).
Other receivables relate to stock on water deposits paid, and
other accounts payable debit balances. Prepayments relate to
prepaid property costs and other expenses.
The accrued income balance in the prior year relates to the
COVID-19 furlough scheme Government grants receivable as detailed
in Note 2.
15. Cash and cash equivalents
FY22 FY21
GBP000 GBP000
-------------------------------------------- ------- -------
Cash and cash equivalents per balance sheet 16,280 8,315
-------------------------------------------- ------- -------
Net cash and cash equivalents 16,280 8,315
-------------------------------------------- ------- -------
The Group's cash and cash equivalents are denominated in the
following currencies:
FY22 FY21
GBP000 GBP000
------------------------------ ------- -------
Sterling 12,198 3,385
Euro 3,102 1,138
US dollar 980 3,792
------------------------------ ------- -------
Net cash and cash equivalents 16,280 8,315
------------------------------ ------- -------
At 1 May 2022 the Group held net cash (excluding lease
liabilities) of GBP16.3m (FY21: net cash (excluding lease
liabilities) of GBP0.8m). This comprised cash of GBP16.3m (FY21:
cash of GBP8.3m and a draw down of GBP7.5m against a term
loan).
For the year ended 1 May 2022 the Group's bank facilities
comprised a revolving credit facility (RCF) of GBP22.5m, with an
expiry date of 30 September 2022. The RCF limit reduced to GBP20.0m
in January 2022 and remained at this level until its expiry. From
10 June 2022 the Group's bank facilities comprised an RCF of GBP30m
expiring 30 November 2025.
The facility includes financial covenants in relation to the
level of net debt to LTM EBITDA and "Fixed Charge Cover" or ratio
of LTM EBITDA prior to deducting rent and interest, to LTM rent and
interest.
16. Borrowings
Accounting policy
Interest-bearing bank loans and overdrafts, loan notes and other
loans are recognised in the balance sheet at amortised cost.
Finance charges associated with arranging non-equity funding are
recognised in the income statement over the life of the facility.
All other borrowing costs are recognised in the income statement in
accordance with the effective interest rate method. A summary of
the Group's objectives, policies, procedures and strategies with
regard to financial instruments and capital management can be found
in Note 25. At 1 May 2022 all borrowings were denominated in
sterling (FY21: sterling).
FY22 FY21
GBP000 GBP000
----------------------------- ------- -------
Non-current liabilities
Lease liabilities 85,702 104,362
----------------------------- ------- -------
Non-current liabilities 85,702 104,362
----------------------------- ------- -------
Current liabilities
Secured bank loans - 7,500
Lease liabilities 25,434 31,552
Unamortised debt issue costs - (405)
----------------------------- ------- -------
Current liabilities 25,434 38,647
----------------------------- ------- -------
Reconciliation of borrowings to cash flows arising from
financing activities:
FY22 FY21
GBP000 GBP000
--------------------------------------------------- --------- ---------
Borrowings at start of year (excluding overdrafts) 143,009 142,129
--------------------------------------------------- --------- ---------
Changes from financing cash flows
Payment of lease liabilities (capital) (25,969) (14,327)
Payment of lease liabilities (interest) (4,500) (4,869)
Proceeds from loans and borrowings - 7,500
Repayment of bank borrowings (7,500) (10,000)
Payment of RCF fees - (619)
--------------------------------------------------- --------- ---------
Total changes from financing cash flows (37,969) (22,315)
--------------------------------------------------- --------- ---------
Other changes
Lease liability additions 3,634 18,593
Disposal of lease liabilities (2,340) (464)
The effect of changes in foreign exchange rates (120) (59)
Interest expense 4,922 5,125
--------------------------------------------------- --------- ---------
Total other changes 6,096 23,195
--------------------------------------------------- --------- ---------
Borrowings at end of year (excluding overdrafts) 111,136 143,009
--------------------------------------------------- --------- ---------
Net debt reconciliation
FY22 FY21
GBP000 GBP000
--------------------------------------------- -------- -------
Net debt (excluding unamortised debt costs)
RCF - 7,500
Cash and cash equivalents (16,280) (8,315)
--------------------------------------------- -------- -------
Net bank cash (16,280) (815)
Non-IFRS 16 lease liabilities 485 766
--------------------------------------------- -------- -------
Non-IFRS 16 net cash (15,795) (49)
IFRS 16 lease liabilities 110,651 135,148
--------------------------------------------- -------- -------
Net debt including IFRS 16 lease liabilities 94,856 135,099
--------------------------------------------- -------- -------
17. Trade and other payables
FY22 FY21
GBP000 GBP000
------------------------------ ------- -------
Current
Trade payables 20,091 15,309
Other tax and social security 2,792 194
Accrued expenses 13,075 10,685
------------------------------ ------- -------
Trade and other payables 35,958 26,188
------------------------------ ------- -------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The Group has
financial risk management policies in place to ensure that all
payables are paid within the pre-agreed credit terms.
