TIDMWRKS
RNS Number : 7342K
TheWorks.co.uk PLC
30 August 2023
30 August 2023
TheWorks.co.uk plc
("The Works", the "Company" or the "Group")
Preliminary results for the 52 weeks ended 30 April 2023
Resilient performance delivered in FY23 against challenging
backdrop. Well-positioned to capitalise on opportunities from
execution of strategy and deliver growth in FY24.
The Works, the family-friendly value retailer of arts and
crafts, stationery, toys, and books announces its preliminary
results for the 52 weeks ended 30 April 2023 (the "Period" or
"FY23") and an update on current trading.
Fina ncial highlights
-- The Works delivered a resilient performance in FY23 against a
challenging backdrop, with revenue increasing by 5.8% to GBP280.1m
(FY22: GBP264.6m).
-- Store sales, which represent 88.8% of total sales, strengthened
as the year progressed, with an LFL sales increase of 7.5% (1)
. Online sales declined by 15.0%, resulting in overall LFL sales
growth of 4.2%.
-- Product gross margin declined by 170bps due to strategic change
in sales mix (increased weighting of front-list books) and higher
freight costs.
-- Business rates costs increased by GBP5.8m as COVID-19 reliefs
ended.
-- Pre IFRS 16 Adjusted EBITDA GBP9.0m in line with revised expectations
(FY22: GBP16.6m).
-- Adjusted PBT of GBP10.1m (2)(3) (FY22 Restated: GBP16.5m).
-- Strong financial position at end of FY23, with net bank balances
of GBP10.2m (FY22: GBP16.3m, including higher than usual creditor
balances).
-- The Board proposes a final dividend of 1.6 pence per share (FY22:
2.4 pence), seeking to balance the objective of continuing to
provide a reasonable level of dividend for shareholders whilst
maintaining cash reserves during a period in which the Group
is seeking to rebuild its profitability. The Board also outlines
its updated capital distribution policy.
-- Trading during the first 17 weeks of FY24 (to Sunday 27 August
2023) has been in line with expectations, with store LFL sales
growing by 5.4% and online sales declining by 18.4%, resulting
in overall LFL sales growth of 3.1%.
FY23 FY22 (restated)
GBPm (4)
GBPm
Revenue 280.1 264.6
Revenue growth % 5.8% 46.5%
Product gross margin % 57.6% 59.3%
Pre-IFRS16 Adjusted EBITDA (2) 9.0 16.6
Adjusted PBT (2) 10.1 16.5
Profit before tax 5.0 14.2
Adjusted basic EPS (pence) (2) 16.5p 26.0p
Basic EPS (pence) 8.4p 22.3p
Dividend per share (total in respect
of year) (pence) 1.6p 2.4p
Net bank cash 10.2 16.3
Business highlights
Following the recovery from the March 2022 cyber security
incident, the Company made good strategic progress in FY23,
providing solid foundations from which to build on in FY24:
-- Continued to refine our customer proposition to more closely reflect our purpose - to inspire
customers to read, learn, create and play - making lives more fulfilled. Rolled out evolved
brand to stores and online to start changing legacy perceptions of The Works and more accurately
reflect the business today.
-- Refreshed the product offering, launching new own brand products such as "PlayWorks" toy range.
Increased book market share by stocking more front-list titles from best-selling authors such
as Julia Donaldson and Colleen Hoover.
-- Further enhanced the quality of the store estate with 14 new openings (which are trading ahead
of expectations), three relocations and 13 store closures. Continued to optimise the existing
estate with an investment of c.GBP1.4m in 34 refits, improving the customer experience by
enhancing layouts, improving signage and optimising space utilisation.
-- Invested in operational improvements, the significant benefits of which are expected to be
fully realised in FY24 and beyond. This included restructuring the distribution centre management
team, implementing a new stock allocation system, and introducing a new automated packing
machine at our online fulfilment provider, iForce.
-- Launched a review of the business operating model to drive effectiveness and efficiencies,
improve processes and IT systems, particularly in relation to the flow of stock through the
business.
-- Restructured management of the online operation to drive improved performance. Increased focus
on customer experience of the website and introduced new tools to support analysis and provide
insights into how best to improve performance.
-- Placed 12(th) in "Best Big Companies to Work For", up from 13(th) in each of the past two
years and maintained 2* accreditation for 'outstanding' workplace engagement.
Trading update for the 17 weeks ended 27 August 2023
Trading during the first 17 weeks of FY24 has been in line with
our expectations, with store LFL sales growing by 5.4 % and online
sales declining by 18.4 %, resulting in total LFL sales growth of
3.1 %. Store sales are being driven by growth across all product
categories, continuing the trend of positive store LFL growth seen
throughout FY23. The Board is comfortable with the compiled
estimate of the market's forecast for FY24, an Adjusted EBITDA of
approximately GBP10.0m (5) .
Board change
As announced alongside our FY23 results today, Steve Alldridge
has advised the Board of his intention to step down from his role
as CFO by the end of 2023. In line with our succession plans, we
are delighted that Rosie Fordham, our current Head of Finance, will
be appointed as CFO when Steve steps down.
Gavin Peck, Chief Executive Officer of The Works, commented:
"The Works delivered a resilient performance in FY23, despite
facing some sizeable challenges. Revenue growth was driven by our
strong portfolio of stores, bolstered by the sector-wide shift of
customers returning to shop in-store post-COVID. Although
inflationary pressures increased business costs and dampened
consumer confidence, we ended the year in line with our rebased
expectations. FY23 also showcased the enduring appeal of our value
proposition. I'd like to thank our colleagues who have demonstrated
their ongoing dedication to The Works and have continued to show
customers how they can read, learn, create and play more on a
budget.
"In the first half our focus was on protecting and rebuilding
the business, but as the year progressed we were able to make more
strategic progress. We have developed our brand and customer
proposition, ensured that our ranging is aligned with customer
demand and improved our store estate. We've also taken steps to
enhance our online proposition and drive significant operational
improvements across the business, the benefits of which we expect
to be fully realised from FY24 onwards.
"Looking ahead, the macroeconomic environment remains uncertain.
However, we are now well positioned to capitalise on strategic
opportunities and given the momentum gained in the latter half of
FY23 we expect to grow sales and profit in FY24. Reflecting
confidence in the Group's prospects, the Board proposes a final
dividend of 1.6 pence per share in respect of FY23. "
Preliminary results presentation
A presentation for sell-side analysts will be held today at
9.30am via video conference call. A copy of the presentation will
shortly be made available on the Company's website (
www.corporate.theworks.co.uk/investors ).
Enquiries:
TheWorks.co.uk plc
Gavin Peck, CEO via Sanctuary
Steve Alldridge, CFO Counsel
Sanctuary Counsel
Ben Ullmann 0207 340 0395 theworks@sanctuarycounsel.com
Rachel Miller
Kitty Ryder
Footnotes:
(1) LFL sales growth has been calculated with reference to the FY22 comparative sales figures.
LFL sales growth is the growth in gross sales from stores which have been trading for a full
financial year prior to the current year and have been trading throughout the current financial
period being reported on, and from the Company's online store, calculated on a calendar week
basis. In FY22, two year comparatives were used because the use of a normal one year LFL comparative
was prevented by the various disruptions to store trading brought about by COVID restrictions
in the FY21 comparative period.
(2) Adjusted profit figures exclude Adjusting items. See notes 3 (Alternative performance measures)
and 4 (Adjusting items) of the condensed financial statements included in this RNS .
(3) The FY23 Adjusted PBT is greater than the pre IFRS 16 Adjusted EBITDA because of the effect
of IFRS 16. We would normally expect the Adjusted PBT to be less than the pre IFRS 16 Adjusted
EBITDA. Please refer to page 14 of this report and note 3 of the condensed financial statements
for further information.
(4) The FY23 results were delayed due to additional work being undertaken, principally in relation
to asset impairment charges and related impacts on IFRS 16 calculations. As well as affecting
the FY23 result, this also entailed the restatement of comparative figures for prior periods.
These issues did not relate to the underlying performance of the business (for example, as
represented by the EBITDA) and had no direct cash impact. Information regarding the restatements
is included in note 11 of the condensed financial statements (Property, plant and equipment).
(5) The Group's compiled estimate of the market's Adjusted PBT forecast for FY24 is approximately
GBP2.8m.
Notes for editors:
The Works is one of the UK's leading family-friendly 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 525 stores in the UK & Ireland, as well as 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
30 April 2023 or 1 May 2022, but is derived from those accounts.
Statutory accounts for FY22 have been delivered to the Registrar of
Companies and those for FY23 will be delivered in due course. The
auditor has reported on those accounts: their reports were (i)
unqualified, (ii) included a reference to a material uncertainty
that may cast significant doubt on the Group's and the parent
company's ability to continue as a going concern as referred to in
note 1(b) to the financial statements, and (iii) 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
Last year I wrote about the positive effect that the Group's new
purpose - to inspire reading, learning, creativity and play -
making lives more fulfilled - was having on the business soon after
it was introduced. This year we embedded the purpose further across
the business, informing the implementation of our "better, not just
bigger" strategy, inspiring the creation of our ESG plan and
providing clarity about the future direction of the business.
The purpose has also helped to guide colleagues as they served
customers and reinforced the incredible culture at The Works, one
of the enduring strengths and unique attributes of the business.
And whilst the economic environment has been extremely challenging,
colleagues at The Works have responded thoughtfully to this
backdrop, using it as an opportunity to inspire customers to enjoy
reading, learning, creativity and play on a budget, whilst also
supporting local communities and our charitable causes. I am proud
to chair such a creative and purpose-led business and would like to
thank everyone at The Works for their efforts.
Performance
I have long been impressed by the resilience of The Works, its
ability to adapt to unforeseen circumstances and manage challenging
trading conditions. In FY23 these traits were seen again as The
Works delivered a resilient performance, with revenue increasing by
5.8% to GBP280.1m. This growth was delivered despite the business
still recovering from a cyber security incident late in the
previous financial year and an uncertain macroeconomic backdrop.
Thanks to Gavin's steady leadership and the action taken to protect
the business, the resonance of our value customer proposition and
the patience and flexibility of our colleagues, we ended the year
on a more positive sales trajectory. Going into FY24, we can now
confidently say that The Works is a more operationally robust
business, with greatly strengthened cyber security, and remains
financially strong.
The inflationary environment did impact our profit performance,
particularly in the first half of the year given rising freight,
energy and other business costs. However, as a result of these cost
pressures easing and an improvement in store sales growth in the
second half, we ended the year in line with our revised profit
expectations. Although this is not where we expected to be at the
start of the year, it is a creditable performance given the
challenges the business faced and we ended the year in a
financially secure position.
Strategy
The Works announced its "better, not just bigger" strategy in
July 2021, committing to a greater focus on the customer and to
strengthening the fundamentals of the business. This strategy not
only made The Works more resilient during the COVID-19 pandemic and
challenging economic environment that followed, it has also aligned
business decisions more closely with our purpose, and ultimately
the customer.
Strategic progress was slower in the first half of FY23 as the
business was primarily focused on recovering from the cyber
security incident and the external environment saw retailers facing
great uncertainty. However, more progress was made in the second
half of the year and the foundations have now been laid for
significant improvements in the year ahead.
The evolved brand has been rolled out across the business and we
are now building on this to demonstrate to customers why The Works
is the best value destination for reading, learning, creativity and
play. This will attract more customers to shop with us and through
our relaunched 'Together' loyalty scheme we now have an opportunity
to engage more with our growing and loyal customer community. Our
active portfolio management continues. Our 14 new stores and 3
relocated stores opened during the year are performing ahead of
expectations and, along with our 34 store refits undertaken in the
year, continue to improve the overall quality of our store
estate.
Our online performance has been disappointing, partly reflecting
a normalisation of store / online sales mix post-COVID. Following a
review of our website and online operations we now have the right
resource and plans in place to improve the customer experience and
profitability of this channel. During the year we implemented a
number of structural changes to enable improvements in our stock
allocation and distribution processes, which will help drive
significant operational efficiencies across the business.
Together, these initiatives create a real opportunity for
further strategic progress and a step-change in sales growth and
improved profitability over the medium-term. We are excited by this
potential and remain confident that our "better, not just bigger"
strategy is the right direction for the business.
Environmental, Social and Governance (ESG)
The Board has continued to oversee development of the Group's
Environmental, Social and Governance plan and to monitor progress.
Whilst we have put more structure around the ESG strategy in FY23
and made progress in key areas, the Board recognises that there is
still much more to be done.
Progress on ESG was mostly made in the second half of the year,
namely the new initiatives to support colleague engagement,
wellbeing and career development, as well as the creation of new
climate targets and an improved system of monitoring our
environmental impact.
We have now set a target to be net-zero by 2045, with an
ambition to do so by 2040 (in line with the British Retail
Consortium), and we are now fully compliant with the TCFD
disclosure recommendations, including the reporting of Scope 3
emissions. We still have a long way to go to reduce our
environmental impact but now have both the strategy in place and
the mechanisms to track progress, which will guide our decision
making in the years ahead.
Although I believe that The Works is already a diverse,
inclusive and supportive business, Diversity & Inclusion
(D&I) is an area that I feel very strongly about and there is
scope for us to do more. This year we conducted a full review of
D&I at The Works and undertook a survey to understand colleague
perceptions and experiences. Based on these insights we have now
developed a strategy through which we can make significant progress
to improve our diversity and inclusion in the years ahead. This
will inspire colleagues to be even more supportive and embracing of
differences, encourage new talent to join The Works and strengthen
our special, collaborative and supportive company culture.
CFO Succession
As announced alongside our FY23 results, Steve Alldridge has
advised the Board of his intention to step down from his role as
CFO by the end of 2023. In line with our succession plans, we are
delighted that Rosie Fordham our current Head of Finance, will be
appointed as CFO when Steve steps down.
Dividend and outlook
Despite delivering a resilient performance in FY23 and ending
the year in a strong financial position, the Board hopes that
FY23's EBITDA was a low point and that it will increase
progressively in future. Some good strategic progress was made
despite challenging trading conditions, and the underlying appeal
and relevance of The Works' proposition continues to resonate with
customers.
During the period in which the business works to rebuild its
levels of profit, a compromise is sought, between maintaining a
reasonable dividend for shareholders, whilst ensuring that the
Group continues to maintain its cash reserves. Taking this into
consideration, along with the Company's resilient FY23 performance,
and its confidence in the Group's prospects, the Board proposes a
final dividend of 1.6 pence per share in respect of FY23 and
outlines its policy in relation to capital distributions, which is
included at the end of the financial review.
The Board believes that the business is well positioned to take
full advantage of the opportunities ahead, make further strategic
progress and grow sales profitably, and we remain confident in the
Group's future prospects.
Carolyn Bradley
Chair
30 August 2023
CEO Review
Introduction
The Works delivered a resilient performance in FY23, with sales
growth driven by our fantastic network of stores and team of
talented colleagues. The economic backdrop was challenging,
characterised by high inflation and dampened consumer confidence.
This, combined with the residual impact of the cyber security
incident at the start of the year, meant that the end result was
lower than we had anticipated heading into the year. However, by
continuing to focus on our purpose and offering exceptional value
for our customers, we have enabled them to continue reading,
learning, creating and playing - demonstrating that our value
proposition has enduring relevance.
Over the past few years we have dealt with a host of external
challenges, such as the COVID-19 lockdowns and global supply chain
disruption, as well as internal ones like the cyber security
incident. This has meant that our focus has been primarily on
protecting and rebuilding the business and supporting our dedicated
colleagues. Having established a clearer runway, our strategic
progress accelerated in the second half of FY23 and we expect to
make even more significant improvements in FY24. We remain
confident in our ability to become an even "better, not just
bigger" business, driving a step-change in sales and profitability
over the medium term.
Trading performance and financial results
The Works has always been a business that demonstrates its
resilience when confronted with difficult trading conditions and
the same can be said for FY23. The Group delivered a 5.8% increase
in revenue to GBP280.1m and LFL sales growth of 4.2%, with store
LFL sales increasing 7.5% and online sales declining by 15.0%.
Outlined below are the main factors that contributed to this
performance:
-- The first quarter was particularly challenging given the residual impact of the cyber security
incident, which occurred in March 2022. The action taken to protect the business and rebuild
our systems slowed down sales in May and June 2022. However, as a result of this one-off event
we have now accelerated the implementation of IT upgrades and have even more robust defences
in place. Momentum built following our recovery with an improving store LFL sales performance
in the second half of the year.
-- Russia's invasion of Ukraine and political turmoil in the UK resulted in rising inflation
and declining consumer confidence over the course of the year. Families have seen incomes
and discretionary spending impacted. For value retailers like The Works we believe that sales
have been impacted by cost-constrained consumers reigning in their spending, but that this
has been balanced, to an extent, by shoppers seeking out the best value. This was particularly
the case at Christmas, resulting in strong store trading during peak season and into the new
calendar year.
-- Retailers have witnessed a shift in consumer behaviour post-COVID, with shoppers increasingly
returning to shop in-store and less so online. Stores have always been the lifeblood of the
business and it has therefore resulted in a net gain for The Works given that stores represent
c.90% of sales.
Profitability was constrained, particularly in the first half of
FY23 given the lower than anticipated sales growth, high energy and
freight costs and the absence of COVID-related business rates
support, which had provided a boost in FY22. We revised our profit
expectations for the year in August 2022 and have achieved a result
in line with our rebased expectations, delivering a Pre-IFRS16
Adjusted EBITDA of GBP9.0m and Adjusted profit before tax of
GBP10.1m. The statutory Profit before tax was GBP5.0m, after
impairment charges of GBP5.1m. We believe this level of EBITDA is
the low point that we will build from in the years ahead, supported
by greater strategic progress that we are now set up to
deliver.
