TIDMWRKS
RNS Number : 5317M
TheWorks.co.uk PLC
22 January 2021
22 January 2021
TheWorks.co.uk plc
("The Works", the "Company" or the "Group")
Interim results for the 26 weeks ended 25 October 2020
Robust financial performance against backdrop of COVID-19
pandemic
TheWorks.co.uk plc, the multi-channel value retailer of gifts,
arts, crafts, toys, books and stationery, announces its interim
results for the 26 weeks ended 25 October 2020 (the "Period" or "H1
FY21") and an update on current trading.
Financial highlights
-- Group revenue was impacted by the enforced temporary closure of the Group's retail stores for the first 7 weeks
of the Period, resulting in a 7.8 per cent. decline on H1 FY20.
-- LFL (1) sales increased 10.6 per cent. for the 19 weeks ended 25 October 2020, significantly ahead of the Board's
expectations; this excludes the 7 week period when stores were closed.
-- Store LFL sales were broadly level with last year, with online sales approximately double last year's over the 19
week period.
-- Pre IFRS 16 adjusted EBITDA was GBP1.5m compared with a loss of GBP3.9m during H1 FY20.
-- Reported loss before tax for the period of GBP4.3m (H1 FY20: loss of GBP8.5m).
-- The Group's strong financial position helps mitigate against the effect of future lockdown restrictions. Much
improved year on year liquidity with net cash at Period end (excluding leases) of GBP11.3m(4) (H1 FY20 net bank
borrowings of GBP14.1m).
H1 FY21 H1 FY20
Restated(2)
GBPm GBPm
------------------------------------------ ---------- -------------
Revenue GBP88.9m GBP96.4m
Revenue (decline)/growth (7.8%)(5) 5.4%
LFL sales growth(1) 10.6% (3.6%)
Pre IFRS 16 adjusted(3) EBITDA GBP1.5m (GBP3.9m)
Reported loss before tax (GBP4.3m) (GBP8.5m)
Adjusted(3) loss before tax (GBP4.1m) (GBP7.8m)
Reported basic loss per share (pence) (5.2) (10.3)
Adjusted(3) basic loss per share (pence) (5.0) (9.3)
Pre IFRS 16 net cash at bank/( bank GBP11.3m (GBP14.1m)
debt )
IFRS 16 impact on profit before tax (GBP1.0m) (GBP0.3m)
Adjusting items before tax excluded (GBP0.2m) (GBP0.7m)
from Adjusted(2) results
Operational highlights
-- When open, stores delivered LFL sales growth reflecting the ongoing appeal and relevance of our proposition to a
broad range of customers, particularly during periods of social distancing restrictions. For example, we collated
art, craft, jigsaws and books under a "Beat The Boredom" offer.
-- Accelerated development of our online proposition, including launching a new web platform, significantly
increasing fulfilment capacity and step-changing online profitability by reducing promotional activity, lowering
marketing spend and driving efficiencies in our fulfilment operations.
-- Continued our active store portfolio management strategy, closing a net 4 stores (2 new openings, 2 relocations
and 6 closures) alongside delivering a further reduction in existing store rents, whilst retaining flexibility
(just over 2 years on average to next lease exit or break).
-- Continued focus on cost control, with savings being realised through driving store and supply chain efficiencies,
lower store property costs and lower discretionary spend.
-- Utilised Government COVID-19 support schemes (including business rates relief and Job Retention Scheme) to help
reduce the net impact of COVID-19 on the business.
Trading update for the 11 weeks ended Sunday 10 January 2021
Sales during the 11 weeks since the end of H1 FY21 have been
impacted by a further series of restrictions on trading(6) imposed
by the Government as part of its response to the COVID-19
pandemic.
As a result of these closures, total sales declined by 24.8 per
cent. for the 11 weeks compared to the corresponding period in H2
FY20. During the same period and, taking into account sales from
stores that were open and online sales, the business delivered 23.8
per cent. like-for-like growth, with both stores and online showing
positive growth.