The Directors consider that the carrying amount of trade
payables approximates to their fair value.
Accrued expenses comprise various accrued property costs,
payroll costs and other expenses, including GBP453k (FY21: GBP677k)
of deferred income in relation to the Group's customer loyalty
scheme. The increase in the balance from FY21 is due to an increase
in the bonus accrual.
The Group has net US dollar denominated trade and other payables
of GBP4.9m (FY21: GBP2.9m).
18. Related party transactions
Identity of related parties with which the Group has
transacted
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions
between the Group and its associates are disclosed below.
Transactions with key management personnel
The compensation of key management personnel (including the
Directors) is as follows:
FY22 FY21
GBP000 GBP000
-------------------------------------------------------- ------- -------
Key management remuneration - including social security
costs 2,077 1,965
Pension contributions 134 124
Long Term Incentive Plan - including social security
costs 621 29
-------------------------------------------------------- ------- -------
Total transactions with key management personnel 2,832 2,118
-------------------------------------------------------- ------- -------
Further details of the compensation of key management personnel
who are Directors are provided in the Group's Directors'
remuneration report which is included in the FY22 Annual
Report.
19. Subsidiary undertakings
The results of all subsidiary undertakings are included in the
consolidated financial statements. The principal place of business
and the registered office addresses for the subsidiaries are the
same as for the Company.
Direct/ Class of
Active/ indirect Registered shares
Company dormant control number held Ownership
------------------------------ --------- ---------- ---------- -------- ---------
The Works Investments Limited Active Direct 09073458 Ordinary 100%
The Works Stores Limited Active Indirect 06557400 Ordinary 100%
The Works Online Limited Dormant Indirect 08040244 Ordinary 100%
------------------------------ --------- ---------- ---------- -------- ---------
20. Post balance sheet events
On 10 June 2022, the Group renewed its bank facility, increasing
the size of the committed facility to GBP30.0m and extended the
expiry date to the end of November 2025, providing significant
additional liquidity headroom.
Principal risks and uncertainties
Our risk management framework
The Board is ultimately responsible for ensuring that
appropriate risk management processes and controls are in place.
The Board has delegated responsibility for overseeing risk
management processes and controls to the Audit and Risk Committee.
Day-to-day risk management is the responsibility of the senior
management team.
Risks are identified and assessed using a bottom-up review
process across all areas of the business. Senior management
determine the potential risks that could affect their areas of
responsibility and their likelihood of occurrence and impact. This
information is used to create a primary risk register which
collates the principal risks, which are subsequently considered by
the Audit Committee and the Board.
Risk appetite
The Board determines the Group's risk appetite. Where a conflict
exists between risk management and strategic ambitions, the Board
seeks to achieve a balance which facilitates the long-term success
of the Group.
Principal and emerging risks and changes in principal risks
The Board assesses the principal risks facing the Group and
emerging risks, including those that could threaten the operation
of its business, future performance, or solvency. The Board
formally reviews the Group's principal risks at least twice a
year.
A detailed operational risk review was undertaken by the Head of
Finance during October and November 2021. This review included
discussions with each Operational Board member covering current,
principal and emerging risks affecting their respective areas of
responsibility and broader corporate risks. Following this review,
the Group's primary risk register and its principal risks and
mitigation plans were updated, and considered by the Audit
Committee and the Board in January 2022 and July 2022.