Strategy
Our "better, not just bigger" strategy was announced in July
2021 to build on the existing strengths of the business - our loyal
customer base, strong culture and fantastic store network. The
strategy aims to provide The Works with a clearer purpose and a
more focussed brand identity and customer proposition that will
help to drive a step-change in sales growth, as well as enabling us
to improve the operations of the business, making The Works a more
customer-focussed and efficient retailer.
Since launching the strategy we have made decent progress in
some areas, but the reality of the internal and external challenges
noted above has meant more of our attention than we anticipated has
been focused on protecting the business and not on growth.
Strategic progress has been slower than we would have liked,
however the business is now well-placed to deliver progress in FY24
and beyond, which we expect will drive the step change growth in
sales and profitability that we want to achieve over the medium
term.
Below is a summary of the strategic progress made in FY23 and
the plans we have to accelerate this in the year ahead.
Develop our brand and increase our customer engagement: We are
working hard to ensure that our customer proposition and brand are
consistent with our purpose, which will help to change legacy
perceptions of The Works as a 'pile it high, sell it cheap'
discounter, encourage new customers to shop with us and increase
the spend of existing customers.
In FY23 we rolled out our evolved brand to our stores and
website to ensure that the visual representation of The Works
accurately reflects our purpose and the modern, fun and engaging
business that The Works is today. We have completed the first phase
of this work and will now begin to more actively communicate this
to customers by developing and executing a marketing strategy to
bring our purpose and evolved brand to life, particularly through
our social channels.
We began to refresh our product offering to be better aligned
with our purpose, whilst maintaining our commitment to low prices.
This included the launch of new own brand ranges such as our
children's toys "PlayWorks" brand and a significantly extended
range of front-list books, including titles by authors such as
Colleen Hoover and Julia Donaldson, which helped to increase our
book market share in terms of value by 0.7% and volume by 1.3% (to
3.9% and 10.3% respectively). There remains an opportunity to
further increase market share in all categories and in the year
ahead we will conduct an extensive refresh of our core art, craft
and stationery ranges and launch new kids pocket money toys
ranges.
We relaunched our "Together" loyalty scheme this year and
re-engaged store colleagues to promote sign-ups. We welcomed over
700,000 new members in FY23, with over 1.7m active members of the
scheme at the end of the year. Our loyalty customers typically
spend 30% more than non-loyalty customers and shop more regularly.
We will now focus on improving the insight we obtain from the
loyalty scheme data through new software that will shortly be
available, to support more effective CRM and loyalty activity.
Enhance our online proposition: Our customers and store
colleagues want the experience of using our shopping channels to be
more consistent and integrated, with the website acting as a shop
window for our stores (and vice versa); however, to-date the
website has operated too independently. This, combined with the
fact that strategic progress in this area has been slower than
planned, means that as online sales have declined and costs have
risen, the website is not currently profitable.
We restructured the management of the online operation at the
beginning of the calendar year to facilitate an increased rate of
progress. We have also recently undertaken a series of website
usability studies to inform areas of opportunity to improve the
site, as well as introducing new tools to support performance
analysis and provide insights into how best to improve the customer
experience. To improve online profitability, we increased delivery
charges to be more in line with peers, scaled back some online
promotions and reduced fixed costs by reducing the space utilised
at our third-party fulfilment centre.
Plans are in place to enhance the online customer experience and
to trial using the new EPOS solution to enable customers to order
products from our website whilst in our stores, providing more
convenient access to online range extensions. We also expect online
sales and profitability to improve as we derive benefit from the
new analytical tools introduced in late FY23. There is much more
work to be done to improve this channel which we hope will return
to sales growth and profitability, in due course.
Optimise our store estate: We believe that a major strength of
The Works is our large network of stores in communities across the
UK and Ireland, which have been and always will be the main driver
of sales.
This year we continued to optimise our store estate with 14 new
store openings in great locations and are pleased that these new
stores are trading ahead of expectations. We closed 13 stores and
relocated a further three, trading from 526 stores at the end of
the period. We also invested c.GBP1.4m in 34 store refits and
continued to improve the store experience for customers by
enhancing layouts, optimising the space utilisation across
categories, and introducing clearer navigation and signage,
supported by the evolved brand.
Sales densities in our stores remain relatively low and we
believe there is a significant opportunity to increase this through
winning new customers, better ranging and customer experience,
space optimisation and improved product availability, all supported
by a new labour structure put in place at the start of FY24. Whilst
the priority in the short to medium term is to improve the existing
store estate to realise its potential, in due course we will also
consider whether to reintroduce a measured roll out programme, as
we believe there is scope for the brand to trade successfully from
at least 600 stores in the UK.
Drive operational improvements: Improving the operating
effectiveness of the business is pivotal to our success. Although
we will always maintain a lean operation, some areas of the
business were previously inadequately resourced. This year we
continued to invest ahead of time to ensure that we're capable of
realising the sales potential we believe The Works can reach.
In FY23 we restructured the distribution centre management team.
The new team made an immediate impact, reviewing the operation and
proposing a series of improvements in the way we pick and fulfil
store deliveries for implementation in FY24. We expect to see
significant cost savings and improved product availability in-store
as a result of these changes.
We implemented a new stock allocation system, Slimstock, to
improve the quality of stock allocation decisions, which should
improve store stock availability and therefore sales. At the start
of the current calendar year we also significantly strengthened our
merchandise planning function, and have been delighted to welcome
some excellent new colleagues from respected retailers, which will
drive a step change in our capability in this area. Allowing time
for the new stock allocation system's algorithms to "learn" The
Works' data and for our new merchandising team to get fully up to
speed with it, we expect to see further benefits in FY24 and
beyond.
Towards the end of FY23 we successfully launched the pilot of
our new EPOS software in stores. Plans are in place to roll this
new software out across the store estate by the end of FY24.
A new automated packing machine and robotics were introduced to
the online fulfilment operation during the year (operated by a
third-party provider, iForce). We continue to work with iForce to
further improve the fulfilment cost per order and reduce our
consumption of packaging.
Late in the financial year, we launched a planned review of the
business operating model. The first phase of this project entails
documenting our current ways of operating, confirming the desired
future ways of working and mapping the plan to migrate to the
improved model. There will be significant changes to processes and
IT systems over the next two to three years, which will
fundamentally improve the way our business buys, moves and
allocates stock, driving cost efficiencies and improved product
availability for our customers.
Colleagues
In an unpredictable and challenging year, our colleagues have
remained steadfast in their dedication to helping customers to
read, learn, create and play. We have worked hard to build and
maintain our unique culture, underpinned by our values and a team
of committed and enthusiastic colleagues. I am proud that 10% of
colleagues were promoted in the year and was delighted that we
moved up one place to 12(th) in the "Best Big Companies to Work
For" national list, from 13(th) in each of the past two years. We
also maintained our 2* accreditation for 'outstanding' workplace
engagement (3* being the highest possible accreditation).
To continue to support the engagement, development and wellbeing
of our colleagues, we launched 'MyWorks', a communications and
engagement platform to keep colleagues informed about company news
and benefits, and to enable access to resources on physical mental
and financial wellbeing. We also introduced the 'Can Do Academy', a
system to support colleagues' learning and development, and in
response to the challenges created by the cost-of-living crisis we
launched Wagestream, an app that offers a range of financial
wellbeing tools.
Looking ahead to FY24, we will continue to invest in our
colleagues, including launching a new Reward and Recognition
programme to positively reinforce our values, celebrate success and
provide financial incentives linked to our purpose and values.
Environmental, Social and Governance (ESG)
This time last year we were at the fledgling stages of the
environmental part of our ESG journey and I am pleased that we have
made significant further progress since then. The business is now
fully aligned around our mission of "Doing Business Better", which
is about making positive and sustainable changes.
A key development was the appointment of a Sustainability
Manager in January 2023. The business has also adopted a more
structured and rigorous approach to the environment, for example,
to set longer-term ambitions to reduce the impact of our products,
packaging and waste. We are also continuing to work with a
specialist third-party ESG consultancy and during the year we set
carbon reduction targets for Scope 1, 2 and 3 emissions and
developed roadmaps to achieve them. Our Scope 1 and Scope 2
targets, together with our ambition to achieve net zero by 2040,
fully align with the British Retail Consortium's climate action
roadmap and we became fully compliant with the Task Force on
Climate-related Financial Disclosures (TCFD) in FY23.
We are committed to creating an inclusive environment at The
Works where everyone feels they belong and where different
experiences, cultures and perspectives are embraced. We completed a
review of our existing Diversity and Inclusion (D&I) policies
and practices and have now developed a D&I strategy.
Implementation of this will increase our collective understanding
of D&I, improve training, enhance practical awareness and
accountability at all levels and ensure that barriers to inclusion
are removed.
"Giving back" is part of our psyche and I am hugely grateful to
our colleagues and customers for their generosity in supporting our
charity initiatives. We are pleased to be developing a new charity
partnership with the National Literacy Trust this year, which is
closely aligned to our purpose of inspiring people to read, learn,
create and play.
Outlook
I am proud of the way everyone at The Works navigated a
challenging year. We expect FY23 to be the low point in The Works'
profitability post-COVID given that cost headwinds have now eased,
the financial performance improved throughout the second half of
the year and we have started to make more meaningful strategic
progress, the benefits of which are expected to be realised in FY24
and beyond.
The macroeconomic outlook remains uncertain and we have entered
the new financial year with a degree of caution, however, I am
encouraged by the enduring appeal of The Works' value proposition
and excited by the opportunities presented in the year ahead, which
the business is now better equipped to capitalise on. The Board and
I are comfortable with the Company compiled estimate of the
market's forecast, an EBITDA of GBP10m for FY24, and remain
confident in our ability to deliver profitable growth in the medium
term.
Gavin Peck
Chief Executive Officer
30 August 2023
Financial review
The FY23 accounting period relates to the 52 weeks ended 30
April 2023 (also referred to as the Period) and the comparative
FY22 accounting period relates to the 52 weeks ended 1 May
2022.
T he Group refers to alternative performance measures (APMs) as
it believes these provide management and other stakeholders with
additional information which may be helpful. These measures are
used by management in running the business, and include pre IFRS 16
Adjusted EBITDA ("EBITDA") and like for like ("LFL") sales .
Accordingly, reference is made to these measures in this
report.
The Group made a profit before tax of GBP5.0m (restated FY22:
GBP14.2m). This result includes a GBP5.1m impairment charge, most
of which relates to the notional right of use asset created as a
result of following the requirements of the IFRS 16 accounting
standard. As in previous periods, impairments have been treated as
Adjusting items. The Adjusted profit before tax excluding
impairment charges was GBP10.1m (restated FY22: GBP16.5m).
The Pre IFRS16 Adjusted EBITDA for the Period was GBP9.0m (FY22:
GBP16.6m). The FY23 Adjusted PBT is greater than the EBITDA because
of the effect of IFRS 16. We would normally expect the Adjusted PBT
to be less than the EBITDA. Please refer to page 14 of this report
and note 3 of the condensed financial statements for further
information.
The FY23 results have been published later than originally
intended. The delay was due to significant additional work being
undertaken, principally in relation to asset impairment charges and
related impacts on IFRS 16 calculations. As well as affecting the
FY23 result, this also entailed the restatement of comparative
figures for prior periods. Whilst the delay has been frustrating,
we highlight that the issues in question have not affected the
Board's assessment of the underlying performance of the business
(for example, as represented by the EBITDA) and had no direct cash
impact. Information regarding the restatements is included in note
11 of the condensed financial statements.
Overview
The result for FY23 was in line with the revised forecast we
referred to in August 2022. During the Period:
-- Revenue increased by GBP15.5m, driven by 7.5% growth in store
LFL sales and sales from new stores exceeding sales forgone from
closed stores (through optimisation of the store estate). Online
sales declined by 15%.
-- The product gross margin percentage declined due to the
planned increase in the mix of sales of lower margin books, and
increased costs of stock, principally freight. These negative
effects were partly offset by supplier rebates which were collected
(GBP0.6m of which related to periods prior to FY23).
-- Costs increased due to:
o The cessation of COVID-19 business rates relief.
o The increase in the National Living Wage by 6.6% in April
2022.
o Electricity price inflation.
-- There was a net increase in EBITDA of approximately GBP0.6m
due to the opening and closure of stores during the year. Although
the number of stores trading had only increased by one at the year
end, we benefitted from being able to time the openings and
closures such that we had a net six more stores trading during the
peak Christmas period. In addition, the average sales levels from
the new stores were greater than for the stores which were
closed.
-- The Group experienced a cyber security incident in March
2022. We believe the residual effects of this adversely affected
FY23's result due to the Group taking a measured and cautious
approach to reinstating systems whilst simultaneously accelerating
the implementation of strengthened IT security. Due to the
impossibility of accurately estimating the financial effect, it has
been absorbed within the EBITDA result and not identified
separately as an Adjusting item.
EBITDA bridge between FY22 and FY23 GBPm
--------
FY22 EBITDA 16.6
--------
LFL stores and online
--------
Increased gross margin due to increase in sales
in LFL stores/decline online 5.9
--------
Lower gross product margin % (including impact
of higher freight costs) (4.5)
--------
Cessation of COVID-19 business rates relief (LFL
stores) (5.6)
--------
Increased payroll costs due to National Living
Wage inflation (2.5)
--------
Energy price inflation (1.0)
--------
Other (0.3)
--------
(8.0)
--------
Non - LFL Stores
Profit Impact; including timing benefit of trading
more stores through peak 0.6
Cessation of COVID-19 business rates relief (0.2)
FY23 EBITDA 9.0
========
We noted in the FY22 Annual Report that the net cash balance on
1 May 2022 was higher than normal as it included the benefit of
increased creditor balances. These mostly related to the continuing
effect of events connected with COVID-19 (such as rent deferrals)
and, as expected, unwound finally during FY23. Therefore, although
the FY23 net cash balance of GBP10.2m is lower than the prior
year's GBP16.3m, it represents a more typical Period-end level, and
has grown progressively compared with the GBP0.8m net cash balance
at the end of FY21 and GBP7.1m of net debt at the end of FY20.
It has been reassuring, particularly during the periods of
heightened uncertainty in recent years, to have the benefit of a
large (GBP30.0m at the Period end) revolving credit bank facility,
however, there is a cost associated with maintaining such a
facility. Our forecasts indicate that even under a sensitised
downside scenario, it is unlikely that we would ever use the entire
facility. With this in mind, we have recently reduced the size of
the facility to GBP20.0m, which will save approximately GBP0.15m in
annual facility maintenance fees and, at the same time, extended
the term of the facility so that it terminates at the end of
November 2026 rather than November 2025.
The Board will be recommending to shareholders at the AGM a
final dividend of 1.6 pence per share in respect of FY23. Updated
information regarding the Group's policy on dividends and capital
distributions is included at the end of this report.
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 5.8% to GBP280.1 million (FY22:
GBP264.6 million).
Total gross sales (1) increased by 6.1% compared to FY22. Two
thirds of the total sales increase was from LFL sales (2) which
grew by 4.2%, with positive growth in stores but a decline in
online sales. The remaining sales growth was from the continued
optimisation of the store estate (see table and narrative on the
following page).
The quarterly LFL sales summary in the table below and the
narrative which follows shows how store LFLs strengthened
progressively during FY23 but that we were unable to achieve
positive sales growth online, due to a combination of internal and
external factors.
LFL sales growth Stores Online Total
------------------ ------- -------- -------
Q1 1.6% (28.6%) (2.4%)
Q2 5.1% (8.9%) 3.0%
H1 3.6% (16.9%) 0.6%
Q3 9.9% (14.2%) 5.9%
Q4 12.0% (11.7%) 9.4%
H2 10.7% (13.5%) 7.1%
Full year 7.5% (15.0%) 4.2%
======= ======== =======
(Definitions of gross sales and LFL are included in the
footnotes on the following page).
-- Q1 highlights
o Sales in Q1 FY23 were constrained, particularly online, a
significant cause of which was the residual impact of the March
2022 cyber security incident.
o We also annualised against strong FY22 comparatives, which
were the result of pent up demand following the end of the final
COVID-19 lockdown in April 2021. The strong demand in early FY22
was also driven by a larger than usual post lockdown sale, which
included stock that would normally have been sold in
January/February 2021, and strong sales of "fidget frenzy"
toys.
-- Q2 highlights
o The Works had a good summer 2022. The newly refreshed outdoor
play range performed well and the 'Back to School' season sales
were very good.
o The LFL sales growth rate softened slightly in the latter part
of Q2 due to losing a full trading day for the additional bank
holiday in late September, as well as the comparatives in September
and October 2021 being strong, when we believe Christmas shopping
was brought forward due to consumers' concern about possible
further lockdowns affecting Christmas shopping in 2021.
-- Q3 highlights
o In contrast, Q3 comparatives with the prior year weakened due
to concerns in late 2021 about the potential effects of the
emerging Omicron COVID-19 variant, supply chain disruption, and the
FY22 January sale being low key.
o Sales strengthened sharply just before Christmas, suggesting
that consumers shopped much later than in 2021. We delivered strong
store sales over Christmas, which continued in the January
sale.
o Online sales were disappointing, impacted by reduced consumer
confidence in fulfilment (due to postal strikes in late 2022) as
well as the normalisation of shopping behaviour away from online,
as seen across the retail industry.
-- Q4 highlights
o Trading was steady following the January sale, with store
sales continuing to grow positively, and online sales continuing to
be in decline. The rate of overall sales growth increased slightly
during this quarter as the prior year comparatives weakened due to
the aftermath of the March 2022 cyber security incident.
The table below shows the reconciliation of LFL sales used for
year-on-year comparisons, with statutory revenue.
FY23 FY22 Variance Variance
GBPm GBPm GBPm %
-------------------------------------------- -------- -------- --------- ---------
Total LFL sales for Period(2) 297.0 285.0 12.0 4.2%
Sales from new/closed stores (optimisation
of store estate) 19.6 13.4 6.3 46.9%
-------- -------- --------- ---------
Total Gross Sales(1) 316.6 298.4 18.3 6.1%
VAT (35.1) (33.5) (1.7) 5.0%
Loyalty scheme costs - points redeemed
by customers (1.4) (0.3) (1.1) 404.6%
-------- -------- --------- ---------
Revenue (per statutory accounts) 280.1 264.6 15.5 5.8%
======== ======== ========= =========
Loyalty points as % sales (0.5%) (0.1%)
VAT as % of sales (11.1%) (11.2%)
(1) "Total gross 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.