Online sales remained strong throughout and were approximately
70 per cent. higher than the previous year. We believe that this
performance represents a successful balance between increasing
capacity to meet significantly higher demand than originally
envisaged, whilst managing the additional costs.
Gavin Peck, Chief Executive Officer of The Works, commented:
"Our interim results and trading over the crucial Christmas
period reflect a robust performance given the impact of store
closures as a result of Government restrictions. When open, our
stores have performed well and our online proposition has continued
to resonate strongly, supported by the investment we made to
increase online capacity. Our ability to continue to safely serve
our customers and communities through these unsettling periods is
thanks to the ongoing commitment and hard work of fantastic
colleagues across the business, something I am incredibly proud
of.
"With our stores temporarily closed, we are, once again,
focussed on maximising sales through our online operations and
carefully controlling costs whilst ensuring that we are able to
reopen safely when restrictions allow. We are in a strong financial
position to face the current challenges and we remain confident in
the medium-term growth potential of the business, particularly
given the evident ongoing relevance of our proposition."
Interim results presentation
A presentation for analysts will be held today at 9.30am via
video conference call. If you would like to attend, please contact
theworks@teneo.com. A copy of the presentation will shortly be made
available on the Company's website
(www.theworksplc.co.uk/investors).
Enquiries:
TheWorks.co.uk plc via Teneo
Gavin Peck, CEO
Steve Alldridge, Interim
CFO
Teneo
Ben Foster +44 7776 240806 |
Haya Herbert-Burns +44 7342 031051 | theworks@teneo.com
Polly Lambert +44 78269 16579 |
Footnotes:
([1]) LFL sales are defined as the year-on-year growth in gross
sales from stores which have been opened for a full 63 weeks (but
excluding sales from stores closed for all or part of the relevant
period or prior year comparable period), and from the Company's
online store, calculated on a calendar week basis. LFL sales for H1
FY21 are for the 19 weeks ended 25 October 2020 (the period
following the reopening of stores which were closed from March to
mid-June 2020 due to the COVID-19 restrictions on trading).
([2]) As a result of the COVID-19 pandemic and consequential UK
Government restrictions on trading, the Group classified impairment
charges as adjusting items for the first time in its FY20 Annual
Report and Accounts. To be consistent, the FY20 interim results
have been restated on a comparative basis.
The restatement of the prior year has no impact on the prior
year's statutory measures of reported profit or on the Group's cash
flows or financial position for the 26 weeks ended 27 October 2019.
The prior year's adjusted profit measures have increased by
GBP0.3m, being the net store impairment charge for that period.
([3]) Adjusted profit figures exclude Adjusting items. See note
1 (c) and note 6 of the attached condensed unaudited financial
statements for further details.
(4) This figure is higher than the GBP8.4m included in the
trading update of 5 November 2020, which represented the cleared
funds on the final banking day of the Period and therefore excluded
the accrued takings from the final two days of the Period, less any
uncleared payments.
(5) Please refer to the Revenue section for a reconciliation
between the statutory revenue figures included in the condensed
unaudited financial statements and the sales figures including VAT
which are used as the basis for reporting non-statutory sales
metrics. On a non-statutory basis, the sales decline for the period
was 7.1 per cent..
(6) The restrictions on trading affected different parts of the
country at different times, including the temporary closure of
approximately 85 per cent. of the Group's retail stores during
November and early December followed by approximately three weeks
when most stores were permitted to trade, then a further period of
temporary store closures beginning with the closure of 27 per cent.
of the stores on Sunday 20 December. Progressively more stores were
affected such that by 31 December, 82 per cent. of stores were
temporarily closed. The remaining stores were required to close as
the country re-entered full lockdown on 5 January 2021.