The principal risks and uncertainties facing the Group are set
out in the table on the following pages, together with details of
how these are currently mitigated.
During the year the main changes to our principal risks were as
follows:
-- Removal of store expansion risk: store expansion activity and
specifically new store openings no longer represent a risk. The
Group's strategy is now focused on optimising its store estate and
new store openings are a less significant strategic priority.
-- Addition of environmental (including climate change) risk:
Following the risk review described above this risk is now
considered to be a principal risk.
-- Reduced likelihood and impact of risks associated with COVID-19.
-- As a result of experiencing a cyber-security incident in
March 2022 we have significantly increased our cyber-security
capabilities. As a result, the risks of a similar event in the
future causing significant damage or disruption, have reduced. We
continue to monitor our systems diligently and implement
appropriate mitigation measures.
The Group may be exposed to other risks and uncertainties not
presently known to management, or currently deemed less material,
that may subsequently have an adverse effect on the business.
Further, the exposure to each risk will evolve as mitigating
actions are taken or as new risks emerge or the nature of risks
change.
Risk, profile change and link Mitigation
to strategy
1. Economy
A deterioration in economic conditions * The Group's proposition as an alternative to full
or a reduction in consumer confidence price specialist retailers positions it well for
could impact customer spending customers looking to trade down in times of economic
and have an adverse effect on uncertainty.
the Group's revenue and profitability.
Change from prior year
Increased risk level. COVID-19 * Monitor sales on a daily basis and ongoing review of
trading restrictions were lifted pricing and margins.
at the start of FY22, and the
risks connected with the pandemic
are now lower. However this risk * Review sales trends data at weekly trading meetings
is currently heightened due to: attended by experienced senior management and, if
* Supply chain costs described below. required, agree and implement mitigating actions to
drive sales and/or reduce costs. Take account of
expected impact in the Group's strategic planning
* Raw materials and energy costs. process, budgets and forecasts.
* Increases in National Living and Minimum Wages given * Continue to focus on cost control across the business
most of the Group's colleagues are paid the National while making carefully considered investments in
Minimum or Living Wage. certain areas to support the Group's growth strategy.
* The war in Ukraine. * Increasing the use of direct sourcing as part of a
three-year plan to improve the margin on key products
purchased. This has been delayed by the ongoing
* FX rates. effects of COVID-19 in China, the Group's key supply
source.
Link to strategy
* Develop our brand and increase customer engagement. * FX hedging policy in place to smooth the short-term
effects of exposure to foreign exchange rate
fluctuations (substantially all FY23 USD requirements
* Enhance our online proposition. hedged) and continue to hedge energy costs as
appropriate.
* Optimise our store estate.
* Operate store estate on flexible short-term property
leases to ensure the Group benefits from reductions
* Drive operational improvements. in rental costs through the rolling renegotiation of
its leases and can flex its store estate relatively
quickly in the event of material local changes in
demand.
-----------------------------------------------------------------------
2. Market
The Group generates its revenue * Focus on development of our brand and increasing
from the sale of books, toys, customer engagement is designed to further
arts and crafts and stationery differentiate the Group from competitors.
products.
Although it has a track record
of understanding customers' needs * Emerging trends monitored by a recently strengthened
within these categories, the trading team that has a proven track record of
market is competitive. Customers' responding to changing consumer tastes.
tastes and shopping habits can
change quickly. Failure to effectively
predict or respond to changes * Closely monitor competitors' propositions and discuss
could affect the Group's sales key developments at weekly trading meetings and at
and financial performance. Board level on a regular basis.
Change from prior year
Same risk level .
Link to strategy * Monitor and review customer feedback.
* Develop our brand and increase customer engagement.
* Use sales data and online feedback channels to inform
* Enhance our online proposition. purchasing and marketing decisions.
* Optimise our store estate. * Flexible lease terms allow the Group to adapt its
store portfolio (which continues to be highly
relevant to customers) to react to changes in local
market conditions.