(2) LFL sales growth has been calculated with reference to the
FY22 comparative sales figures. In FY22's Annual Report, two year
comparatives were used because the use of a normal one year LFL
comparative was prevented by the various disruptions to store
trading brought about by COVID-19 restrictions in the FY21
comparative period.
The year on year increase in the cost of loyalty points shown in
the table above is larger than normal because the FY22 comparative
was unusually low (as reported last year) due to the write back of
expired points previously issued and accounted for. The underlying
cost of loyalty points redeemed by customers during the year
increased in the way we expected, both as a result of the year on
year increase in sales, and due to the additional focus placed by
the business on signing up new members and encouraging existing
members to re-engage with the loyalty scheme.
Store numbers
Store numbers FY23 FY22
----- -----
Stores at beginning of period 525 527
Opened in the period 14 5
Closed in the period (13) (7)
Relocated (excluded from opened/closed above,
NIL net effect on store numbers) 3 6
Stores at end of period 526 525
===== =====
The number of stores trading increased by one during the period,
from 525 to 526. Despite this small change between the beginning
and end of year numbers, the additional sales from new/closed
stores in the table above shows a notable increase compared with
the prior year. This was principally because we benefitted from
being able to time the openings and closures such that a net six
more stores were trading during the peak Christmas period, and
secondarily because the new stores individually also generated more
sales than the stores that were closed. The new stores are trading
with sales levels at or above their financial appraisal
targets.
Product gross margin and gross profit
FY23 FY22 (Restated) Variance Variance
GBPm % of GBPm % of GBPm %
revenue revenue
------ ----------- ------ --------- -------- --------
Revenue 280.1 264.6 15.5 5.8
Less: Cost of goods sold 118.8 107.7 11.1 10.3
Product gross margin 161.3 57.6 157.0 59.3 4.4 (1.7)
Other costs included in statutory
cost of sales
Store payroll 46.8 16.7 43.6 16.5 (3.3) (7.5)
Store property and establishment
costs 51.8 18.5 43.7 16.5 (8.1) (18.5)
Store PoS & transaction
fees 2.3 0.8 2.1 0.8 (0.2) (10.1)
Store depreciation 3.7 1.3 3.4 1.3 (0.2) (6.7)
Online variable costs 18.4 6.6 18.7 7.1 0.3 1.5
Adjusting items (impairment
charges) 5.1 1.8 2.3 0.9 (2.8) (100.0)
IFRS16 impact (10.7) (3.8) (9.6) (3.6) 1.1 11.2
Total non-product related
cost of sales 117.4 41.9 104.2 39.4 (13.2) (12.7)
Gross profit per financial
statements 43.9 15.7 52.8 19.9 (8.9) (16.8)
====== =========== ====== ========= ======== ========
The product gross margin rate decreased by 170bps to 57.6%
(FY22: 59.3%). The most significant factors in the year on year
movement were:
-- An increase in the sales mix of front-list, lower margin
books (as has been described previously) which reduced the margin
percentage by approximately 100bps. We believe this generated
incremental cash margin due to selling higher volumes of items
which were higher priced.
-- Higher freight costs, which remained high on a spot basis
during H1 before falling significantly in H2. The interval between
incurring the freight cost and selling the goods is such that the
higher rates continued to affect FY23's margin for some time after
the spot rates had fallen. This timing factor makes it difficult to
estimate the precise impact on the margin rate, our best estimate
of which is approximately 100bps.
-- There was a small year on year margin rate increase due to
other factors including stock provision movements, supplier
rebates/retrospective discounts and pricing changes. Towards the
end of FY23, prices of some lines were increased to reflect the
rise in inflation generally experienced during the year, to ensure
that the business achieves an acceptable balance between offering
value to customers and a reasonable margin.
Store payroll costs increased by GBP3.3m.
-- The annual rise in the National Living Wage (NLW) accounted
for GBP2.1m or 64% of the year on year increase, including the
additional cost of maintaining sensible differentials between pay
grades for colleagues paid more than the NLW, in light of the
increased base wage level.
-- The optimisation of the store estate, entailing the opening
of 14 stores, the closure of 13, and the relocation of 3 stores,
created an additional GBP0.7m of store payroll costs. This increase
appears disproportionately high given that only one more store had
been added by the year end, however, the timing of the openings and
closures which benefitted the sales line (i.e. having more stores
trading during the Christmas peak) also incurred corresponding
additional costs.
Store property and establishment costs increased by GBP8.1m.
-- The largest component of the increase was GBP5.8m of business
rates charges. These costs had been comparatively lower in FY22 due
to COVID relief, but payments resumed in full during FY23.
-- Electricity costs increased by GBP1.0m due to inflation.
-- Despite a year on year reduction in like for like rents,
total rent charges increased by GBP1.0m
o The ongoing process of renegotiating and renewing expiring
leases resulted in a reduction of GBP0.6m in rents in the LFL store
estate, including the release of accruals established in some
situations where the effective date of the decrease was backdated
to a prior period, due to the protracted nature of the rent
negotiations (in these situations, we continue to accrue for the
higher rent level until the reduction is confirmed in writing).
o The timing of opening and closing stores referred to above,
plus the full year cost of stores opened part way through FY22,
resulted in additional rent costs of GBP0.7m (i.e. effectively a
"volume" related increase).
o During COVID-19 rent negotiations with landlords (for example,
where we were seeking rent concessions in respect of enforced store
closures), concessions were sometimes informally agreed via a
credit note, to be formalised subsequently. A provision is
maintained for credit notes relating to amounts that have not been
recovered after 2 years (although we still pursue and expect to
recover most of the amount provided for), and this provision
increased by GBP0.5m during FY23.
o Turnover rents increased by GBP0.4m due to sales increases in
the 129 stores where the rent is based wholly or partially on a
percentage of turnover. Turnover rent mechanisms typically look
back to earlier periods to calculate the applicable rent and, in
FY22, the look back periods often included periods during FY21 when
stores were closed due to COVID-19 restrictions. There have also
been sales increases in some stores (overall store LFL sales growth
was 4.2%) which have triggered the payment of, or increased,
turnover rents.
-- Service charges increased by GBP0.3m due to the new/closed
store timing effect described above, and service charge
inflation.
Online variable costs decreased by GBP0.3m.
-- The decrease was due to the year on year decrease in sales,
and the consequential reduction in marketing, fulfilment,
transaction and other variable costs which were GBP1.3m lower than
in FY22.
-- These savings were partially offset by higher costs at the
iForce fulfilment facility (third party operated) and higher
packaging costs. The efficiency of the operation has been reviewed
with iForce, and changes have been implemented for FY24 which are
expected to reduce the fulfilment cost per unit, including a
reduction in the space allocated in the facility.
Adjusting items and prior year adjustment
-- Adjusting items were GBP5.1m in FY23 (restated FY22:
GBP2.3m), and comprised impairment charges. The prior period
comparatives have been restated to reflect the allocation of
central overheads to individual stores, which resulted in a higher
impairment charge being required in respect of FY22 and prior
periods. This is described in note 11 of the condensed financial
statements.
-- 70% or GBP3.6m of the GBP5.1m FY23 impairment charge relates
to the notional "right of use" asset which arises through the
operation of IFRS 16.
-- Consistent with the approach the Group has taken previously,
impairment charges (and reversals) are treated as Adjusting items.
As well as being consistent, this is appropriate due to the size of
the total impairment charge, which is more reflective of the
broader UK macro-economic environment impacting many retail
businesses than of the underlying performance of individual
stores.
IFRS 16 impact
-- IFRS 16 has had the effect of significantly increasing the
Adjusted profit before tax in FY23, by GBP7.0m compared with the
non IFRS 16 figure (see note 3 of the condensed financial
statements). This GBP7.0m broadly comprises GBP10.7m included
within cost of sales per the table above and GBP0.4m included
within administrative costs, less GBP4.1m of IFRS 16 interest
charges.
-- Due to the restatement of impairment charges in relation to
prior periods, there is a significantly greater IFRS 16 impact than
reported in previous years, particularly on Adjusted profit. The
additional impairment charges reduced the net book value of the
IFRS 16 "right of use" asset, as a result of which, the IFRS 16
depreciation charges were reduced. Meanwhile, the actual rents paid
were unaffected, resulting in a greater disparity between the rents
and the IFRS 16 P&L charges. Please refer to note 3 of the
condensed financial statements for a detailed analysis of the
impact of IFRS 16 on the profit before tax.
Distribution costs to stores
FY23 FY22
GBPm % of GBPm % of Variance Variance
revenue revenue GBPm %
------ --------- ----- --------- --------- ---------
Adjusted distribution costs 10.2 3.6 9.0 3.4 (1.2) (12.9)
Depreciation 0.1 - 0.1 - - 3.1
Distribution costs per
statutory accounts 10.3 3.7 9.1 3.4 (1.2) (12.7)
====== ========= ===== ========= ========= =========
The costs of picking stock and delivering it to stores increased
by GBP1.2m compared with FY22.
-- Distribution labour costs increased by GBP0.5m, due to wage
rate inflation from the increase in the NLW, and an increase in the
volume of items picked. Approximately half of the cost increase was
due to inflation, and the remainder to the increase in volumes.
-- The costs of delivering pallets from the DC to stores
increased by GBP0.4m. Higher volumes accounted for GBP0.15m with
the remainder due to inflation passed on by the pallet delivery
company to which we outsource this task.
-- Storage costs of GBP0.15m were incurred to accommodate
additional stock prior to the Christmas sales peak. This was a
precaution taken to mitigate against the risk of a repetition of
the disruption experienced in the prior year.
Administration costs
Administration costs (before depreciation and IFRS 16) decreased
by GBP0.3m compared with FY22. The largest change was a GBP2.3m
decrease in bonus costs, as no bonus will be paid in respect of
FY23.
Head office salary and related costs (NI, pension etc.)
increased by GBP1.3m due to the planned growth in headcount as well
as wage rate inflation. Average salary rates for head office staff
(including management) increased by 3.0%, a significantly lower
rate than the 6.6% increase in the National Living Wage.
There was a net increase of GBP0.7m in other administration
costs, due principally to IT software licence and maintenance
costs, higher audit fees, and stock taking costs.
FY23 FY22
GBPm % of GBPm % of Variance Variance
revenue revenue GBPm %
------- --------- ------- --------- --------- ---------
Pre-IFRS 16, Adjusted administration
costs 22.9 8.2 23.2 8.8 0.3 1.4
Depreciation 1.8 0.6 1.3 0.5 (0.5) (34.7)
IFRS 16 impact (0.4) (0.2) (0.4) (0.1) 0.1 13.8
Administration costs per
statutory accounts 24.2 8.6 24.1 9.1 (0.1) (0.3)
======= ========= ======= ========= ========= =========
Net financing expense
Net financing costs in the period were GBP4.4m (FY22: GBP5.2m),
mostly relating to IFRS 16 notional interest.
Gross cash interest payable was GBP0.3m, in relation to facility
availability charges (FY22: GBP0.4m). GBP0.2m of interest was
received in FY23 (FY22: GBPNil).
FY23 FY22
GBPm GBPm
----- -----
Bank interest receivable (0.2) -
Bank interest payable (including non-utilisation
costs) 0.3 0.4
Other interest payable (amortisation of facility
set-up costs) 0.2 0.3
IFRS 16 notional interest on lease liabilities 4.1 4.5
----- -----
Net financing expense 4.4 5.2
===== =====
Tax
FY22
FY23 (Restated)
GBPm GBPm
------ ------------
Current tax (credit)/expense (0.4) 1.3
Deferred tax expense/(credit) 0.1 (1.0)
------ ------------
Total tax expense (0.3) 0.3
====== ============
The impairment charges noted above, by reducing the taxable
profits of prior periods, created available brought forward tax
losses, which significantly reduced the effective tax rate and
overall tax charge for FY23. As a result, there was a net tax
credit of GBP0.3m (restated FY22: GBP0.3m expense) consisting of a
GBP0.4m current tax credit and a GBP0.1m deferred tax charge. The
GBP0.3m overall tax credit equated to an effective tax rate of
(5.3%) (restated FY22: 1.9%).
The average headline corporation tax rate for FY23 was 19.5%, as
the rate changed from 19% to 25% 11 months into the financial year
(FY22: 19.0%). Deferred tax has been calculated at a rate of 25.0%
in both periods.
Earnings per share
The Adjusted basic EPS for the year was 16.5 pence (restated
FY22: 26.0 pence).
The Adjusted diluted EPS was 16.4 pence (restated FY22: 25.6
pence).
The difference between the Adjusted basic and Adjusted diluted
EPS figures is due to the exclusion from the diluted EPS
calculation of outstanding potentially dilutive share options.
Capital expenditure
FY23 FY22 Variance
GBPm GBPm GBPm
----- ----------- ---------
New stores and relocations (net of landlord
contributions to investment) 1.1 0.5 0.6
Store refits, maintenance and lease renewal
costs 3.0 0.9 2.1
IT hardware and software 2.4 1.4 1.0
Other 0.2 0.2 0.0
----- ----------- ---------
Total capital expenditure 6.7 3.0 3.7
===== =========== =========
Capital expenditure in the Period was GBP6.7m (FY22:
GBP3.0m).
-- New stores and relocations - the net investment in new stores
and relocations increased by GBP0.6m compared with FY22. 14 new
stores were opened and 3 stores relocated to new units (FY22: 5 new
stores, 6 relocations). In FY23, approximately 50% of the capital
costs of opening the stores was funded by landlord contributions, a
lower proportion than in FY22 when most of the investment was
landlord funded.
-- Store refits, maintenance and lease renewal costs - 34 stores
were refitted in FY23 at a cost of GBP1.4m (FY23: 16 refits costing
GBP0.4m). Maintenance capex was GBP1.2m (FY22: GBP0.4m) and lease
renewal costs were GBP0.4m (FY22: GBP0.2m).
-- IT hardware and software - the largest item of expenditure
was the cost of configuring and testing the new store EPOS software
prior to its implementation in stores during FY24.
FY24 capex is expected to be approximately GBP7.0m.
Inventory
Stock levels were GBP33.4m at the end of FY23 (FY22: 29.4m).
FY23 FY22 Variance Variance Provisions as % of
gross stock
GBPm GBPm GBPm % FY23 % FY22 %
----- ----- ---------- ---------- ------- --------
Gross stock 31.3 29.8 (1.5) (5.0)
Unrecognised shrinkage
provision (0.4) (1.9) (1.5) (78.9) 1.3 6.4
Obsolescence provision (0.6) (1.3) (0.7) (53.8) 1.9 4.4
Total provisions (1.0) (3.3) (2.3) (69.7) 3.2 10.7
Net stock on hand 30.2 26.6 (3.6) (13.5)
Stock in transit 3.2 2.8 (0.4) (14.3)
Stock per balance
sheet 33.4 29.4 (4.0) (13.6)
===== ===== ========== ==========
Gross stock, GBP31.3m, increased by 5% compared with FY22. This
is a lower percentage increase than the corresponding year on year
increase in the cost of sales (10%) and is due to an increase in
the average cost per unit of stock (due to mix as well as an
increase in overall cost prices), as the number of units in stock
at the Period end declined year on year.
Stock provisions decreased significantly, due to both volume and
rate effects.
-- The provision for unrecognised shrinkage decreased due to the
introduction of full "4-wall" stock counts in all stores between
Christmas and the year end. As a result, the time elapsed between
the date of the most recent store stock count and the year end,
which is one of the key variables affecting the calculation, was
significantly less than in the prior year, resulting in a lower
provision. The other key variable, the underlying weekly rate of
store stock loss, was not materially different to the rate in
FY22.
-- There was a further reduction in the stock obsolescence
provision (it was GBP1.8m at the end of FY21), due to continued
improvements in the management of terminal and slow moving
stocks.
Cash flow
The table shows a summarised non IFRS 16 presentation cash flow.
The net cash outflow for the year was GBP6.1m (FY22: inflow of
GBP15.5m).
FY23 FY22 Variance
GBPm GBPm GBPm
-------------- ------ -------------
Cash flow pre-working capital movements 6.7 19.1 (12.4)
Net movement in working capital (2.8) 7.3 (10.1)
Net Cash effect of Investing Activities (6.5) (2.9) (3.6)
Tax paid (1.5) (0.2) (1.3)
Interest and financing costs (0.7) (0.2) (0.5)
Dividends (1.5) - (1.5)
Purchase of treasury shares (0.5) - (0.5)
-------------- ------ -------------
Cash flow before loan movements (6.7) 23.1 (29.8)
Drawdown/(repayment) of bank borrowings (4.0) (7.5) 3.5
Drawdown/(repayment) of RCF 4.0 4.0
Exchange rate movements 0.6 (0.1) 0.7
-------------- ------ -------------
Net increase in cash and cash equivalents (6.1) 15.5 (21.6)
============== ====== =============
Opening net cash balance excluding IAS
17 leases 16.3 0.8
Closing net cash balance excluding IAS
17 leases 10.2 16.3
As noted at the end of FY22, the cash balance at that time
included favourable working capital timing differences which have
unwound in FY23 and resulted in a negative movement in working
capital during the Period. In most years, there would be expected
to be a broadly neutral or slightly positive movement in working
capital. The other main year on year variable which affected the
cashflow was the reduction in profit level compared with FY22.
Bank facilities and financial position
The Group ended the Period in a strong financial position, with
net positive bank balances of GBP10.2m (FY22: GBP16.3m). At the
Period end the Group had liquidity availability of GBP40.0m,
including its undrawn GBP30.0m bank facility.