Notes for editors:
TheWorks.co.uk plc is one of the UK's leading multi-channel
value retailers of gifts, arts & 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 532 stores in the UK &
Ireland with a variety of location types including traditional
high-streets, retail parks, shopping centres, factory outlets and
concessions. The Works also has a significant and growing online
presence that complements the store offer and enables customers to
shop any time of the day, and from an extended range of products
not always available in stores.
Cautionary statement
This announcement is based on information from condensed
unaudited financial statements and may contain certain
forward-looking statements with respect to the financial condition,
results of operations, and business of TheWorks.co.uk plc. 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, TheWorks.co.uk plc
has no obligation to update the forward-looking statements or to
correct any inaccuracies therein.
Chief Executive's report
The first half of the financial year has clearly been
challenging for The Works, as it has for the wider retail sector,
given the ongoing impact of COVID-19 and the Government's
restrictions on trading. However, our proposition has been shown to
be more relevant than ever, as demonstrated by our performance
outside of enforced temporary store closures. That, along with the
many exciting opportunities we see ahead of us, means we remain as
confident as ever in our ability to deliver medium-term growth and
value for all of our stakeholders once the trading environment
normalises.
Overview
Our trading performance in the first half was impacted by the
enforced temporary closure of our stores for the first 7 weeks of
the Period, resulting in total revenue for the Period being down
7.8 per cent. on the previous year. However, excluding those first
7 weeks of enforced temporary closures, overall LFL sales increased
by 10.6 per cent. (in the 19 weeks ended Sunday 25 October 2020),
demonstrating the strong customer demand for our products. This
performance reflected broadly flat store LFL sales, with average
transaction values significantly higher than last year, offsetting
a reduction in the number of transactions due to lower retail
footfall, and a strong online performance, with sales approximately
double last year's.
Despite the lower sales in the Period we were able to deliver an
improved profit performance, including a positive H1 FY21 EBITDA,
with an Adjusted loss before tax of GBP4.1m versus a loss of
GBP7.8m in the previous year (the first half is typically
loss-making given the seasonal nature of our business, with the key
Christmas trading period occurring in the second half of the year).
This improved profit performance reflects our focus on improving
product margins and tight cost control, supported by utilisation of
the available Government support schemes (including business rates
relief and the Coronavirus Job Retention Scheme).
Strategy
At the start of 2020, we announced a refocus of our four pillar
growth strategy, reducing the number of store openings with a view
to driving improved performance in our existing store estate and
increasing our focus on cost control whilst continuing to develop
our digital channel. This action was important to ensure that the
business was well-placed to deliver profitable growth in the medium
term. This refocus meant that, when the COVID-19 pandemic emerged,
many of the actions required to respond to its impact were already
underway. As such, and towards the end of the previous financial
year, we had already started to accelerate the development of our
online proposition and capacity, increased our focus on cost
control and halted the new store rollout programme completely (for
all but a very small number of landlord-funded new store openings).
We continued with that strategy during the Period and an update on
each pillar of our strategy is set out below:
1. Store Estate
Whilst we continue to believe in the opportunity to make our
unique proposition accessible to more communities across the UK and
Republic of Ireland, we have effectively halted our new store
opening programme. We continue to look at selective new store
openings as part of an active portfolio management approach (e.g.
taking the opportunity to relocate to a better location in the same
town or to save property costs) and are focussing new store
openings on sites on our priority target list where the landlord is
willing to fund our upfront capital expenditure. The retail
property market remains in our favour and will likely continue to
do so in the medium-term.
We opened two new stores during the Period and a further two
after the Period ended but prior to peak trading. These new stores
have traded well and delivered payback ahead of previous rates
(outside of lockdown periods) demonstrating the strong returns that
remain possible from new store openings.
We also closed six loss-making stores and relocated a further
two stores in the Period as part of our active portfolio management
strategy. This resulted in a net four store closures during the
period and an estate of 530 stores at the Period end (532 stores as
at the date of this report).