* Ongoing investment in the Group's online capability
will ensure that it remains relevant as customers
shopping behaviours increasingly involve online
engagement prior to store purchases as well as those
made directly via the website.
-----------------------------------------------------------------------
3. IT systems and cyber security
The Group relies on its IT systems * Systems and data are key to the execution of the
for many aspects of its operation. strategy. Ensuring systems and processes are fit for
Failure to develop and maintain purpose will deliver efficiency and capability
these systems, or any prolonged improvements.
system performance problems or
cyber-attack, could affect the
Group's ability to trade and/or * Significantly enhanced IT security across all
could lead to significant fines operations including upgraded malware detection and
and reputational damage. response capability to detect, defend and isolate any
Change from prior year attack, introduced extensive network segmentation to
The Group experienced a cyber-security limit the progress of any attack and established a
incident at the end of March new Security Operations Centre to monitor and respond
2022, which temporarily affected to any unusual activities in our systems or networks.
till systems, replenishment deliveries
to stores and delayed the fulfilment
of online orders. Action was * Refreshed mandatory training for colleagues to raise
taken swiftly to protect the
business, which reduced the immediate
threat and enabled trade to continue * awareness of cyber-security issues.
online and in the majority of
stores. As part of the operational
recovery plan we have embedded * Enhanced working from home capabilities established
significantly increased security in response to the pandemic have reduced the level of
capabilities across the business, dependence on a single site head office.
which has taken more time than
merely reinstating the previous
arrangements after scanning for * Regular IT investment strategy review undertaken by
residual security issues. While the Operating Board including security and
this lengthened process has created infrastructure investment programmes.
a degree of short term operational
difficulty, it has resulted in
a significant reduction in the * Further strengthened in-house IT capabilities during
risk of the business suffering FY22.
major loss or disruption in the
event of a future cyber-security
incident. * Diligent monitoring of systems on an ongoing basis.
Link to strategy
* Develop our brand and increase customer engagement.
* Enhance our online proposition.
-----------------------------------------------------------------------
4. Supply chain
The Group uses third parties, * Buying and supply chain teams strengthened
including many in Asia, for the progressively since mid-2020.
supply of products. This creates
a number of potential areas of
risk, including the potential * Ongoing review of supplier base and diversification
for supplier failures, risks and change implemented as appropriate to provide
associated with manufacturing flexibility and reduce reliance on individual
and importing goods from overseas, suppliers.
potential disruption at various
stages of the supply chain and
suppliers failing to act or operate * Independent monitoring of suppliers undertaken by
ethically. third-party auditors with local country knowledge and
Supply chain disruption has been an understanding of social and ethical requirements.
heightened due to COVID-19 resulting
in uneven demand and supply patterns.
During FY22, the main supply * Developed a series of product technical requirements
chain impact was a very significant that provide guidance for our buyers and suppliers
increase in ocean freight rates during product
and difficulty importing stock
due to problems in the ocean
freight system. * sourcing, development and manufacture.
Due to the Group's low level
of exposure to sales outside
the U.K., risks connected with * In-house product quality assurance team undertakes
Brexit are low albeit there still product testing as part of a product surveillance
remains a higher level of complexity test programme.
than previously in exporting
goods to the Group's ten stores
in Ireland. * Implement policies that reinforce the Group's values
Change from prior year and its commitment to conduct business fairly,
Unchanged level of risk. ethically and with respect to human rights which
Link to strategy suppliers are required to adhere to).
* Develop our brand and increase customer engagement.
* Proactive management of supply chain to ensure stock
* Enhance our online proposition. levels are appropriate.
* Continue to review freight costs (including measures
to mitigate such costs) and monitor alternative
sourcing arrangements where practicable.
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5. Brand and reputation
Protecting and enhancing the * Developing our brand and increasing customer
reputation of the Group's key engagement is a strategic aim. During the year we
brand asset - 'TheWorks.co.uk' evolved and modernised our brand which will be rolled
- is vital to the Group's success. out across the business during Autumn 2022.
Failure to protect the brand,
in particular product quality
and safety, could result in the * In conjunction with our brand evolution, communicate
Group's reputation, sales and to colleagues our clarified purpose and values.
future prospects being adversely
affected.