Since the Period end, the Group has implemented a reduction in
the size of the facility, which was undrawn throughout most of
FY23, to GBP20.0m, and simultaneously extended its term such that
it now expires on 30 November 2026 rather than 30 November 2025.
The reduction in the facility will save approximately GBP0.15m in
annual cash interest costs, and the smaller facility continues to
provide liquidity availability significantly in excess of the
actual anticipated requirement.
Basis of preparation of the financial statements
The Directors believe that it is appropriate to prepare the
financial statements on a going concern basis. We note for
completeness that, despite the Directors' confidence in the Group's
financial position and prospects, note 1 (b) of the financial
statements includes reference to a "material uncertainty " in
relation to the adoption of the going concern basis of preparation
of the financial statements. The reasons for this are explained in
the note.
Capital distributions and FY23 final dividend recommendation
Following a strong performance in FY22, the Group paid a final
dividend of 2.4 pence per share in respect of that year, in
November 2022. The FY22 Annual Report stated that future payment
levels will be reviewed based on conditions at the time, with the
Group confirming its intention to resume a progressive dividend
policy in due course once conditions stabilise.
The business has an ongoing capex requirement (including
discretionary capex) approximately in line with its non-IFRS 16
depreciation charge and generates strong cashflows. However, in
setting the capital distribution policy, the Board is mindful of
the principal risks that the Group faces, as outlined in the FY23
Annual Report. At present two of these risks, in relation to
macro-economic conditions and the execution of the Group's
strategy, are at increased levels. In these circumstances, we will
operate with a capital structure and capital distribution approach
that ensures the business remains financially resilient, whilst
making appropriate returns to shareholders.
Our objective is to ensure that, under normal circumstances,
ordinary dividends (in pence per share) are 2.5x covered by
Adjusted EPS. We do not believe that normal circumstances apply in
the context of setting the FY23 dividend, as outlined below.
FY23 dividend
As noted previously in the report, the Board hopes that FY23's
EBITDA was a low point and that it will increase progressively in
future. During the period in which the business works to rebuild
its levels of profit, a compromise is sought, between maintaining a
reasonable dividend for shareholders, whilst ensuring that the
Group continues to maintain its cash reserves.
We believe that in FY23, the effects of
-- impairment charges (including the effect of prior year adjustments on earlier periods);
-- IFRS 16, and
-- an unusually low tax charge,
have resulted in an Adjusted EPS which is inconsistent with our
perception of the underlying profitability as represented by the
Adjusted pre IFRS 16 EBITDA. Using EBITDA as an alternative
reference point for illustration, if the FY23 dividend was set by
pro rating using the ratio of the FY23 EBITDA (GBP9.0m) to the FY22
EBITDA (GBP16.6m), it would be 1.3 pence per share.
Taking into account the foregoing and, in seeking to achieve a
reasonable compromise between returns to shareholders and prudence,
the Board will propose at the forthcoming AGM a final dividend for
FY23 of 1.6 pence per share (amounting to a GBP1.0m total
payment).
Although this is a smaller dividend than was paid in relation to
FY22, we believe that it is in keeping with FY23's performance (for
example, the EBITDA did not meet the threshold for payment of
executive bonuses). However, it does not reflect a reduction in the
Board's belief in the future prospects of the business, in which it
remains confident.
Indicative outlook for FY24 dividend
As previously noted, the Company compiled estimate of the
market's forecast for FY24 is an EBITDA of approximately GBP10.0m.
If the actual result for FY24 transpires to be in line with this
forecast, it is anticipated that the total dividend for FY24 would
grow approximately in proportion with the EBITDA. Assuming that the
effects of non-cash accounting variables such as IFRS 16, and tax,
are more neutral in FY24, we would expect that the resulting cover
from this approach would be more in line with the 2.5x objective
outlined above.
Other forms of distribution
It is anticipated that distributions will be made solely via
ordinary dividends for the foreseeable future.
In the event that performance improves at a faster rate than
anticipated, and that this is sustained, or that for some other
reason the Group accumulates cash reserves which it deems surplus
to requirements for operation and investment purposes, and for
which it can envisage no requirement to maintain on the balance
sheet, other forms of distribution will be considered, such as
share buy backs.
Decisions as to the quantum and frequency of such alternative
distributions would be made at the time, in light of the specific
circumstances.
Share buybacks for the purposes of share schemes
To avoid dilution of existing shareholder interests, the Board's
intention is for the Group to purchase shares in the market for
re-issue under employee share schemes.
Steve Alldridge
Chief Financial Officer
30 August 2023
Consolidated income statement
For the period ended 30 April 2023
52 weeks to 1 May
2022
52 weeks to 30 April
2023 (Restated - Note 11)
-------------------------------- --------------------------------
Result Result
before before
Adjusting Adjusting Adjusting Adjusting
items items Total items items Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Revenue 280,102 - 280,102 264,630 - 264,630
Cost of sales 4 (231,150) (5,052) (236,202) (209,598) (2,262) (211,860)
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Gross profit 48,952 (5,052) 43,900 55,032 (2,262) 52,770
Other operating income/(expense) 2 8 - 8 (111) - (111)
Distribution expenses (10,284) - (10,284) (9,128) - (9,128)
Administrative expenses (24,197) - (24,197) (24,116) (24,116)
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Operating profit 5 14,479 (5,052) 9,427 21,677 (2,262) 19,415
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Finance income 227 - 227 16 16
Finance expenses (4,648) - (4,648) (5,192) - (5,192)
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Net financing expense (4,421) - (4,421) (5,176) - (5,176)
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Profit before tax 10,058 (5,052) 5,006 16,501 (2,262) 14,239
Taxation 7 265 - 265 (276) - (276)
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Profit for the period 10,323 (5,052) 5,271 16,225 (2,262) 13,963
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Profit before tax and
IFRS 16 3 3,025 (1,488) 1,537 10,980 (2,191) 8,789
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Basic earnings per
share (pence) 9 16.5 8.4 26.0 22.3
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Diluted earnings per
share (pence) 9 16.4 8.4 25.6 22.0
--------------------------------- ---- ---------- --------- --------- ---------- --------- ---------
Profit for the period is attributable to equity holders of the
Parent.
Consolidated statement of comprehensive income
For the period ended 30 April 2023
FY22
(Restated
-
Note
FY23 11)
GBP000 GBP000
--------------------------------------------------------- ------- ----------
Profit for the year 5,271 13,963
--------------------------------------------------------- ------- ----------
Items that may be recycled subsequently into profit and
loss
Cash flow hedges - changes in fair value (2,862) 4,181
Cash flow hedges - reclassified to profit and loss (62) (321)
Cost of hedging - changes in fair value (162) (83)
Cost of hedging - reclassified to profit and loss 91 94
Tax relating to components of other comprehensive income 262 -
--------------------------------------------------------- ------- ----------
Other comprehensive (expense)/income for the period,
net of income tax (2,733) 3,871
--------------------------------------------------------- ------- ----------
Total comprehensive income for the period attributable
to equity shareholders of the Parent 2,538 17,834
--------------------------------------------------------- ------- ----------
Consolidated statement of financial position
As at 30 April 2023
FY22
(Restated
-
FY23 Note 11)
Note GBP000 GBP000
---------------------------------------------------- ---- -------- ----------
Non-current assets
Intangible assets 10 916 1,617
Property, plant and equipment 11 11,733 9,896
11,
Right-of-use assets 12 67,463 76,621
Deferred tax assets 13 4,854 4,708
---------------------------------------------------- ---- -------- ----------
84,966 92,842
---------------------------------------------------- ---- -------- ----------
Current assets
Inventories 14 33,441 29,387
Trade and other receivables 15 7,507 8,427
Derivative financial asset - 2,393
Current tax asset 1,149 -
Cash and cash equivalents 16 10,196 16,280
---------------------------------------------------- ---- -------- ----------
52,293 56,487
---------------------------------------------------- ---- -------- ----------
Total assets 137,259 149,329
---------------------------------------------------- ---- -------- ----------
Current liabilities
12,
Lease liabilities 17 23,449 25,434
Trade and other payables 18 34,479 35,958
Provisions 19 565 204
Derivative financial liability 1,048 -
Current tax liability - 740
---------------------------------------------------- ---- -------- ----------
59,541 62,336
---------------------------------------------------- ---- -------- ----------
Non-current liabilities
12,
Lease liabilities 17 74,766 85,702
Provisions 19 1,298 913
---------------------------------------------------- ---- -------- ----------
76,064 86,615
---------------------------------------------------- ---- -------- ----------
Total liabilities 135,605 148,951
---------------------------------------------------- ---- -------- ----------
Net assets 1,654 378
---------------------------------------------------- ---- -------- ----------
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 2,780 2,252
Hedging reserve (331) 2,227
Retained earnings (29,688) (32,994)
---------------------------------------------------- ---- -------- ----------
Total equity 1,654 378
---------------------------------------------------- ---- -------- ----------
These financial statements were approved by the Board of
Directors on 30 August 2023 and were signed on its behalf by:
Steve Alldridge
Chief Financial Officer
Company registered number: 11325534
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
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Reported balance at 2 May 2021 625 28,322 (54) 1,601 (1,203) (20,463) 8,828
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Cumulative adjustment to opening
balance (Note 11) - - - - - (26,494) (26,494)
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Restated balance at 2 May 2021 625 28,322 (54) 1,601 (1,203) (46,957) (17,666)
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Total comprehensive income for
the period
Profit for the period (Restated
- Note 11) - - - - - 13,963 13,963
Other comprehensive income - - - - 3,871 - 3,871
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Total comprehensive income for
the period - - - - 3,871 13,963 17,834
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Hedging gains and losses and
costs of hedging transferred
to the cost of inventory (Note
25) - - - - (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 (Restated
- Note 11) 625 28,322 (54) 2,252 2,227 (32,994) 378
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Total comprehensive income/(expense)
for the period
Profit for the period - - - - - 5,271 5,271
Other comprehensive expense - - - - (2,733) - (2,733)
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Total comprehensive income/(expense)
for the period - - - - (2,733) 5,271 2,538
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Hedging gains and losses and
costs of hedging transferred
to the cost of inventory (Note
25) - - - - 175 - 175
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Transactions with owners of the
Company
Share-based payment charges - - - 528 - - 528
Dividend - - - - - (1,492) (1,492)
Own shares purchased by employee
benefit trust - - - - - (473) (473)
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Total transactions with owners - - - 528 - (1,965) (1,437)
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
Balance at 30 April 2023 625 28,322 (54) 2,780 (331) (29,688) 1,654
------------------------------------- -------- -------- -------- ----------- -------- --------- --------
1 Hedging reserve includes GBP170k (FY22: GBP175k) 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 30 April 2023
FY22
(Restated
-
FY23 Note 11)
GBP000 GBP000
-------------------------------------------------------- -------- ----------
Profit for the year (including Adjusting items) 5,271 13,963
Adjustments for:
Depreciation of property, plant and equipment 4,458 4,040
Impairment of property, plant and equipment 944 1,389
Reversal of impairment of property, plant and equipment (574) (573)
Depreciation of right-of-use assets 14,840 15,094
Impairment of right-of-use assets 6,126 6,165
Reversal of impairment of right-of-use assets (2,562) (6,094)
Amortisation of intangible assets 878 567
Impairment of intangible assets 1,118 1,375
Derivative exchange (gain)/loss (721) 289
Financial income (227) (16)
Financial expense 518 692
Interest on lease liabilities 4,130 4,500
Loss on disposal of property, plant and equipment 149 179
Profit on disposal of right-of-use asset and lease
liability (1,105) (441)
Loss on disposal of intangible assets 14 -
Share-based payment charges 528 651
Taxation (265) 276
-------------------------------------------------------- -------- ----------
Operating cash flows before changes in working capital 33,520 42,056
Decrease/(increase) in trade and other receivables 1,033 (1,514)
Increase in inventories (3,129) (892)
(Decrease)/increase in trade and other payables (1,443) 9,336
Increase in provisions 746 399
-------------------------------------------------------- -------- ----------
Cash flows from operating activities 30,727 49,385
Corporation tax paid (1,508) (222)
-------------------------------------------------------- -------- ----------
Net cash inflow from operating activities 29,219 49,163
-------------------------------------------------------- -------- ----------
Cash flows from investing activities
Acquisition of property, plant and equipment (7,296) (2,818)
Capital contributions received from landlords 1,928 882
Acquisition of intangible assets (1,309) (1,015)
Interest received 227 16
-------------------------------------------------------- -------- ----------
Net cash outflow from investing activities (6,450) (2,935)
-------------------------------------------------------- -------- ----------
Cash flows from financing activities
Payment of lease liabilities (capital) (22,672) (25,969)
Payment of lease liabilities (interest) (4,130) (4,500)
Payment of RCF fees (336) -
Other interest paid (321) (157)
RCF drawdown 4,000 -
Repayment of bank borrowings (4,000) (7,500)
Dividend paid (1,492) -
Purchase of treasury shares (473) -
-------------------------------------------------------- -------- ----------
Net cash outflow from financing activities (29,424) (38,126)
-------------------------------------------------------- -------- ----------
Net (decrease)/increase in cash and cash equivalents (6,655) 8,102
Exchange rate movements 571 (137)
Cash and cash equivalents at beginning of year 16,280 8,315
-------------------------------------------------------- -------- ----------
Cash and cash equivalents at end of year 10,196 16,280
-------------------------------------------------------- -------- ----------
Notes to the condensed consolidated financial statements
(Forming part of the financial statements)
1. Accounting policies
Where accounting policies are particular to an individual note,
narrative regarding the policy is included with the relevant note;
for example, the accounting policy in relation to inventory is
detailed in Note 17 (Inventories).
(a) General information
TheWorks.co.uk plc is a leading UK multi-channel value retailer
of arts and crafts, stationery, toys, games 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 online.
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
30 April 2023 (FY23 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 Group 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
fixed asset impairment; these are described in Note 1(f).
(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 in the Strategic report on pages [--] to
[--]. The financial statements have been prepared on a going
concern basis, which the Directors consider appropriate having made
this assessment.
The Group has prepared cash flow forecasts for a period of at
least twelve months from the date of approval of these financial
statements (the going concern assessment period), based on the
Board's forecast for FY24 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 mirrors the
Group's 3 year plan and therefore represents their 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.
These factors are described below.
External environment
The risks which are considered the most significant to this
evaluation relate to the economy and the market, specifically their
effect on the strength of trading conditions, and the Group's
ability to successfully execute its strategy. The risk of weaker
consumer demand is considered to be the greater of these risks, due
to the continued high level of inflation and its potential effect
on economic growth and consumer spending.
An emerging risk has been noted in relation to the possible
effects of climate change, but this is not expected to have a
material financial impact on the Group during the forecast
period.
Financial position and bank facilities
At the end of FY23 the Group held net cash at bank of GBP10.2m
(FY22: net cash at bank of GBP16.3m).
After the Period end, the Group extended the tenor of its bank
facility by one year and it now expires on 30 November 2026. At the
same time, following a review of the historic utilisation of the
facility, the Group's anticipated future cash requirements, and the
costs of maintaining the facility, the Group requested that HSBC
reduce the size of the facility from GBP30m to GBP20m.
The facility includes two financial covenants which are tested
quarterly:
1. the "Leverage Ratio" or level of net debt to LTM (last twelve
months') EBITDA must not exceed 2.5 times during the life of the
facility.
2. the "Fixed Charge Cover" or ratio of LTM EBITDA prior to
deducting rent and interest, to LTM rent and interest. This
covenant increases in steps to reflect the expectation of
progressively improving financial performance during the life of
the facility, as follows: until October 2023, the ratio must be at
least 1.20 times; for the following 12 months the ratio must be at
least 1.25 times, and thereafter at least 1.30 times.
The Group expects to be able to operate and have sufficient
headroom within these covenants during the forecast period.
Potential impact of risks on financial scenarios
It is considered unlikely that all the risks described in the
Strategic report would manifest themselves to adversely affect the
business at the same time. The Base Case scenario/the Group's 3
year financial plan, implicitly already takes into account the
risks described, and assumes that they manifest themselves in a way
or to an extent that might be considered "neutral".
The Downside Case scenario assumes that there are more severely
negative effects than in the Base Case. In particular, the Downside
Case assumptions are that macroeconomic conditions are
significantly worse, resulting in reduced consumer spending and
lower sales. It should be noted that the Base Case already takes
into account the current subdued consumer market conditions. The
Downside Case assumes that conditions become worse still from the
second half of the FY24 financial year.
Base Case scenario
The Base Case scenario assumptions reflect the following
factors:
-- Store sales (which represent over 85% of total sales) during
the first part of FY24 are above the Base Case requirement but
online sales are below it. The Group is implementing plans to
improve its online profitability in the medium term; in the short
term, costs relating to the online business are being tightly
controlled to ensure that they reflect the reduced sales level.
-- The Base Case gross margin percentage reflects the expected
full year effect in FY24 of targeted price increases applied since
the beginning of 2023 and also significantly lower ocean container
freight costs. These favourable factors are partially offset by a
less favourable hedged FX rate than in FY23.
-- Anticipated further inflationary effects, in particular the
increase in the National Living Wage. In respect of other costs,
notably property occupancy costs, it is not expected that there
will be further significant inflationary effects during FY24 and
FY25, following the significant increases (for example in
electricity costs) already experienced during FY23.
-- Capital expenditure levels are in line with the Group's
strategic plan. A significant proportion of the Group's capital
expenditure is discretionary, particularly over a short-term time
period. As a result, if required, it can therefore be reduced
substantially, for example, in the event the Group needing to
preserve cash.
-- The anticipated costs of the Group's net zero climate change
commitments have been incorporated within the Base Case model. As
set out in the climate related disclosures on pages [36 to 42], the
impact on the Group's financial performance and position is not
expected to be material in the short term.
-- The plan makes provision for dividend payments.
Under the Base Case scenario, the Group expects to make routine
operational use of its bank facility each year as stock levels are
increased in September-October, prior to peak sales occurring. This
is consistent with the normal pattern experienced prior to
COVID-19.