Whilst we will continue to invest in accelerating our digital
business, as noted below, we will remain a predominantly
store-based retailer for the foreseeable future and continue to
believe that our proposition will perform well in retail locations
across the UK and Republic of Ireland post COVID-19. However, we
are conscious that retail footfall may be significantly depressed
for some time, and may never recover to previous levels in certain
locations and, as such, we continue to retain flexibility within
our existing portfolio with the average term to the next break or
exit point of just over 2 years. This means that we can continue to
lower rents, or exit locations, where lower retail footfall means
stores are no longer profitable.
2. LFL sales growth
Our unique proposition continues to offer customers the
experience of discovery, driven by a constantly evolving product
range and seasonal offerings complementing our core everyday
ranges. The element of "discovery" as well as good availability of
our "core" lines continues to encourage regular, repeat customer
visits.
An ongoing focus on improving our proposition means The Works
has a good track-record of delivering LFL sales growth, both in
stores and online. As noted above, outside periods of enforced
temporary closures and despite significantly subdued retail
footfall throughout the Period, we once again delivered positive
LFL sales growth in stores. Alongside the very strong growth
delivered online, this demonstrates the ongoing appeal and
relevance of our proposition to a broad range of customers,
particularly in the current environment.
During the Period, we saw strong demand for products that helped
our customers to "Beat the Boredom" of lockdowns, provided support
with home schooling and for their mental health and wellbeing
during lockdowns and the subsequent periods of social distancing.
This resulted in strong sales across our core art and craft ranges
(supported by further rollout of our improved merchandising of
these ranges), across a number of our book categories and in other
activity-led product categories such as jigsaws. We also saw robust
performance across our two key seasons - Summer "Out2Play" and
"Back to School" - as well as strong early sales of our Christmas
ranges towards the end of the Period driven partly by customers
bringing forward their Christmas purchases. We also increased our
focus on front-list book titles as we look to further enhance our
book credentials and grow our book market share.
Looking ahead, in the short-term our ability to drive sales
growth through our existing store estate will clearly be impacted
by the level of restrictions in place as part of the Government's
response to managing the COVID-19 pandemic. However, we remain
confident in our ability to drive LFL store sales growth when our
stores are able to trade, and in the medium-term, through:
1) Further refinement of our proposition (supported by better customer insight and analysis).
2) Continued development of our approach to space management and merchandising.
3) Improved stock management processes, including improved stock
replenishment/allocations and better availability of core
lines.
4) An increased focus on improving our existing stores.
We also believe that we are well-positioned to drive further
online sales growth as noted below.
3. Multi-channel proposition development
Our multi-channel offering remains one of our key
differentiators in the value retail sector, with our digital
channel providing customers with an extended range of products and
flexibility in the way they shop.
Prior to the onset of COVID-19, online sales represented around
10 per cent. of total sales, growing at double-digit rates in
recent years. The short-term impact of COVID-19, particularly the
enforced lockdowns and social distancing measures put in place, has
clearly driven many customers to have to shop online, a trend we
expect to continue post COVID-19. As such, towards the end of the
previous financial year, and during the Period, we worked with our
fulfilment partners to accelerate our plans to increase online
capacity. Outside of peak trading, and during the Period, we were
able to increase capacity to support sales levels in excess of 4
times the same period last year. Our ability to scale up to those
levels for peak trading was limited, with capacity capped at around
70 per cent. higher than the previous year. We expect online sales
to be materially higher than their pre-COVID-19 levels post the
pandemic and are working with our fulfilment partners to increase
capacity accordingly, particularly for peak trading in the run up
to Christmas 2021.