Change from prior year * Provide intellectual property guidance and education
Same risk level. to design and sourcing teams.
Link to strategy
Develop our brand and increase
customer engagement. * Monitor customer product reviews and take appropriate
action to remove products from sale and take other
actions as appropriate where quality issues are
identified.
* In-house product quality assurance team works with
suppliers to ensure product quality, safety and
ethical production.
* Conduct third-party technical and ethical audits.
* Monitor the Group's ESG responsibilities including
the processes in place to ensure the Group operates
in a responsible way.
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6. Regulation and compliance
The Group is exposed to a growing * Oversight of regulatory compliance by Group CFO and
number of legal and regulatory Company Secretary with support from external
compliance requirements including advisers.
the Bribery Act, the Modern Slavery
Act, the General Data Protection
Regulation (GDPR) and the Listing * Implement policies and procedures in relation to
Rules. Failure to comply with mandatory requirements and measures the Group has
these laws and regulations could adopted voluntarily.
lead to financial claims, penalties,
awards of damages, fines or reputational
damage which, in some cases, * Operate a Whistleblowing Policy and procedure which
could be material and could significantly enables colleagues to confidentially report any
impact the financial performance concerns or inappropriate behaviour.
of the business.
There are significant laws and
regulations (including reporting * Operate a GDPR Policy which is overseen by a data
and disclosure requirements) supervisor and monitored by members of a GDPR
surrounding Climate Change and governance monitoring group who meet regularly and
environmental reporting, Failure report key issues to the senior management team.
to comply with these could result
in financial penalties, legal
consequences and/or reputational * Retain experienced advisers where necessary to cover
damage. gaps in expertise in the in-house team.
Change from prior year
Higher risk level. Regulatory
requirements relating to climate * Entered into a partnership with Salford Trading
change and environmental reporting Standards, one of ten local trading standards
have increased, which increase authorities, to access greater consensus on
this risk level. The Group is regulatory interpretations and new legislation,
now subject to the TCFD disclosure particularly following Brexit.
requirements.
Link to strategy
Develop our brand and increase
customer engagement.
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7. Seasonality of sales
The Group historically makes * Continue to focus on reducing seasonality, where
all of its profit in the second possible, by growing the year-round appeal of the
half of the financial year, with proposition.
the peak Christmas trading period
contributing substantially all
of this. Interruptions to supply, * Hold weekly trading meetings to ensure that immediate
adverse weather or a significant action is taken to maximise sales based on current
downturn in consumer confidence and expected trading conditions.
in this period could have a significant
impact on the short-term profitability
of the Group. * Enhanced online fulfilment operation to increase
Change from prior year capacity during the peak season.
Same risk level.
Link to strategy
Develop our brand and increase
customer engagement.
Enhance our online proposition.
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8. People
The Group's success is dependent * Continue to develop succession plans which are
on the quality of the Board and discussed at Nomination Committee meetings.
senior management team. A lack
of effective succession planning
and development of key colleagues * Establishing development programmes to support future
could harm future prospects. leaders.
Change from prior year
Reduced risk level compared to
the previous year following recent * Well-managed search and recruitment processes,
appointments to the Operational together with appealing proposition and welcoming
Board and senior management team. culture, enables recruitment of high calibre
Link to strategy executives.
* Develop our brand and increase customer engagement.
* Implement a remuneration policy designed to ensure
* Enhance our online proposition. management incentives support the Group's long-term
success for the benefit of all stakeholders,
including a long- term incentive plan for Executive
* Optimise our store estate. Directors and restricted share awards for Operational
Board members.
* Drive operational improvements.