The output of the Base Case model scenario indicates that the
Group has sufficient financial resources to continue to operate as
a going concern and for the financial statements to be prepared on
this basis.
Measures to maintain or increase liquidity in circumstances such
as are described below
If necessary, mitigating actions can and would be taken in
response to a significant downturn in trading such as is described
below, which would increase liquidity.
These 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 are additional measures that would be
available 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 macroeconomic conditions compared to the Base
Case:
-- Store LFL sales are assumed to be 5% lower than in the Base
Case from October 2023 until January 2025.
-- In this scenario online sales are assumed to be lower than in
the Base Case during FY24 despite the Group's attempts to increase
them, but show recovery in FY25.
-- The product gross margin assumptions are the same as in the
Base Case other than in January 2024 when it is lower, to allow for
the clearance of stock which is assumed would have accumulated due
to the inability to reduce stock purchases immediately in response
to the lower sales level. Expected FX requirements are hedged until
mid FY25, and freight rates are hedged until the end of 2023.
Beyond that time, it is not anticipated that there will be any
interruption to global freight systems as was experienced as a
result of the COVID pandemic, which were a consequence of unique
circumstances. Other gross margin inputs are relatively
controllable, including via the setting of selling prices to
reflect any systematic changes in the cost price of goods bought
for resale.
-- Volume related costs in the Downside Case are lowered where
they logically alter in a direct relationship with sales levels,
for example, forecast online fulfilment and marketing costs. The
model also reflects certain steps which could be taken to mitigate
the effect of lower sales, depending on management's assessment of
the situation at the time. These include adjustments to stock
purchases, reducing capital expenditure, reductions in labour
usage, a reduction in discounts allowed as part of the Group's
loyalty scheme and the suspension of dividend payments.
-- The combined financial effect of the modified assumptions in
this scenario compared with the Base Case, during FY24 and FY25,
including implementing some of the mitigating activities available,
would result in:
o a reduction in store net sales of approximately GBP34m.
o a reduction in online net sales of approximately GBP1m.
o a reduction to EBITDA of approximately GBP9m.
Under this scenario the Group will draw on its bank facility
prior to Christmas 2023 but, as a result of the mitigating actions
that would be taken in H2 FY24 in response to a downturn in sales,
particularly in reducing the value of stock bought for resale, it
would not make subsequent use of the bank facility.
The bank facility financial covenants are complied with during
the pre-Christmas 2023 period when the facility is being used, but
the forecast indicates that the Fixed Charge covenant will not be
complied with throughout FY25, although at this time, the facility
is not expected to be in use under this scenario.
On the basis of this Downside Case scenario with the "severe but
plausible" set of assumptions as described, the business would
continue to have adequate resources to continue in operation.
However, the cash headroom at the quarterly covenant testing
points in FY25 falling within the going concern period is limited,
and there are reasonably plausible scenarios in which this headroom
could be eroded and create a borrowing requirement. For example, if
sales decreased by a further 1% during the going concern period
compared with the Downside Case, a small borrowing requirement
could arise. The Group has a strong relationship with its bank,
HSBC, and has a recent track record of working collaboratively with
the bank to resolve potential covenant issues, for example, a
waiver was agreed by HSBC in 2021 as noted in the Group's FY21
annual report. Despite this strong relationship with the bank and
the recent evidence of successfully managing comparable situations,
if a borrowing requirement arose when the financial covenants are
not complied with, there is a risk that the Group would not be able
to utilise its borrowing facilities if required.
The Directors believe that, should such a situation arise in
practice, it would have time before a potential breach to mitigate
further, and potentially to make arrangements with the bank, as has
occurred previously, to adjust the covenant levels to prevent a
breach. Furthermore, the Group has successfully managed through
challenging conditions during the recent COVID pandemic, and the
Directors believe it unlikely that comparably challenging
conditions will be experienced during the forecast period, despite
the concerns regarding the current macroeconomic conditions.
Nevertheless, despite the Directors' confidence in relation to
these matters, there is no certainty as to whether the mitigating
actions would provide the level of liquidity required in the time
available to implement them, nor whether the bank would make
adjustments to the financial covenants.
Going concern and basis of preparation conclusion
Based on all of the above considerations the Directors believe
that it remains appropriate to prepare the financial statements on
a going concern basis. However, these circumstances indicate the
existence of a material uncertainty related to events or conditions
that may cast significant doubt on the Group's and the Company's
ability to continue as a going concern and, therefore, that the
Group and Company may be unable to realise their assets and
discharge their liabilities in the normal course of business. The
financial statements do not include any adjustments that would
result from the basis of preparation being inappropriate.
(ii) New accounting standards
The Group has applied the following new standards and
interpretations for the first time for the annual reporting period
commencing 2 May 2022:
-- Annual Improvements to IFRS 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16)
-- References to the Conceptual Framework (Amendments to IFRS 3)
-- COVID-19 Related Rent Concessions beyond 30 June 2021 (Amendments to 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:
-- Insurance Contracts (IFRS 17)
-- Initial Application of IFRS 17 and IFRS 9 - Comparative
Information (Amendments to IFRS 17)
-- Extension to the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)
-- Disclosure of Accounting Policies (Amendments to IAS 1)
-- Deferred Tax Related to Assets and Liabilities Arising from a
Single Transaction (Amendments to IAS 12)
-- Definition of Accounting Estimates (Amendments to IAS 8)
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's accounting policies. Where a
significant risk of materially different outcomes exists, this will
represent a key source of estimation uncertainty.
Estimates and judgements 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)(i)
Impairment of intangible assets, property, plant and
equipment and right-of-use assets 10, 11
----------------------------------------------------- -------
2. Other operating income/(expense)
Accounting policy
The business was classified as a 'non-essential retailer' during
the COVID-19 pandemic and was therefore required to close its shops
during periods of lockdown in the FY20 and FY21 financial years.
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.
The GBP119k charge noted in the prior period is to correct an
immaterial overstatement of the Coronavirus Job Retention Scheme
(CJRS) income reported in respect of FY21.
The COVID-19 business rates relief received during the year was
GBP227k (FY22: GBP5,828k), which is included within cost of
sales.
FY23 FY22
GBP000 GBP000
------------------------------------------- ------- -------
COVID-19 furlough scheme grants receivable - (119)
Rent receivable 8 8
------------------------------------------- ------- -------
8 (111)
------------------------------------------- ------- -------
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
The FY23 like-for-like (LFL) sales increase has been calculated
with reference to the FY22 comparative sales figures. In FY22's
Annual Report, two-year comparatives were used because the use of a
normal one-year LFL comparative was prevented by the various
disruptions to store trading brought about by COVID-19 restrictions
in the FY21 comparative period. Furthermore, for the last five
weeks of FY22, it was necessary to calculate the LFL percentages
with reference to the corresponding weeks in FY19, because the
equivalent weeks during FY20 were also affected by enforced store
closures. Similar comparison periods were also used for the total
sales growth figures.
LFL sales are defined by the Group as the year-on-year growth in
gross sales from stores which have been trading for a full
financial year prior to the current year and have been trading
throughout the current financial period being reported on, and from
the Company's online store, calculated on a calendar week basis.
The measure is used widely in the retail industry as an indicator
of sales performance. LFL sales are calculated on a gross basis to
ensure that fluctuations in the VAT rates of products sold are
excluded from the like-for-like sales growth percentage figure.
A reconciliation of IFRS revenue to sales on an LFL basis is set
out below:
FY23 FY22
GBP000 GBP000
------------------------------------------ -------- --------
Total LFL sales 297,009 285,012
------------------------------------------ -------- --------
Non-LFL store sales 19,621 13,359
------------------------------------------ -------- --------
Total gross sales 316,630 298,371
------------------------------------------ -------- --------
VAT (35,144) (33,467)
Loyalty points (1,384) (274)
------------------------------------------ -------- --------
Revenue per consolidated income statement 280,102 264,630
------------------------------------------ -------- --------
Pre-IFRS 16 Adjusted EBITDA ('EBITDA') a nd Adjusted profit
after tax
EBITDA is defined by the Group as pre-IFRS 16 earnings before
interest, tax, depreciation, amortisation and profit/loss on the
disposal of fixed assets, after adding back or deducting Adjusting
items. See Note 6 for a description of Adjusting items. Pre-IFRS 16
EBITDA is used for the bank facility LTM EBITDA covenant
calculations.
The table on the following page provides a reconciliation of
pre-IFRS 16 EBITDA to profit/(loss) after tax and the impact of
IFRS 16:
FY22
(Restated
-
FY23 Note 11)
GBP000 GBP000
----------------------------------------------------- -------- ----------
Pre-IFRS 16 Adjusted EBITDA 1 9,000 16,562
Income statement rental charges not recognised under
IFRS 16 24,865 24,434
Foreign exchange difference on euro leases (152) 120
----------------------------------------------------- -------- ----------
Post-IFRS 16 Adjusted EBITDA 1 33,713 41,116
Profit on disposal of right-of-use assets and lease
liability recognised under IFRS 16 1,105 441
Loss on disposal of property, plant and equipment (149) (179)
Loss on disposal of intangible assets (14) -
Depreciation of property, plant and equipment (4,458) (4,040)
Depreciation of right-of-use assets (14,840) (15,094)
Amortisation (878) (567)
Finance expenses (4,648) (5,192)
Finance income 227 16
Tax credit/(charge) 265 (276)
----------------------------------------------------- -------- ----------
Adjusted profit after tax 10,323 16,225
Adjusting items (including impairment charges and
reversals) (5,052) (2,262)
Tax charge - -
----------------------------------------------------- -------- ----------
Profit after tax 5,271 13,963
----------------------------------------------------- -------- ----------
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 (Restated
FY23 - Note 11)
----------------------------- -----------------------------
Adjusting Adjusting
Adjusted items Total Adjusted items Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- -------- --------- -------- -------- --------- --------
Profit/(loss) before tax and IFRS
16 adjustments 3,025 (1,488) 1,537 10,980 (2,191) 8,789
-------------------------------------- -------- --------- -------- -------- --------- --------
Remove rental charges not recognised
under IFRS 16 24,737 - 24,737 24,308 - 24,308
Remove hire costs from hire of
equipment 128 - 128 126 - 126
Remove depreciation charged on
the existing assets 151 - 151 89 - 89
Remove interest charged on the
existing liability 34 - 34 31 - 31
Depreciation charge on right-of-use
assets (14,840) - (14,840) (15,094) - (15,094)
Interest cost on lease liability (4,130) - (4,130) (4,500) - (4,500)
Loss on disposal of right-of-use
assets (297) - (297) (1,899) - (1,899)
Profit on disposal of lease liability 1,402 - 1,402 2,340 - 2,340
Foreign exchange difference on
euro leases (152) - (152) 120 - 120
Additional impairment charge under
IAS 36 - (3,564) (3,564) - (71) (71)
-------------------------------------- -------- --------- -------- -------- --------- --------
Net impact on profit/(loss) 7,033 (3,564) 3,469 5,521 (71) 5,450
-------------------------------------- -------- --------- -------- -------- --------- --------
Profit/(loss) before tax 10,058 (5,052) 5,006 16,501 (2,262) 14,239
-------------------------------------- -------- --------- -------- -------- --------- --------
Adjusted profit metrics
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 6.
4. Adjusting items
Adjusting items are unusual in nature or incidence and
sufficiently material in size that in the judgement of the
Directors merit disclosure separately on the face of the financial
statements to ensure 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 users of the accounts. 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 FY23, the items classified as 'Adjusting', as
shown below, were related to transactions that had been treated as
Adjusting in prior periods.
FY22
(Restated
-
FY23 Note 11)
GBP000 GBP000
---------------------- ------- ----------
Cost of sales
Impairment charges1 8,188 8,929
Impairment reversals1 (3,136) (6,667)
---------------------- ------- ----------
Total cost of sales 5,052 2,262
---------------------- ------- ----------
Total Adjusting items 5,052 2,262
---------------------- ------- ----------
1 These relate to fixed asset impairment charges and reversals
of prior year impairment charges.
5. Operating profit
Operating profit before Adjusting items is stated after
charging/(crediting) the following items:
FY22
(Restated
-
FY23 Note 11)
GBP000 GBP000
---------------------------------------------------- ------- ----------
Loss on disposal of property, plant and equipment 149 179
Loss on disposal of intangible assets 14 -
Profit on disposal of right-of-use assets and lease
liability (1,105) (441)
Depreciation 19,298 19,134
Amortisation 878 567
Operating lease payments:
- Hire of plant and machinery1 371 389
- Other operating leases1 2,136 1,549
Net foreign exchange loss/(gain) 392 (128)
Cost of inventories recognised as an expense 119,085 106,954
Staff costs 62,235 60,031
---------------------------------------------------- ------- ----------
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.
Auditor's remuneration:
FY23 FY22
GBP000 GBP000
------------------------------------------------------------ ------- -------
Fees payable to the Group's auditor for the audit of
the Group's annual accounts 500 450
Amounts payable in respect of other services to the Company
and its subsidiaries
Audit of the accounts of subsidiaries 40 40
Audit related assurance services (provision of turnover
certificates required under certain leases) 1 1
------------------------------------------------------------ ------- -------
Total services 541 491
------------------------------------------------------------ ------- -------
6. Staff numbers and costs
The average number of people employed by the Group (including
Directors) during the year, analysed by category, was as
follows:
Number of employees
---------------------
FY23 FY22
-------------------------------------- ---------- ---------
Store support centre colleagues 243 216
Store colleagues 3,564 3,468
Warehouse and distribution colleagues 147 140
-------------------------------------- ---------- ---------
3,954 3,824
-------------------------------------- ---------- ---------
The corresponding aggregate payroll costs were as follows:
FY23 FY22
GBP000 GBP000
------------------------------------------------------ ------- -------
Wages and salaries 57,189 55,600
Social security costs 4,156 3,654
Contributions to defined contribution pension schemes 890 777
------------------------------------------------------ ------- -------
Total employee costs 62,235 60,031
Agency labour costs 2,035 1,505
------------------------------------------------------ ------- -------
Total staff costs 64,270 61,536
------------------------------------------------------ ------- -------
7. 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
(Restated(1)
FY23 )
GBP000 GBP000
-------------------------------------------------- ------- -------------
Current tax expense
Current year 230 1,288
Adjustments for prior years (611) 3
-------------------------------------------------- ------- -------------
Current tax (credit)/expense (381) 1,291
-------------------------------------------------- ------- -------------
Deferred tax credit
Origination and reversal of temporary differences (212) (111)
Increase in tax rate (172) (1,120)
Adjustments for prior years 500 216
-------------------------------------------------- ------- -------------
Deferred tax credit 116 (1,015)
-------------------------------------------------- ------- -------------
Total tax expense (265) 276
-------------------------------------------------- ------- -------------
(1) The FY22 corporation tax charge has been restated to reflect
the tax impact of the restatements documented in Note 11.
The UK corporation tax rate for FY23 was 19.5% on average with
the UK corporation tax rate changing from 19.0% to 25.0% 11 months
into the financial year (FY22: 19.0%). Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
An increase in the UK corporation rate from 19.0% to 25.0%
(effective 1 April 2023) was substantively enacted on 24 May 2021.
As the deferred tax assets and liabilities should be recognised
based on the corporation tax rate applicable when they are
anticipated to unwind, the assets and liabilities on UK operations
have been recognised at a rate of 25.0% (FY22: 25.0%). Assets and
liabilities arising on foreign operations have been recognised at
the applicable overseas tax rates.
Reconciliation of effective tax rate
FY22
(Restated
FY23 - see above)
GBP000 GBP000
------------------------------------------------------- ------- --------------
Profit for the year 5,006 14,239
------------------------------------------------------- ------- --------------
Tax using the UK corporation tax rate of 19.5% (FY22:
19.0%) 976 2,705
Non-deductible expenses 147 182
Effect of tax rates in foreign jurisdictions (13) (40)
Tax (over)/under provided in prior periods (111) 219
Utilisation of unrecognised tax losses brought forward (1,211) (1,756)
Deferred tax not recognised (18) 86
Losses carries forwards 137 -
Change in tax rate (172) (1,120)
------------------------------------------------------- ------- --------------
Total tax (credit)/expense (265) 276
------------------------------------------------------- ------- --------------
The Group's total income tax credit in respect of the period was
GBP265k (FY22: expense of GBP276k). The effective tax rate on the
total profit before tax was (5.3)% (FY22: 1.9% on the profit before
tax) whilst the effective tax rate on the total profit before
Adjusted items was (2.6)% (FY22: 1.7% on the profit 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.
The current year tax credit recognised above relates to an
adjustment to the prior year corporation tax creditor recognised;
this was higher than the corporation tax payable when the FY22
corporation tax computations were finalised due to the inclusion of
the super deduction in the final year-end tax computations.
8. 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.
FY23 FY22
Pence per share GBP000 GBP000
---------------------------------------------------- --------------- ------- -------
Final dividend for the year ended 1 May 2022 2.4p 1,492 -
---------------------------------------------------- --------------- ------- -------
Total dividend paid to shareholders during the year 1,492 -
---------------------------------------------------- --------------- ------- -------
Dividend equivalents totalling GBP603k (FY22: GBP375k) were
accrued in the year in relation to share-based long-term incentive
schemes.
The Board has recommended the payment of a 1.6 pence per share
final dividend in respect of FY23 (FY22: 2.4 pence).
9. 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 6 for
further details) to reflect the Group's underlying profit for the
year.