During the Period we successfully launched our new web platform,
which provides enhanced functionality and an improved customer
experience which will help to drive future revenue growth. We also
continued to deliver a step-change in online profitability driven
by a range of factors including: 1) reduced promotional offers and
marketing spend; 2) continued focus on driving higher average order
values and average product prices to help lower the fulfilment cost
ratio; and, 3) continuing to work closely with our third party
warehousing and fulfilment partner to drive improved fulfilment
productivities. We continued to focus on developing our online
range expansions and will continue to do so in the medium-term.
Our new web platform, increased capacity and step-change in
online profitability have put the building blocks in place to drive
further digital growth with confidence. As such, and with the
expectation that digital growth will become an increasingly
important part of our future growth, we will continue to invest in
our online and multi-channel capabilities to drive growth in the
medium-term. These investments will include: 1) continued web
development to improve the customer experience; 2) investing in a
new email service platform to help better target our customers with
more relevant email content; and, 3) investing in in-store
technology to enable access to our expanded range and online
ordering through terminals in-store (enabled through our in-store
Wi-Fi investment made during calendar year 2020).
4. Product margin and cost control
As a value retailer The Works has always kept a close control of
costs, striving to provide customers with great value products,
whilst also delivering returns for shareholders.
During the Period, and in light of the impact of COVID-19, we
have redoubled our efforts to unlock cost savings through the
business, driving efficiencies through our store labour model (e.g.
by reducing the number of tasks carried out in store), limiting
discretionary spend, reducing administration costs and delivering
savings in distribution costs. We have also continued to deliver
significant savings in property costs through reducing store rents,
with these savings accelerating as a result of our discussions with
landlords during periods of enforced temporary closures during the
year. Property costs were further reduced during the Period by the
Government's business rates relief. We also took the tough decision
at the end of the previous financial year to cancel all pay reviews
outside of national minimum and national living wage rises and
utilised the Government Coronavirus Job Retention Scheme,
particularly during the period of enforced store closures, to
protect jobs and reduce salary costs. These savings were partially
offset by the incremental costs associated with ensuring that our
stores, distribution centres and support centre are COVID-secure,
in line with Government guidelines.
We have continued to drive underlying improvements in our
product margins, in particular through better sourcing from the far
east and a more targeted and controlled approach to discounts and
promotions, both in stores and online.
Looking forward, we continue to believe there are further
opportunities to improve product margins and drive cost savings, in
particular through supply chain and store efficiencies as well as
further reducing our store property costs (with an average of over
100 lease expiry or break events per annum). Whilst we will
continue to carefully control central costs, selective investments
will be made to support our longer-term growth plans, particularly
within our supply chain and IT functions.
Outlook
In light of the recent Government announcements, significant
uncertainties remain in the near-term. We have taken action,
informed by learnings from previous lockdowns and supported by our
strong liquidity position, to ensure that we can withstand these
further short-term challenges and take advantage of the
opportunities they present.
In the meantime, we continue to focus on our four pillar
strategy, in particular accessing the opportunities within our
supply chain and driving retail efficiencies, continuing to invest
in our digital business, carefully managing costs and retaining
flexibility in our store property portfolio to ensure we can remain
agile as the retail landscape evolves. Whilst the latest lockdowns
will clearly have an adverse impact on the outturn for the current
financial year, given the relevance of our proposition, we remain
optimistic about our prospects once restrictions are lifted and our
ability to drive medium-term growth and returns for all
stakeholders.
Financial Report
Overview and update on COVID-19 impact
This report covers the 26 week period ended 25 October 2020 ("H1
FY21" or "H1" or "the Period") and refers to the comparative "H1
FY20" accounting period of the 26 weeks ended 27 October 2019.
The Group tracks a number of alternative performance measures,
as it believes that these provide stakeholders with additional
helpful information. Alternative performance measures used in this
report include EBITDA, Adjusted EBITDA and like for like ("LFL")
sales. These are described more fully in note 1(c) and 5 of the
condensed unaudited financial statements which follow this section
of the interim report.