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9. Business continuity
Significant disruption to the * Business continuity plan in place including system
operation, in particular internal recovery. Following the cyber-security incident
IT systems, Support Centre or referred to above, this plan has been enhanced in a
Distribution Centre, could severely number of areas including the implementation of new
impact the Group's ability to cloud based back-ups which improve the flexibility of
supply stores or fulfil online any disaster recovery plan response. Further
sales resulting in financial enhancements are planned in the coming year including
or reputational damage. subscription to a cloud-based technology recovery
Change from prior year centre to improve system recovery speed and
Reduced risk as described above execution.
due to the implementation of
additional security measures
following cyber-security incident. * Undertake disaster recovery dry run exercises. The
Link to strategy scope of these exercises has been updated and a
* Develop our brand and increase customer engagement. number of dry runs will take place in FY23.
* Enhance our online proposition. * Emergency generator installed at the Group's Support
Centre to insulate the business from the impact of
power cuts.
* Optimise our store estate.
* Maintain appropriate business interruption insurance
* Drive operational improvements. cover.
-----------------------------------------------------------------------
10. Environmental (including
climate change) * Initiatives to reduce our impact on the environment
There is an increased focus on are being implemented, for example, reducing waste
sustainable business from consumers packaging in products sold and in parcel delivery
and regulators. In our business packaging for online sales, and reducing our use of
this applies to products and single use plastic.
packaging in particular. Failure
to respond to these demands could
affect the Group's reputation, * Engaged a specialist ESG consultancy to assist in the
sales and financial performance. development of the Group's environmental strategy and
Supply chain disruptions as a ensure compliance with TCFD requirements.
result of extreme weather events
could damage operations, in particular
the flow of stock which could * Recruiting a Sustainability Manager to lead and
adversely impact sales. implement our environmental strategy.
There are increased reporting
and disclosure requirements relating
to climate change and environmental * Working with our third-party logistics providers to
impact including new taxes. Regulations explore and invest in energy efficient solutions
and compliance risk above. within the supply chain process.
Change from prior year
New risk this year
Link to strategy
* Develop our brand and increase customer engagement.
* Drive operational improvements.
-----------------------------------------------------------------------
11. Liquidity
Insufficient liquidity available * Financial forecasts and covenant headroom monitored
and/or insufficient headroom and reported to the Board monthly.
in banking facilities. Potential
for breach of banking covenants
if financial performance deteriorates * Strategy focuses on driving LFL sales and improving
significantly compared with plans. efficiency, rather than previous store rollout plan,
Availability of credit insurance which is a lower risk, less capital intensive
to suppliers may be reduced or strategy.
removed resulting in an increased
cash requirement.
Change from prior year * The bank facilities have been increased to GBP30m and
Strengthened balance sheet and extended to 30 November 2025.
less capital intensive strategy
reduce this risk to a lower level
than the previous year. A new
revolving credit facility has
also recently been secured and
increased to GBP30m.
Link to strategy
* Develop our brand and increase customer engagement.
* Enhance our online proposition.
* Optimise our store estate.
* Drive operational improvements.
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12. COVID-19
The risks relating to COVID-19 * Continue to prioritise and promote the health and
appear to have reduced significantly wellbeing of colleagues, customers and the wider
since last year. The residual community.
risks are:
The potential for medium-term
adverse economic impact following * Focus on maximising the potential of the business in
the cessation of Government support the broadest sense to increase its resilience.
schemes.
Further supply chain disruption
due to restrictions potentially * The Group is now better able to flex its online
being maintained in certain parts fulfilment capacity to meet demand in the event of
of the world, particularly China, any future restrictions being imposed on retail store
which could cause disruption trading.
to stock availability and cost
inflation.
Change from prior year * Successful navigation through the pandemic
The risk is deemed to be lower demonstrated the relevance of the Group's proposition
than that reported at the prior to customers and its ability to react to such an
year end, following the successful event.
roll out of the vaccination programme
and the removal of government
restrictions.
Link to strategy
* Develop our brand and increase customer engagement.
* Enhance our online proposition.
* Optimise our store estate.
* Drive operational improvements.
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END
FR DLLFLLKLEBBZ
(END) Dow Jones Newswires
September 23, 2022 02:00 ET (06:00 GMT)
Grafico Azioni Theworks.co.uk (LSE:WRKS)
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Da Mar 2024 a Apr 2024
Grafico Azioni Theworks.co.uk (LSE:WRKS)
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Da Apr 2023 a Apr 2024