FY23 FY22
Number Number
------------------------------------------------ ---------- -----------
Number of shares in issue 62,500,000 62,500,000
Number of dilutive share options 621,130 940,673
------------------------------------------------ ---------- -----------
Number of shares for diluted earnings per share 63,121,130 63,440,673
------------------------------------------------ ---------- -----------
GBP000
(Restated
-
GBP000 Note 11)
------------------------------------------------ ------- ----------
Total profit for the financial period 5,271 13,963
Adjusting items 5,052 2,262
------------------------------------------------ ------- ----------
Adjusted profit for Adjusted earnings per share 10,323 16,225
------------------------------------------------ ------- ----------
Pence
(Restated
-
Pence Note 11)
------------------------------------ ----- ----------
Basic earnings per share 8.4 22.3
Diluted earnings per share 8.4 22.0
Adjusted basic earnings per share 16.5 26.0
Adjusted diluted earnings per share 16.4 25.6
------------------------------------ ----- ----------
10. 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.
Goodwill was fully impaired in FY20.
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 (such as consultancy), as well as internal
payroll related costs for employees who are directly working on 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 and treated as
an Adjusting item.
Goodwill Software Total
GBP000 GBP000 GBP000
--------------------------------- -------- -------- -------
Cost
Balance at 1 May 2022 16,180 9,058 25,238
Additions - 1,309 1,309
Disposals - (1,057) (1,057)
--------------------------------- -------- -------- -------
Balance at 30 April 2023 16,180 9,310 25,490
--------------------------------- -------- -------- -------
Amortisation and impairment
Balance at 1 May 2022 16,180 7,441 23,621
Amortisation charge for the year - 878 878
Impairment charges - 1,118 1,118
Disposals(1) - (1,043) (1,043)
--------------------------------- -------- -------- -------
Balance at 30 April 2023 16,180 8,394 24,574
--------------------------------- -------- -------- -------
Net book value
At 1 May 2022 - 1,617 1,617
--------------------------------- -------- -------- -------
At 30 April 2023 - 916 916
--------------------------------- -------- -------- -------
1. During FY23 the Group reviewed assets on the fixed asset
register with a nil net book value. Following this review
intangible assets with a cost and accumulated depreciation of
GBP1,043k were deemed to no longer be in use by the Group and have
therefore been disposed of.
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 (Restated(2) ) 16,180 5,499 21,679
Amortisation charge for the year (Restated(2)
) - 567 567
Impairment charge (Restated(2) ) - 1,375 1,375
---------------------------------------------- -------- -------- -------
Balance at 1 May 2022 (Restated(2) ) 16,180 7,441 23,621
---------------------------------------------- -------- -------- -------
Net book value
At 3 May 2021 (Restated(2) ) - 2,544 2,544
---------------------------------------------- -------- -------- -------
At 1 May 2022 (Restated(2) ) - 1,617 1,617
---------------------------------------------- -------- -------- -------
2. These balances have been restated to reflect the impact of
the prior period restatements in Note 11.
Goodwill impairment testing
Goodwill of GBP16.2m was impaired to GBPNil in FY20; therefore,
no further impairment testing is necessary in relation to this.
Impairment of other intangible assets
Please refer to Note 11 for details of impairment of tangible
and intangible assets.
11. 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 sale proceeds and the carrying amount of the
asset and is recognised in profit or loss.
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 15.
Impairment of tangible and intangible assets
The carrying amounts of the Group's tangible and intangible
assets with a measurable 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), as well as the Company's website.
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 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.
The carrying value represents each CGU's specific assets, as
well as the IFRS 16 right-of-use asset, plus an allocation of
corporate assets where these assets can be allocated on a
reasonable and consistent basis.
Where the carrying value exceeds the recoverable amount an
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.
Measuring recoverable amounts
The Group estimates the recoverable amount of each CGU based on
the greater of its fair value less disposal cost and its value in
use (VIU), derived from a discounted cash flow model which excludes
IFRS 16 lease payments. In assessing the fair value less disposal
cost the ability to sublease each store has been considered and it
is concluded that this is not applicable for the majority of the
store estate. Where it is deemed reasonable to assume the ability
to sublet the potential cash inflows generated are insignificant,
therefore the VIU calculation is used for all stores. A proportion
of 'click and collect' sales are included in store cash flows to
reflect the contribution stores make to fulfilling such orders. The
key assumptions applied by management in the VIU calculations are
those regarding the growth rates of sales and gross margins,
medium-term growth rates, central overhead allocation and the
discount rate used to discount the assumed cash flows to present
value.
Projected cash flows for each store are limited to the useful
life of each store as determined by its current lease term unless a
lease has already expired or is due to expire within 12 months of
30 April 2023 where the intention is to remain in the store and
renew the lease. For these leases, an average lease term is used
for cash flow projections.
Projected cash flows for the website are limited to 60 months as
this is in line with the average useful economic life of the assets
assigned to the web CGU.
Impairment triggers
Due to the challenging macroeconomic environment and the
existence of a material brought forwards impairment charge, all
CGUs other than stores which have been open for less than 12 months
have been assessed for impairment.
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 historic data
from 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 company
risk-free rate, equity risk premium, Group size premium, a
forecasting risk premium and a risk adjustment (beta). The discount
rate is compared to the published discount rates of comparable
businesses and relevant industry data prior to being adopted. The
FY23 pre-tax discount rate has been calculated on a post-IFRS 16
basis. FY22's originally reported impairment was calculated on a
pre-IFRS 16 basis discounted using a pre-IFRS 16 WACC of 17.9%;
however, when the prior year restatements documented below were
calculated, the cash flows were produced on a post-IFRS 16 basis
and discounted using a post IFRS 16 WACC to ensure consistency of
approach.
FY22
FY23 (Restated)
------------------------ ------ -----------
Pre-tax discount rate 12.78% 11.48%
Medium-term growth rate 1.0% 2.0%
------------------------ ------ -----------
While the online CGU is in a different stage of establishment to
that of the store CGUs, the same pre-tax discount rate has been
used in the impairment assessment. Given that the website is not
performing in line with expectations, all assets relating to the
web CGU are fully impaired, as such an increase in the pre-tax
discount rate used for the web assessment would not increase the
impairment charge recognised.
Cash flow forecasts are derived from the most recent
Board-approved corporate plans that form the Base Case on which the
VIU calculations are based. These 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);
-- central costs are reviewed to identify amounts which are
necessarily incurred to generate the CGU cash flows. As a result of
the analysis performed at the end of FY23, 87% (FY22: 91%) of
central costs have been allocated by category using appropriate
volumetrics.
Cash flows beyond the corporate plan period (2027 and beyond)
have been determined using the medium-term growth rate; this is
based on management's future expectations, reflecting, amongst
other things, current market conditions and expected future trends
and has been based on historical data from both external and
internal sources. Immediately quantifiable impacts of climate
change and costs expected to be incurred in connection with our net
zero commitments, are included within the cash flows. The useful
economic lives of store assets are short in the context of climate
change scenario models therefore no medium to long-term effects
have been considered.
Impairment charge
During FY23, an impairment charge of GBP7,572k was recognised
against 209 stores with a recoverable amount of GBP24,055k, and an
impairment charge of GBP616k was recognised against the website
(FY22 restated: an impairment charge of GBP7,540k was recognised
against 200 stores with a recoverable amount of GBP26,528k, and an
impairment charge of GBP1,389k was recognised against the website).
An impairment reversal of GBP3,136k has been recognised in FY23
relating to 100 stores with a recoverable amount of GBP18,090k as
at 30 April 2023 (FY22 restated: an impairment reversal of
GBP6,667k was recognised relating to 108 stores with a recoverable
amount of GBP24,950k).
A net impairment charge of GBP5,052k (FY22 restated: GBP2,262k)
has therefore been shown on the face of the consolidated income
statement. In line with the previously adopted treatment,
impairment charges and reversals have been shown as Adjusting
items.
Sensitivity analysis
Whilst the Directors believe the assumptions adopted are
realistic, reasonably possible changes in key assumptions could
still occur, which could cause the recoverable amount of certain
stores to be lower or higher than the carrying amount. The impact
on the net impairment charge recognised from reasonably possible
changes in assumption are detailed below:
- a reduction in sales of 5% from the Base Case plan to reflect
a potential Downside Scenario would result in an increase in the
net impairment charge of GBP8,981k. An increase in sales of 5% from
the Base Case plan would decrease the net impairment charge by
GBP5,827k;
- a reduction in gross margin of 2% would result in an increase
in the net impairment charge of GBP2,320k. An increase in gross
margin of 2% would decrease the net impairment charge by
GBP2,063k;
- a 200-basis point increase in the pre-tax discount rate would
result in an increase in the net impairment charge of GBP1,412k,
while a 200 basis point decrease in the pre-tax discount rate would
result in a decrease in the net impairment charge of GBP1,387k;
- a 100 basis point decrease in the medium-term growth rate
would result in an increase in the net impairment charge of
GBP493k, while a 100 basis point increase in the medium-term growth
rate would result in an increase in the net impairment charge of
GBP481k;
- increasing the percentage of central costs allocated across
CGUs from 87% to 97% would result in an increase in the net
impairment charge of GBP2,234k. Decreasing the percentage of
central costs allocated across CGUs from 87% to 77% would result in
a decrease in the net impairment charge of GBP2,000k.
Whilst the Directors consider their assumptions to be realistic,
should actual results 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 Leasehold Plant and and
property equipment improvements equipment fittings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- ---------- ------------- ---------- --------- ---------
Cost
Balance at 1 May 2022
(Restated(2) ) 151,091 2,421 10,729 3,818 27,259 195,318
Additions 9,530 13 933 1,109 4,772 16,357
Disposals(1) (6,570) - (4,254) (1,271) (12,836) (24,931)
---------------------------- --------- ---------- ------------- ---------- --------- ---------
Balance at 30 April 2023 154,051 2,434 7,408 3,656 19,195 186,744
---------------------------- --------- ---------- ------------- ---------- --------- ---------
Depreciation and impairment
Balance at 1 May 2022
(Restated(2) ) 75,483 1,408 8,686 3,507 19,717 108,801
Depreciation charge for
the year 14,483 357 1,315 307 2,836 19,298
Impairment charge 6,126 - 9 388 547 7,070
Impairment reversals (2,562) - (172) - (402) (3,136)
Disposals (6,273) - (4,190) (1,230) (12,792) (24,485)
---------------------------- --------- ---------- ------------- ---------- --------- ---------
At 30 April 2023 87,257 1,765 5,648 2,972 9,906 107,548
---------------------------- --------- ---------- ------------- ---------- --------- ---------
Net book value
At 1 May 2022 (Restated(2)
) 75,608 1,013 2,043 311 7,542 86,517
---------------------------- --------- ---------- ------------- ---------- --------- ---------
At 30 April 2023 66,794 669 1,760 684 9,289 79,196
---------------------------- --------- ---------- ------------- ---------- --------- ---------
1. During FY23 the Group reviewed assets on the fixed asset
register with a nil net book value. Following this review, fixed
assets with a cost and accumulated depreciation of GBP17,502k were
deemed to no longer be in use by the Group and have therefore been
disposed of. The totals disposed of by category were as follows:
GBP3,995k leasehold improvements, GBP1,172k plant and equipment,
GBP12,375k fixtures and fittings.
2. These balances have been restated to reflect the impact of
the prior period restatements discussed below.
RoUA - Fixtures
RoUA - plant and Leasehold Plant and and
property equipment improvements equipment fittings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ------------- ---------- --------- -------
Cost
Balance at 3 May 2021
(Restated(2) ) 154,319 1,913 10,410 3,376 26,167 196,185
Additions (Restated(2)
) 2,540 508 548 476 1,499 5,571
Disposals (5,768) - (229) (34) (407) (6,438)
---------------------------------- --------- ---------- ------------- ---------- --------- -------
Balance at 1 May 2022
(Restated(2) ) 151,091 2,421 10,729 3,818 27,259 195,318
---------------------------------- --------- ---------- ------------- ---------- --------- -------
Depreciation and impairment
Balance at 3 May 2021
(Restated(2) ) 64,619 976 7,712 2,784 17,049 93,140
Depreciation charge for
the year (Restated(2)
) 14,662 432 1,268 341 2,431 19,134
Impairment charge (Restated(2)
) 6,165 - 134 411 844 7,554
Impairment reversals (Restated(2)
) (6,094) - (252) (8) (313) (6,667)
Disposals (3,869) - (176) (21) (294) (4,360)
---------------------------------- --------- ---------- ------------- ---------- --------- -------
Balance at 1 May 2022 75,483 1,408 8,686 3,507 19,717 108,801
---------------------------------- --------- ---------- ------------- ---------- --------- -------
Net book value
At 3 May 2021 (Restated(2)
) 89,700 937 2,698 592 9,118 103,045
---------------------------------- --------- ---------- ------------- ---------- --------- -------
At 1 May 2022 (Restated(2)
) 75,608 1,013 2,043 311 7,542 86,517
---------------------------------- --------- ---------- ------------- ---------- --------- -------
2 These balances have been restated to reflect the impact of the
prior period restatements discussed below.
Prior Period Restatements
Leasehold assets useful economic lives
In prior years, leasehold assets were being depreciated over a
life longer than the life of the lease they relate to. To correct
this, leasehold improvements depreciation has been restated. The
FY21 closing accumulated depreciation has been increased by
GBP1,768k with a corresponding decrease in closing FY21
reserves.
The FY22 in year depreciation charge has increased by GBP537k,
reducing adjusted profit before tax and closing property, plant and
equipment net book value. In the consolidated cash flow statement,
the FY22 adjustment has increased the 'depreciation of property,
plant and equipment' by GBP537k, however there is no overall impact
on net cash flows from operating, financing and investing
activities or on 'net increase in cash and cash equivalents'.
Lease incentives received and initial direct costs incurred at
the inception of a lease
In prior years, landlord capital contributions, and capitalised
legal fees incurred upon negotiation of lease agreements were
recorded within leasehold improvements rather than included within
the initial measurement of the IFRS 16 right-of-use asset.
Therefore, the costs and accumulated depreciation amounts relating
to these assets have been reclassified from 'leasehold
improvements' into 'RoUA property', resulting in a GBP344k
reduction in the right-of-use asset NBV at 3 May 2021, and a
GBP743k reduction at 1 May 2022, with a corresponding increase in
the NBV of leasehold assets. This adjustment has no impact on the
consolidated income statement or consolidated cash flow
statement.
Central cost allocation within fixed asset impairment
assessment
In prior years, when assessing the impairment of right-of-use
assets, property, plant and equipment and intangible assets,
central costs were not allocated to each cash generating unit
(CGU). During the current year, the directors have reconsidered the
allocation of central costs and based on the existence of a
consistent store estate and cost base, concluded that certain costs
can be allocated to individual CGUs on a reasonable and consistent
basis. The directors additionally considered whether a consistent
allocation was appropriate in earlier periods and concluded that an
allocation became appropriate following the change in strategy to
"Better not just Bigger", the implementation of which occurred
following the appointment of Gavin Peck as CEO in January 2020 over
a protracted period as a result of COVID-19, that ultimately
resulted in a more consistent store estate and cost base. The
directors have applied judgement to conclude that the effect of the
revised allocation of central costs in 2023 should be reflected by
restating the impairment opening balances at 2 May 2021 and 1 May
2022.
The FY21 closing impairment balance relating to right-of-use
assets has increased by GBP26,681k, the closing impairment balance
relating to property, plant and equipment has increased by
GBP5,638k, and the closing impairment balance relating to
intangible assets has increased by GBP281k. The adjustment to
closing FY21 reserves is therefore GBP32,600k.
The FY22 reassessment resulted in a GBP173k higher net
impairment charge relating to right-of-use assets, a GBP479k higher
net impairment charge relating to property, plant and equipment,
and a GBP1,375k higher net impairment charge relating to intangible
assets. Therefore, the reduction in total profit before tax
relating to FY22 impairment charges is GBP2,027k. These adjustments
have resulted in the restatement of a number of reconciling items
in the consolidated cash flow statement relating to impairment
charges, reversal of impairment charges, and profit / loss on
disposal of fixed assets, however they have no overall impact on
net cash flows from operating, financing and investing activities
or on 'net increase in cash and cash equivalents'.
Depreciation reduction due to impairment restatement
As a result of the impairment adjustment detailed above the net
book value of fixed assets was lower at the start of the FY21 and
FY22, resulting in the depreciation charge in FY21 and FY22 being
overstated. The FY21 closing accumulated depreciation has been
reduced by GBP5,120k relating to right-of-use assets, GBP1,946k
relating to property, plant and equipment and GBP362k relating to
intangible assets, with a corresponding increase in closing FY21
reserves.
The FY22 in year depreciation charge has decreased by GBP4,748k
relating to right-of-use assets, GBP1,658k relating to property,
plant and equipment, and GBP239k relating to intangible assets,
increasing adjusted profit before tax by GBP6,645k. These
adjustments decrease the 'depreciation of property, plant and
equipment', 'depreciation of right-of-use assets' and 'amortisation
of intangible assets' balances in the consolidated cash flow
statement, however there is no overall impact on 'net increase in
cash and cash equivalents'.
Corporation tax restatement
The above adjustments have resulted in restatements to the
corporation tax charges, current tax assets / liabilities and the
deferred tax asset. Please refer to notes 10 and 16 for restated
taxation disclosures.
The following tables summarise the impact of the above
restatements on the Group's consolidated financial statements
including the impact of current and deferred corporation tax.