The statutory result before tax ("PBT") for the Period improved
by GBP4.2m to a loss of GBP4.3m from a loss of GBP8.5m reported in
respect of H1 FY20. The Adjusted PBT was a loss of GBP4.1m (H1
FY20: loss of GBP7.8m). Costs of GBP0.2m have been presented on the
face of the unaudited consolidated income statement as Adjusting
Items (note 6), which are immaterial but have been treated as
Adjusting to retain consistency with the treatment of similar or
related transactions in prior periods. The pre IFRS 16 Adjusted
EBITDA was GBP1.5m (H1 FY20: loss of GBP3.9m), a GBP5.4m
improvement compared to the H1 FY20 result.
The financial performance for the Period was affected by the
trading restrictions and other changes in consumer spending
patterns resulting from the COVID-19 pandemic. Most of the Group's
stores were temporarily closed for the first 7 weeks of the Period;
although online sales were exceptionally strong during this time,
this could not fully offset the loss in sales from the closure of
the stores. During the subsequent 19 weeks of the Period, sales
were strong and significantly ahead of the Board's expectations,
mitigating part, but not all, of the sales lost during the first 7
weeks.
It has not been possible to derive a robust estimate of the
total impact of COVID-19 on the result for the Period, during which
the business made use of the Government reliefs available including
business rates relief and relief under the Coronavirus Job
Retention Scheme. These also went some way to mitigating the sales
lost due to the period of enforced temporary closure of the stores.
Note that these reliefs are classified as other operating income
within the condensed unaudited financial statements.
The result for the Period was better than the scenarios
described in the Group's FY20 Annual Report and Accounts upon which
assessments were based in relation to matters including going
concern, viability and impairment. The further restrictions on
trading which came into effect on 5 January 2021 will have a
detrimental effect on the result for H2 FY21 but will not
necessarily affect the Group's modelled scenarios relating to
future periods. At this stage, it has not been deemed necessary to
make further impairment provisions or write downs in respect of the
Period.
The Group's financial position strengthened during the Period,
with net cash (excluding leases) at the balance sheet date of
GBP11.3m (H1 FY20 net bank borrowings of GBP14.1m).
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
Total statutory revenue during the Period decreased by 7.8 per
cent. to GBP88.9 million (H1 FY20: GBP96.4 million) reflecting the
impact of the closure of most of the Group's stores for the first 7
weeks of the financial year. Excluding the first 7 weeks, overall
LFL sales increased by 10.6 per cent. in the 19 weeks ended Sunday
25 October 2020, driven by:
-- Broadly flat store LFL sales, with average transaction values
higher than last year, offsetting a reduction in the number of
transactions.
-- Strong online performance with sales levels approximately
double last year's in the same 19 weeks.
The table below shows the quarterly LFL results for the 19 week
period. The Q1 LFL sales figures exclude sales during the first 7
weeks when stores were temporarily closed due to lockdown. Store
LFL sales during Q1 were negative, but strengthened considerably
during Q2 as the "back to school" sales grew to normal levels after
a delayed start. Later in Q2, there were anecdotal indications from
stores and other market data that some customers were making
Christmas purchases early, presumably in anticipation of further
restrictions on shopping.
H1 FY21 H1 F20 LFL sales
LFL sales LFL sales growth
inc. VAT inc. VAT %
GBPm GBPm
----------------- ----------------- ----------
Q1 22.1 20.9 6.1%
Q2 65.8 58.7 12.2%
H1 87.9 79.5 10.6%
================= ================= ==========
The table below shows LFL and non LFL sales growth during the
Period, and a reconciliation of sales used to calculate the LFL and
gross sales, with statutory revenue. The decrease in statutory
revenue was greater in percentage terms than the decrease in gross
sales as reported in the trading update issued on 5 November 2020,
due to a higher effective VAT rate being applicable in H1 FY21.
This was due to a slight reduction compared with H1 FY20 in zero
rated book sales as a proportion of total sales.
During the Period a net 4 stores closed (4 opened and 8 closed,
2 of which were relocations). The net sales effect of these
openings/closures, plus the additional sales from stores opened
during FY20 that are not yet classified as "like for like", less
the reduction in sales from stores closed during the Period which
traded throughout H1 FY20, was a year on year increase in sales of
GBP1.3m.
H1 FY21 H1 FY20 Variance Variance
GBPm GBPm GBPm %
-------- -------- --------- ---------
LFL sales 7 weeks during lockdown 7.5 24.9 (17.4) (69.7)
LFL sales 19 weeks post lockdown
(per table above) 87.9 79.5 8.4 10.6
Total LFL sales for Period 95.5 104.5 (9.0) (8.6)
Sales from new/closed stores 6.0 4.7 1.3 27.6
Total Gross Sales 101.5 109.2 (7.7) (7.1)
VAT (11.9) (12.0) 0.1 (0.9)
Loyalty points redeemed (0.6) (0.7) 0.1 (14.2)
Revenue (per statutory accounts) 88.9 96.4 (7.5) (7.8)
======== ======== ========= =========
Product gross margin and adjusted cost of sales
(i) Product gross margin
HY1 FY21 HY1 FY20 Variance Variance
GBPm GBPm GBPm %
--------- --------- --------- ---------
Revenue 88.9 96.4 (7.5) (7.8%)
Cost of goods sold 33.1 36.3 3.2 8.8%
---------
Product gross margin 55.8 60.1 (4.3) (7.1%)
========= ========= ========= =========
Product gross margin % 62.7% 62.3% 0.4%
Product gross margin is the difference between revenue and the
cost of goods sold. The product gross margin increased by 40bps to
62.7 per cent. (H1 FY20: 62.3 per cent.), a result of reduced
discounting compared with H1 FY20, particularly online, and higher
postage income. There was also a small FX benefit year on year due
to a slight improvement in the hedged rate achieved versus H1
FY20.
The reduced discounting was due to a combination of the
strategic decision that had been taken previously to take a more
controlled approach to promotions and discounting, and the unusual
trading circumstances of the Period which further reduced the need
for discounting to drive sales.
For the remainder of FY21, the anticipated dollar requirements
have been hedged via forward contracts, at an average rate of c.
$1.32, a slightly better rate than the hedged rates achieved during
H1 FY21 ($1.29) and H2 FY20 ($1.24).
(ii) Adjusted cost of sales
HY1 FY21 HY1 FY20
Pre-IFRS 16 cost of sales GBPm % of GBPm % of GBPm % Variance
analysis revenue revenue Variance
------ --------- ------ --------- ---------- -----------
Cost of goods sold 33.1 37.3 36.3 37.7 3.2 8.8
Store payroll 19.2 21.6 20.6 21.4 1.4 6.8
Store property costs 23.2 26.1 21.7 22.5 (1.5) (6.9)
Other direct costs 7.9 8.9 6.3 6.5 (1.6) (25.8)
Cost of sales (per internal
reporting) 83.5 93.9 84.9 88.2 1.4 1.7
====== ========= ====== ========= ========== ===========
Depreciation within cost
of sales 2.7 3.1 2.2 2.3 (0.5) (22.7)
IFRS16 impact (non adjusting
element) (1.1) (1.3) (1.4) (1.5) (0.3) (21.4)
Adjusting items (0.0) (0.0) 0.7 0.7 0.7 >100.0
Cost of sales per statutory
accounts 85.1 95.7 86.4 89.6 1.3 1.5
====== ========= ====== ========= ========== ===========
(a) Cost of goods sold
This comprises the cost of finished goods and other related
costs including import duty and inward freight/carriage costs.
The cost of goods sold reduced by GBP3.2m compared with H1 FY20;
GBP2.8m was due to the year on year reduction in revenue and the
remainder was a result of the improved product margin as noted
above.