Summarised consolidated income statement
Adjustments
Per FY22 Leasehold Landlord Impairment Depreciation Taxation FY22
financial asset contributions charge charge impact restated
statements useful and legal increase reduction of balance
economic fees restatements
life incorporation
reduction within RoUA
----------- ----------- -------------- ------------ ------------- ------------- ------------
Income
statement
----------- ----------- -------------- ------------ ------------- ------------- ------------
Revenue 264,630 - - - - - 264,630
----------- ----------- -------------- ------------ ------------- ------------- ------------
Cost of sales (216,053) (425) - (2,027) 6,645 - (211,860)
----------- ----------- -------------- ------------ ------------- ------------- ------------
Gross profit 48,577 (425) - (2,027) 6,645 - 52,770
----------- ----------- -------------- ------------ ------------- ------------- ------------
Other operating
income (111) - - - - - (111)
----------- ----------- -------------- ------------ ------------- ------------- ------------
Distribution
expenses (9,128) - - - - - (9,128)
----------- ----------- -------------- ------------ ------------- ------------- ------------
Administrative
expenses (24,004) (112) - - - - (24,116)
----------- ----------- -------------- ------------ ------------- ------------- ------------
Operating
profit 15,334 (537) - (2,027) 6,645 - 19,415
----------- ----------- -------------- ------------ ------------- ------------- ------------
Net financing
expense (5,176) - - - - - (5,176)
----------- ----------- -------------- ------------ ------------- ------------- ------------
Profit before
tax 10,158 (537) - (2,027) 6,645 - 14,239
----------- ----------- -------------- ------------ ------------- ------------- ------------
Taxation (1,436) - - - - 1,160 (276)
----------- ----------- -------------- ------------ ------------- ------------- ------------
Profit after
tax 8,722 (537) - (2,027) 6,645 1,160 13,963
----------- ----------- -------------- ------------ ------------- ------------- ------------
Summarised consolidated statement of financial position
Adjustments
Per FY22 Leasehold Landlord Impairment Depreciation Taxation FY22
financial asset contributions charge charge impact restated
statements useful and legal increase reduction of balance
economic fees restatements
life incorporation
reduction within RoUA
------------ ------------ -------------- ------------ ------------- ------------- ------------
Non-current
assets
------------ ------------ -------------- ------------ ------------- ------------- ------------
Intangible
assets 2,672 - - (1,657) 602 - 1,617
------------ ------------ -------------- ------------ ------------- ------------- ------------
Property,
plant and
equipment 13,970 (2,304) 743 (6,117) 3,604 - 9,896
------------ ------------ -------------- ------------ ------------- ------------- ------------
Right-of-use
assets 94,351 - (743) (26,853) 9,866 - 76,621
------------ ------------ -------------- ------------ ------------- ------------- ------------
Deferred tax
assets 3,477 - - - - 1,231 4,708
------------ ------------ -------------- ------------ ------------- ------------- ------------
114,470 (2,304) - (34,627) 14,072 1,231 92,842
------------ ------------ -------------- ------------ ------------- ------------- ------------
Current
assets 56,487 - - - - - 56,487
------------ ------------ -------------- ------------ ------------- ------------- ------------
Total assets 170,957 (2,304) - (34,627) 14,072 1,231 149,329
------------ ------------ -------------- ------------ ------------- ------------- ------------
Liabilities
------------ ------------ -------------- ------------ ------------- ------------- ------------
Tax liability (1,115) - - - - 375 (740)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Other
liabilities (148,211) - - - - - (148,211)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Total
liabilities (149,326) - - - - 375 (148,951)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Net assets 21,631 (2,304) - (34,627) 14,072 1,606 378
------------ ------------ -------------- ------------ ------------- ------------- ------------
Equity
attributable
to equity
holders of
the Parent
------------ ------------ -------------- ------------ ------------- ------------- ------------
Retained
earnings (11,741) (2,304) - (34,627) 14,072 1,606 (32,994)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Other
reserves 33,372 - - - - - 33,372
------------ ------------ -------------- ------------ ------------- ------------- ------------
Total equity 21,631 (2,304) - (34,627) 14,072 1,606 378
------------ ------------ -------------- ------------ ------------- ------------- ------------
Adjustments
Per FY21 Leasehold Landlord Impairment Depreciation Taxation FY21
financial asset contributions charge charge impact restated
statements useful and legal increase reduction of balance
economic fees restatements
life incorporation
reduction within RoUA
------------ ------------ -------------- ------------ ------------- ------------- ------------
Non-current
assets
------------ ------------ -------------- ------------ ------------- ------------- ------------
Intangible
assets 2,463 - - (281) 362 - 2,544
------------ ------------ -------------- ------------ ------------- ------------- ------------
Property,
plant and
equipment 17,524 (1,768) 344 (5,638) 1,946 - 12,408
------------ ------------ -------------- ------------ ------------- ------------- ------------
Right-of-use
assets 112,542 - (344) (26,681) 5,120 - 90,637
------------ ------------ -------------- ------------ ------------- ------------- ------------
Deferred tax
assets 2,852 - - - - 842 3,694
------------ ------------ -------------- ------------ ------------- ------------- ------------
135,381 (1,768) - (32,600) 7,428 842 109,283
------------ ------------ -------------- ------------ ------------- ------------- ------------
Current
assets
------------ ------------ -------------- ------------ ------------- ------------- ------------
Tax asset 704 - - - - (396) 308
------------ ------------ -------------- ------------ ------------- ------------- ------------
Other current
assets 44,360 - - - - - 44,360
------------ ------------ -------------- ------------ ------------- ------------- ------------
45,064 - - - - (396) 44,668
------------ ------------ -------------- ------------ ------------- ------------- ------------
Total assets 180,445 (1,768) - (32,600) 7,428 446 153,951
------------ ------------ -------------- ------------ ------------- ------------- ------------
Total
liabilities (171,617) - - - - - (171,617)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Net assets 8,828 (1,768) - (32,600) 7,428 446 (17,666)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Equity
attributable
to equity
holders of
the Parent
------------ ------------ -------------- ------------ ------------- ------------- ------------
Retained
earnings (20,463) (1,768) - (32,600) 7,428 446 (46,957)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Other
reserves 29,291 - - - - - 29,291
------------ ------------ -------------- ------------ ------------- ------------- ------------
Total equity 8,828 (1,768) - (32,600) 7,428 446 (17,666)
------------ ------------ -------------- ------------ ------------- ------------- ------------
Summarised 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
---------------------- -------- -------- -------- ----------- -------- --------- --------
Reported balance at
1 May 2022 625 28,322 (54) 2,252 2,227 (11,741) 21,631
---------------------- -------- -------- -------- ----------- -------- --------- --------
Cumulative adjustment - - - - - (21,253) (21,253)
---------------------- -------- -------- -------- ----------- -------- --------- --------
Restated balance at
1 May 2022 625 28,322 (54) 2,252 2,227 (32,994) 378
---------------------- -------- -------- -------- ----------- -------- --------- --------
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
---------------------- -------- -------- -------- ----------- -------- --------- --------
Reported balance at
2 May 2021 625 28,322 (54) 1,601 (1,203) (20,463) 8,828
---------------------- -------- -------- -------- ----------- -------- --------- --------
Cumulative adjustment - - - - - (26,494) (26,494)
---------------------- -------- -------- -------- ----------- -------- --------- --------
Restated balance at
2 May 2021 625 28,322 (54) 1,601 (1,203) (46,957) (17,666)
---------------------- -------- -------- -------- ----------- -------- --------- --------
12. 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 12 months or less;
(ii) leases where the underlying asset has a low value; and
(iii) concession leases where the landlord has substantial
substitution rights.
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 incremental borrowing rate as the rate implicit in the lease
cannot be readily determined.
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.
Determining the lease term
Termination options are included in a number of property leases
across the Group. These terms are used to maximise operational
flexibility. At the commencement date of property leases, the Group
determines the lease term to be the full term of the lease,
assuming that any option to break or extend the lease is unlikely
to be exercised. Leases will be revalued if it becomes likely that
a break clause is to be exercised. In determining the likelihood of
the exercise of a break option, management considers all facts and
circumstances that create an economic incentive to exercise the
termination option. For property leases, the following factors are
the most relevant:
-- the profitability of the leased store and future plans for the business; and
-- 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 is 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 statement of financial position
Right-of-use assets
FY22
(Restated
-
FY23 Note 11)
GBP000 GBP000
-------------------------- ------- ----------
Land and buildings 66,794 75,608
Plant and equipment 669 1,013
-------------------------- ------- ----------
Total right-of-use assets 67,463 76,621
-------------------------- ------- ----------
Additions to the right-of-use assets during FY23 were GBP9,543k
(FY22: GBP3,048k).
Lease liabilities
Lease liabilities included in the statement of financial
position as at the financial year end:
FY23 FY22
GBP000 GBP000
------------ ------- --------
Current 23,449 25,434
Non-current 74,766 85,702
------------ ------- --------
98,215 111,136
------------ ------- --------
Maturity analysis - contractual undiscounted cash flows:
FY23 FY22
GBP000 GBP000
------------------------------------- -------- --------
Less than one year 27,163 31,592
One to two years 22,926 27,283
Two to three years 18,039 23,655
Three to four years 12,944 18,977
Four to five years 9,185 13,102
More than five years 21,718 21,862
------------------------------------- -------- --------
Total undiscounted lease liabilities 111,975 136,471
------------------------------------- -------- --------
Amounts recognised in the statement of profit and loss
FY22
(Restated
-
FY23 Note 11)
GBP000 GBP000
---------------------------------------------------- -------- ----------
Depreciation charge on right-of-use assets (RoUA) 14,840 15,094
Interest cost on lease liability 4,130 4,500
Profit on disposal of RoUA / lease liability (1,105) (441)
Foreign exchange difference on euro leases (152) 120
Additional impairment charge under IAS 36 3,564 71
---------------------------------------------------- -------- ----------
Operating lease rentals - hire of plant, equipment
and motor vehicles
- Low-value leases 371 389
---------------------------------------------------- -------- ----------
Total plant, equipment and motor vehicle operating
lease rentals 371 389
---------------------------------------------------- -------- ----------
Operating lease rentals - store leases
- Stores with variable lease rentals 877 454
- Concession leases (the landlord has substantial
substitution rights) 977 943
- Low-value leases 13 (11)
- Lease is expiring within 12 months or has rolling
break clauses 53 87
- Lease has expired 397 484
- Variable lease payments as a result of COVID-19
concessions (181) (408)
---------------------------------------------------- -------- ----------
Total store operating lease rentals 2,136 1,549
---------------------------------------------------- -------- ----------
Depreciation of right-of-use asset by class:
FY22
(Restated
-
FY23 Note 11)
GBP000 GBP000
-------------------------------------- ------- ----------
Land and buildings 14,483 14,662
Plant and equipment 357 432
-------------------------------------- ------- ----------
Total right-of-use asset depreciation 14,840 15,094
-------------------------------------- ------- ----------
13. Deferred tax assets
Recognised deferred tax assets
Deferred tax assets are attributable to the following:
Assets Liabilities
---------------------- ----------------------
FY22 FY22
(Restated(1) (Restated(1)
FY23 ) FY23 )
GBP000 GBP000 GBP000 GBP000
------------------------------ ------- ------------- ------- -------------
Property, plant and equipment 2,876 2,868 - -
Leases 1,362 1,645 - -
Temporary timing differences 354 195 - -
Financial assets/liabilities 262 - - -
------------------------------ ------- ------------- ------- -------------
Tax assets 4,854 4,708 - -
------------------------------ ------- ------------- ------- -------------
Movement in deferred tax during the year
Temporary Financial
timing assets/
Fixed assets Leases differences liabilities Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------------------ ------------ ------- ------------ ------------ -------
At 1 May 2022 (Restated(1) ) 2,868 1,645 195 - 4,708
Adjustment in respect of prior years (499) - - (598) (1,097)
Deferred tax (charge)/credit to profit and loss 507 (283) 159 - 383
Deferred tax credit in equity profit and loss - - 860 860
------------------------------------------------ ------------ ------- ------------ ------------ -------
At 30 April 2023 2,876 1,362 354 262 4,854
------------------------------------------------ ------------ ------- ------------ ------------ -------
(1) The FY22 deferred tax asset has been restated to reflect the
tax impact of the restatements documented in Note 11.
Movement in deferred tax during the prior year
Temporary Financial
timing assets/
Fixed assets Leases differences liabilities Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------------------------- ------------ ------- ------------ ------------ -------
At 1 May 2022 (Restated(1) ) 1,574 1,420 372 328 3,694
Adjustment in respect of prior years - - (216) - (216)
Deferred tax (charge)/credit to profit and loss
(Restated(1) ) 1,294 225 39 (328) 1,230
Deferred tax credit in equity profit and loss - - - - -
---------------------------------------------------------- ------------ ------- ------------ ------------ -------
At 1 May 2022 (Restated(1) ) 2,868 1,645 195 - 4,708
---------------------------------------------------------- ------------ ------- ------------ ------------ -------
(1) The FY22 deferred tax asset has been restated to reflect the
tax impact of the restatements documented in Note 11.
Tax losses carried forward for which no deferred tax asset has
been recognised total GBP9,273k (FY22: GBP14,288k) with an expiry
date of April 2024.
14. 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
FY23 FY22
GBP000 GBP000
------------------------------------------------------ ------- -------
Gross stock value 31,278 29,817
Less: stock provisions for shrinkage and obsolescence (1,037) (3,252)
------------------------------------------------------ ------- -------
Goods for resale net of provisions 30,241 26,565
Stock in transit 3,200 2,822
------------------------------------------------------ ------- -------
Inventory 33,441 29,387
------------------------------------------------------ ------- -------
The cost of inventories recognised as an expense during the
period was GBP119.1m (FY22: GBP107.7m).
Stock provisions
The Group makes provisions in relation to stock quantities, due
to potential stock losses not yet reflected in the accounting
records, commonly referred to as unrecognised 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.
Shrinkage provision
During the prior financial year, the Group 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) had been performed in 71 stores during the
last 6 weeks of the financial year, with an additional 53 four wall
counts performed in the month following the financial year end.
During FY23, full four wall counts were performed in 524 stores
during the last 13 weeks of the financial year. Through these
counts, the Group established that its accounting records reflected
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 the stock counts, which
occurred nearer to the end of the financial year than the counts
undertaken in FY22, as a result of which, the provision required
for unrecognised shrinkage materially decreased compared with the
value at the end of FY22, by GBP1.4m to GBP0.4m.
The unrecognised shrinkage provision was GBP0.4m at the Period
end (FY22: GBP1.9m), representing 1.9% of gross store stock (FY22:
8.6%). The provision relates to store stock with a value of
GBP20.9m (FY22: GBP22.2m). This represents management's best
estimate of the likely level of stock losses experienced.
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 FY23, 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 GBP0.7m to GBP0.6m.
The Group has considered the impact of customer preferences and
ESG considerations on potential stock obsolescence, and these
factors are not deemed to have a material impact on the level of
provision required.
15. Trade and other receivables
FY23 FY22
GBP000 GBP000
---------------------------- ------- -------
Current
Trade receivables 2,864 2,606
Other receivables 359 1,793
Prepayments 4,284 4,028
---------------------------- ------- -------
Trade and other receivables 7,507 8,427
---------------------------- ------- -------
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 (FY22: 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.
16. Cash and cash equivalents
FY23 FY22
GBP000 GBP000
-------------------------------------------- ------- -------
Cash and cash equivalents per balance sheet 10,196 16,280
-------------------------------------------- ------- -------
Net cash and cash equivalents 10,196 16,280
-------------------------------------------- ------- -------
The Group's cash and cash equivalents are denominated in the
following currencies:
FY23 FY22
GBP000 GBP000
------------------------------ ------- -------
Sterling 8,208 12,198
Euro 1,949 3,102
US dollar 39 980
------------------------------ ------- -------
Net cash and cash equivalents 10,196 16,280
------------------------------ ------- -------
At 30 April 2023, the Group held net cash (excluding lease
liabilities) of GBP10.2m (FY22: net cash (excluding lease
liabilities) of GBP16.3m). This comprised cash of GBP10.2m (FY22:
cash of GBP16.3m).
For the year ended 30 April 2023, the Group's bank facilities
comprise an RCF of GBP30.0m expiring 30 November 2025. Since the
Period end, the facility was extended by a year and reduced in size
by GBP10.0m.
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.
None of the Group's cash and cash equivalents (FY22: GBPNil) is
held by the trustee of the Group's employee benefit trust in
relation to the share schemes for employees.
17. 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 30 April 2023, all borrowings were denominated in
sterling (FY22: sterling).
FY23 FY22
GBP000 GBP000
------------------------ ------- -------
Non-current liabilities
Lease liabilities 74,766 85,702
------------------------ ------- -------
Non-current liabilities 74,766 85,702
------------------------ ------- -------
Current liabilities
Lease liabilities 23,449 25,434
------------------------ ------- -------
Current liabilities 23,449 25,434
------------------------ ------- -------
Reconciliation of borrowings to cash flows arising from
financing activities
FY23 FY22
GBP000 GBP000
--------------------------------------------------- --------- ---------
Borrowings at start of year (excluding overdrafts) 111,136 143,009
--------------------------------------------------- --------- ---------
Changes from financing cash flows
Payment of lease liabilities (capital) (22,672) (25,969)
Payment of lease liabilities (interest) (4,130) (4,500)
Proceeds from loans and borrowings(1) 4,000 -
Repayment of bank borrowings(1) (4,000) (7,500)
--------------------------------------------------- --------- ---------
Total changes from financing cash flows (26,802) (37,969)
--------------------------------------------------- --------- ---------
Other changes
Lease liability additions 10,991 3,634
Disposal of lease liabilities (1,402) (2,340)
The effect of changes in foreign exchange rates 152 (120)
Interest expense 4,140 4,922
--------------------------------------------------- --------- ---------
Total other changes 13,881 6,096
--------------------------------------------------- --------- ---------
Borrowings at end of year (excluding overdrafts) 98,215 111,136
--------------------------------------------------- --------- ---------
1 GBP4.0m was drawn under the Group's RCF from 29 September 2022 until 31 October 2022.
Net debt reconciliation
FY23 FY22
GBP000 GBP000
--------------------------------------------- -------- --------
Net debt (excluding unamortised debt costs)
Cash and cash equivalents (10,196) (16,280)
--------------------------------------------- -------- --------
Net bank cash (10,196) (16,280)
Non-IFRS 16 lease liabilities 268 485
--------------------------------------------- -------- --------
Non-IFRS 16 net cash (9,928) (15,795)
IFRS 16 lease liabilities 97,946 110,651
--------------------------------------------- -------- --------
Net debt including IFRS 16 lease liabilities 88,018 94,856
--------------------------------------------- -------- --------
18. Trade and other payables
FY23 FY22
GBP000 GBP000
------------------------------ ------- -------
Current
Trade payables 22,960 20,091
Other tax and social security 2,610 2,792
Accrued expenses 8,909 13,075
------------------------------ ------- -------
Trade and other payables 34,479 35,958
------------------------------ ------- -------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and operating costs. The Group has
financial risk management policies in place to ensure that all
payables are paid within 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 GBP484k (FY22: GBP453k)
of deferred income in relation to the customer loyalty scheme. The
decrease in the balance from FY22 is due to a decrease in the bonus
accrual held at year end.
The Group has net US dollar denominated trade and other payables
of GBP6.6m (FY22: GBP4.9m).
19. Provisions and contingent liabilities
Accounting policy
Provisions are recognised when the Group has a present
obligation as a result of a past event, and it is probable that the
Group will be required to settle that obligation. Provisions are
the best estimate of the expenditure required to settle the
obligation at the end of the reporting period and are discounted to
present value where the effect is material.
HMRC VAT Property Total
GBP000 GBP000 GBP000
-------------------------------- -------- -------- -------
Balance as at 3 May 2021 - 718 718
Provisions made during the year - 399 399
-------------------------------- -------- -------- -------
Balance as at 1 May 2022 - 1,117 1,117
Provisions made during the year 514 450 964
Provisions used during the year - (218) (218)
Balance as at 30 April 2023 514 1,349 1,863
-------------------------------- -------- -------- -------
Maturity analysis of cash flows:
HMRC VAT Property Total
GBP000 GBP000 GBP000
------------------------------- -------- -------- -------
Due in less than one year 514 51 565
Due between one and five years - 760 760
Due in more than five years - 538 538
514 1,349 1,863
------------------------------- -------- -------- -------
Property provision
In accordance with IAS 37 Provisions, the Group recognises
provisions for the cost of reinstating certain Group properties at
the end of their lease term, based on the conditions set out in the
terms of the individual leases. The timing of the outflows will
match the ends of the relevant leases, which range from 1 to 10
years for stores and 13.2 years for the head office. The average
remaining term of the store estate is 4.8 years.
HMRC VAT provision
HMRC initiated a VAT review in August 2022 in respect of FY19 to
FY22 and have reviewed 4 years of sales data. In the initial output
of their review, HMRC have identified a number of areas where they
disagree with the VAT treatment applied by the business.
Management accepts that there is a possibility that the VAT rate
charged is incorrect for some SKUs under review, predominantly
activity sets that include books and activity resources, and that
the rate may be concluded to be mixed or standard rate. HMRCs view
is that these rates are not zero, and therefore we believe it
appropriate to recognise a provision for a potential liability for
GBP514k on the basis that 50% of the SKUs under review are
concluded to be standard rated, and the 50% mixed rated.
20. 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:
FY23 FY22
GBP000 GBP000
-------------------------------------------------------- ------- -------
Key management remuneration - including social security
costs 3,132 2,077
Pension contributions 184 134
Long-Term Incentive Plan - including social security
costs 313 621
-------------------------------------------------------- ------- -------
Total transactions with key management personnel 3,629 2,832
-------------------------------------------------------- ------- -------
Further details on the compensation of key management personnel
who are Directors are provided in the Group's Directors'
remuneration report.
21. 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%
------------------------------ --------- ---------- ---------- -------- ---------
Principal risks and uncertainties
Risk management framework
The Board is 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 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. Senior management determines the potential risks that
could affect their areas of responsibility and the likelihood and
impact. This information is used to create the Group's primary risk
register and capture 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 conducts a robust assessment of 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 November 2022. This review included discussions with
members of the Operations Board 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 2023, March 2023 and July 2023.
A climate risk workshop, facilitated by INESG, the Group's
specialist third-party ESG consultancy, was held in August 2022.
Members of the Operations Board participated in the workshop which
covered: an introduction to climate change and climate scenarios;
risk classification; transition and physical risks identified; and
how to approach climate change as a material risk to the business.
Using the outputs from the workshop the Group's first climate risk
register was developed and subsequently reviewed and approved by
the Board in January 2023.
The principal risks and uncertainties facing the Group as at the
date of its FY23 Annual Report are set out in order of priority the
following pages, together with details of how these are currently
mitigated.
During the year the main changes to the principal risks were as
follows:
-- Removal of COVID-19 risk: Given the significantly reduced
impact of risks associated with COVID-19 this risk is no longer
considered to be a principal risk.
-- Renaming of 'Market' risk: The 'Market' risk has been renamed
'Design and execution of strategy', and has been altered to reflect
the importance of the Group's strategy and the direct correlation
between successful strategic execution and market performance. This
risk has also been assessed as having a high priority and ranked
accordingly.
During the year a geopolitical emerging risk was identified.
Approximately two thirds of the Group's stock is sourced from China
and if drastic economic sanctions were to be imposed on China this
could have a material impact on the Group's ability to obtain
stock. Moving the product mix away from goods sourced from China
could mitigate this risk; however, a significant lead time would be
required to do this. Currently the probability of this risk
crystallizing is considered to be very low. Accordingly, this
emerging risk will be maintained on our secondary risk register and
we will continue to monitor it.
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 macro-economic * Take account of expected impact in the strategic
conditions or a reduction in consumer planning process, budgets and forecasts.
confidence could impact customer
spending and reduce the Group's
revenue and profitability. * Control costs while making carefully considered
Change from prior year investments in certain areas to support growth.
Increased risk level. Inflation
remains high and the cost-of-living
challenge looks likely to persist * Increase direct sourcing to improve gross margin.
for some time. Although we have While this initiative was delayed by COVID-19 in
not yet observed any quantifiable China, momentum should increase in FY24.
effect on our business, this could
impact consumer spending and, as
a result, the Group's sales. The * Operate stores on flexible short-term leases to
current economic environment, including benefit from reductions in rents through the rolling
the following issues, is also causing renegotiation of leases.
costs to be higher which could
impact profitability:
Raw materials and energy costs. * Store estate can be adapted relatively quickly in the
Our energy rates are hedged in event of material local changes in demand.
the short term, but at higher rates
than those which prevailed historically.
Continued increases in National
Living and Minimum Wages - affects
the business because most of the
Group's colleagues are paid the
National Minimum or Living Wage.
Geopolitical issues, including
the Russian invasion of Ukraine,
which has had direct inflationary
effects.
FX rates. The pound is now stronger
compared with the dollar than during
certain points in FY23. There is
reduced risk in FY24 due to the
Group's hedging policies, although
we remain indirectly exposed to
FX rates, through indirect sourcing
which represents approximately
60% of purchases for resale.
Freight rates, which have significantly
affected our costs in recent years,
are now at pre-COVID levels, and
are not expected to represent a
threat for the foreseeable future.
--------------------------------------------------------------
2. Design and execution of strategy
(previously 'Market' risk) * Increased strategic focus on developing the brand and
The Group generates its revenue increasing customer engagement to further
from the sale of books, toys and differentiate the Group from competitors.
games, arts and crafts and stationery.
Although it has a track record
of understanding customers' needs * Emerging trends monitored by a recently strengthened
for these products, the market trading team that has a track record of responding to
is competitive. Customers' tastes changing consumer tastes.
and shopping habits can change
quickly. Failure to effectively
predict or respond to changes could * Monitor competitors' propositions and discuss key
affect the Group's sales and financial developments at weekly trading meetings and at Board
performance. level on a regular basis.
Failure to effectively execute
the 'better, not just bigger' strategy
(e.g. due to insufficient capacity * Monitor and review customer feedback.
or inadequate capability) would
have an adverse impact on the Group's
ability to grow, particularly if * Use sales data and online feedback channels to inform
the envisaged sales growth drivers purchasing and marketing decisions.
fail to increase sales. Furthermore
achieving increased sales growth
could be more challenging if consumer * Flexible lease terms allow the Group to adapt its
confidence is impacted by deteriorating store portfolio (which continues to be highly
economic conditions. relevant to customers) to suit evolving shopping
Change from prior year habits.
Increased risk level. The Board
believes that the previous risk
rating needs to increase to reflect * Ongoing investment in the Group's online capability
the significant impact this risk ensures complementary digital and store propositions,
could have on the profitability as customers increasingly engage with both channels.
of the Group and therefore increased
the risk rating.
* Significant investments have been made to date and
further investment is planned in FY24 to drive
operational improvements.
--------------------------------------------------------------
3. Supply chain
The Group uses third parties, including * Strengthened buying and supply chain teams and
many in Asia, for the supply of further investment is ongoing in FY24.
products. Risks include the potential
for supplier failures, risks associated
with manufacturing and importing * Ongoing review of supplier base and diversification
goods from overseas, potential and change implemented as appropriate to provide
disruption at various stages of flexibility and reduce reliance on individual
the supply chain and suppliers suppliers.
failing to act or operate ethically.
Failure to execute the restructuring
of the supply chain team successfully * Independent monitoring of suppliers undertaken by
to implement necessary changes third-party auditors with local country knowledge and
to the stock process could prevent an understanding of social and ethical requirements.
the right stock getting to the
right stores at the right time
and materially impact sales growth. * In-house product quality assurance team undertakes
Supply chain disruption due to product testing as part of a product surveillance
COVID-19 restrictions potentially test programme.
being maintained in certain parts
of the world, particularly China,
could cause disruption to stock * Implement policies that reinforce the Group's values
availability and cost inflation. and its commitment to conduct business fairly,
Any significant increase in geopolitical ethically and with respect to human rights which
tensions between the West and China suppliers are required to adhere to.
could affect the ability to purchase
stock.
Due to the Group's low level of * Proactive management of supply chain to ensure stock
exposure to sales outside the UK levels are appropriate.
risks connected with Brexit are
low.
Change from prior year * Continue to review freight costs (including measures
Unchanged level of risk. to mitigate them) and monitor alternative sourcing
arrangements where practicable.
--------------------------------------------------------------
4. IT systems and cyber security
The Group relies on key IT systems. * Modern two-factor authentication for access, combined
Failure to develop and maintain with up-to-date end point detection capabilities (to
these, or any prolonged system monitor devices and assess unexpected/risky activity)
performance problems or lack of and network segmentation, lowers the probability of
service, could affect the Group's malicious entry and speed of movement of malware
ability to trade and/or could lead across the business.
to significant fines and reputational
damage.
Reliable systems and data integrity * 24/7/365 Security Operations Centre, established in
are key to the execution of the FY23, monitors and responds to any unusual activities
strategy. Ensuring systems and in systems or networks.
processes are fit for purpose will
enable the delivery of improvements
to the proposition. * Enhanced working from home capabilities established
Change from prior year in response to the pandemic have reduced the level of
Reduced risk. The Group experienced dependence on a single-site head office.
a cyber security incident at the
end of March 2022. Actions taken
in response to the incident have * Regular IT investment strategy review undertaken by
significantly reduced the risk the Operations Board, including security and
of the business suffering major infrastructure investment programmes.
loss or disruption in the event
of subsequent attacks.
* Further strengthened in-house IT capabilities during
FY23.
--------------------------------------------------------------
5. Brand and reputation
The Group's brand is vital to its * Communicate to colleagues our clarified purpose and
success. Failure to protect the values.
brand, in particular product quality
and safety, could result in the
Group's reputation, sales and future * Provide intellectual property guidance and education
prospects being adversely affected. to design and sourcing teams.
Diversity and inclusion issues
have become more prominent in customer
preferences; failure to stock a * Monitor customer product reviews and take appropriate
diverse range of products and ensure action to remove products from sale and take other
inclusivity could create reputational actions as appropriate where quality issues are
damage. identified.
Change from prior year
Unchanged level of risk. Developing
our brand and increasing customer * In-house product quality assurance team works with
engagement is a strategic aim. suppliers to ensure product quality, safety and
In autumn 2022 we launched an updated ethical production.
brand to ensure that the visual
representation and tone of voice
of The Works aligns with its purpose * Conduct third-party technical and ethical audits.
and reflects the more modern, fun
and engaging business we are today.
* Monitor the Group's ESG responsibilities and
implement processes to ensure the Group operates in a
responsible way.
* Recruiting a D&I manger to lead our D&I strategy
including reviewing our product range to ensure
inclusivity.
* Operate brand tracking that provides feedback from
customers and highlights potential brand damaging
issues.
--------------------------------------------------------------
6. Seasonality of sales
The Group generally makes substantially * Continue to develop the year-round appeal of the
all of its profit in the second proposition.
half of the financial year during
the peak Christmas trading period.
Interruptions to supply, adverse * Hold weekly trading meetings to ensure that immediate
weather or a significant downturn action is taken to maximise sales based on current
in consumer confidence or a failure and expected trading conditions.
to successfully execute strategy
in this period could have a significant
impact on the short-term profitability * Plan rigorously for product proposition, supply chain
of the Group. and retail operations to ensure the success of the
Change from prior year peak Christmas trading period.
Unchanged level of risk.
--------------------------------------------------------------
7. People
The Group's success is strongly * Discuss and review succession plans at Nomination
influenced by the quality of the Committee meetings.
Board, senior management team and
staff generally. A lack of effective
succession planning and development * Establish development programmes to support future
of key colleagues could harm future leaders.
prospects.
Change from prior year
Unchanged level of risk. * Operate the 'Can Do Academy' to facilitate training
and development.
* Launched a new employee communications and engagement
platform MyWorks.
* Well-managed search and recruitment processes,
together with appealing proposition and welcoming
culture, enables recruitment of high-calibre
executives.
* Implement a Remuneration Policy designed to ensure
management incentives support the Group's long-term
success for the benefit of all stakeholders,
including a Long-Term Incentive Plan for Executive
Directors and restricted share awards for Operations
Board members.
--------------------------------------------------------------
8. Environmental (including climate
change) * An ESG steering group meets quarterly and reports to
There is an increased focus on the Board and the Operations Board on a regular
sustainable business from consumers basis.
and regulators. In our business
this applies to products and packaging
in particular. Failure to respond * Implementing initiatives to reduce our impact on the
to these demands could affect the environment.
Group's reputation, sales and financial
performance.
Supply chain disruptions due to * Retain specialist third-party ESG consultancy,
more extreme weather events created Inspired Energy, to assist in the further development
as a result of global warming could of the Group's environmental strategy and ensure
damage operations, in particular compliance with TCFD requirements.
the flow of stock which could adversely
impact sales.
There are increased reporting and * Appointed a Sustainability Manager in January 2023 to
disclosure requirements relating lead the development and implementation of our
to climate change and environmental environmental strategy.
impact including new taxes, regulation
and compliance risks as noted in
risk 9 below. * Working with third-party logistics providers to
Change from prior year explore and invest in energy efficient solutions
Increased level of risk. Reporting within the supply chain.
and disclosure requirements are
continuing to increase and achievement
of the Group's longer-term environmental * Developed a climate risk register.
ambitions are dependent on effective
implementation of the Group's sustainability
strategy and suppliers taking steps
to reduce their environmental footprint.
--------------------------------------------------------------
9. Regulation/compliance
The Group is exposed to an increasing * 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 both
Rules. Failure to comply with these mandatory requirements and measures the Group has
laws and regulations could lead adopted voluntarily (e.g. anti-bribery and corruption,
to financial claims, penalties, adherence to National Living Wage requirements).
awards of damages, fines or reputational
damage which could significantly
impact the financial performance * Operate a Whistleblowing Policy and procedure which
of the business. enable colleagues to confidentially report any
There are extensive and increasingly concerns or inappropriate behaviour.
onerous laws and regulations (including
reporting and disclosure requirements)
surrounding climate change and * Operate a GDPR Policy which is overseen by a suitably
environmental reporting. Failure experienced data supervisor and monitored by members
to comply with these could result of a GDPR governance monitoring group who meet
in financial penalties, legal consequences regularly and report key issues to the senior
and/or reputational damage. management team.
Change from prior year
Unchanged level of risk.
* Retain experienced advisers where necessary to cover
gaps in expertise in the in-house team.
--------------------------------------------------------------
10. Liquidity
Insufficient liquidity available * Financial forecasts and covenant headroom monitored
and/or insufficient headroom in and reported to the Board and the bank monthly.
banking facilities. Potential for
breach of banking covenants if
financial performance is significantly * Strategy focuses on driving like-for-like sales and
worse than forecast. improving efficiency, rather than previous store
Availability of credit insurance rollout plan, which is a less capital intensive
to suppliers may be reduced or strategy.
removed resulting in an increased
cash requirement.
Change from prior year * The Group's bank facility at year end FY23 comprised
Unchanged level of risk. a committed RCF of GBP30m with an expiry date of 30
November 2025. Since the Period end, the Group has
implemented a reduction in the size of the facility,
which was undrawn throughout most of FY23, to
GBP20.0m, and simultaneously extended its term such
that it now expires on 30 November 2026.
* Careful management of banking relationship increases
the likelihood of a supportive response in the event
that it should be needed.
--------------------------------------------------------------
11. Business continuity
Significant disruption to the operation, * IT recovery plans fully tested in the response to the
in particular internal IT systems, March 2022 cyber security incident.
Support Centre or Distribution
Centre, could severely impact the
Group's ability to supply stores * Implemented new cloud back-ups which improve the
or fulfil online sales resulting flexibility of any disaster recovery plan response.
in financial or reputational damage.
Change from prior year
Unchanged level of risk. * Enhanced business continuity plan in place including
system recovery.
* Subscribe to a cloud-based technology recovery centre
to improve speed and execution of a recovery.
* Undertake disaster recovery dry run exercises.
Emergency generator installed at the Group's Support
Centre to insulate the business from the impact of
power cuts.
* Maintain appropriate business interruption insurance
cover.
--------------------------------------------------------------
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END
FR PPUCWRUPWPWB
(END) Dow Jones Newswires
August 30, 2023 02:00 ET (06:00 GMT)
Grafico Azioni Theworks.co.uk (LSE:WRKS)
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Grafico Azioni Theworks.co.uk (LSE:WRKS)
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