(b) Store payroll
Store payroll costs fell by GBP1.4m compared with H1 FY20.
During the period when the stores were trading, hours were tightly
controlled, a process which was helped both by lower volumes of
transactions with a higher average transaction value and by the
removal of unnecessary tasks to increase efficiency. In relation to
the 7 weeks when most stores were closed, there was a reduction of
20 per cent. in the rate paid whilst the colleagues were furloughed
(note that Government relief received via the Coronavirus Job
Retention Scheme is classified within other income; the payroll
costs included within cost of sales are gross).
The year on year reduction in store payroll costs would have
been greater but for the impact of the increased rates applicable
to the National Living Wage and the full Period effect of stores
opened during FY20 which did not incur costs for the whole of H1
FY20.
(c) Store property costs
This heading includes store rents, business rates and service
charges; store utility and maintenance costs are classified within
"Other direct costs", as described below.
Store property costs increased by GBP1.5m compared with FY20.
The full Period effect of stores opened during FY20 which did not
incur costs for the whole of H1 FY20 resulted in higher occupancy
costs, as did inflation in the business rates multiplier (which
continues to affect cost of sales due to the Government's rates
relief being included within other operating income). The cost
increase was mitigated by further rent reductions implemented on
lease breaks or renewals, following successful negotiations with
landlords.
(d) Other direct costs of sale
This classification includes payment card transaction fees,
store utility costs, store maintenance costs, store point of sale
material costs (window graphics, in-store promotional signage
etc.), online marketing costs and, online fulfilment labour
costs.
Other direct costs of sale increased by GBP1.6m compared with
FY20. The most significant factor was the increase on online sales
compared with H1 FY20 which resulted in higher fulfilment volumes.
The percentage increase in fulfilment costs was lower than the
increase in sales, as average order values were higher than in H1
FY20, resulting in greater efficiency in the fulfilment
operation.
Online marketing costs were slightly higher than last year, but
were lower in percentage terms than H1 FY20 due to a strategic
decision to reduce expenditure on online marketing, which was
further reduced as a consequence of the natural increase in online
sales which arose as a by-product of the 7 week closure of the
stores. There was a saving in other (offline) marketing expenses
due to cost saving decisions taken in response to the COVID-19
pandemic.
(e) Depreciation within costs of sale
Depreciation increased by GBP0.5m compared with FY20 due to the
full Period effect of stores opened during FY20 which did not incur
costs for the whole of H1 FY20 but did during H1 FY21 and, a
GBP0.3m net credit relating to H1 FY20 caused by reclassifying
impairment charges as Adjusting, which had initially been included
in costs of sale. This reclassification aligned the treatment for
H1 FY20 with the approach taken at the FY20 year end.
Operating income and expenses (pre. IFRS 16 and adjusting
items)
(i) Other operating income
Other operating income was GBP12.3m (H1 FY20: GBP0.0m). This all
related to Government support schemes introduced in response to the
COVID-19 pandemic.
From the beginning of FY21 until the re-opening of non-essential
retail stores was permitted in June, the Group received GBP4.5m via
the Government's Coronavirus Job Retention Scheme in relation to
staff who had been furloughed following the closure of the Group's
retail stores and head office and the reduction in operations in
its distribution centre. It also received GBP7.1m during the Period
in COVID-19 business rates relief and GBP0.7m in relation to the
COVID-19 Retail, Hospitality and Leisure Grant Fund.
In light of the fact that the Group was prevented from operating
its stores during a significant part of H1 FY21 and subsequently
also during H2, it is the Board's intention that such sums will be
retained to increase the financial resilience of the business, for
the benefit of all stakeholders.
(ii) Expenses
Distribution costs H1 FY21 H1 FY20
GBPm % of GBPm % of GBPm % variance
revenue revenue variance
----- --------- ----- --------- ---------- -----------
Adjusted distribution
costs 6.7 7.5 5.7 5.9 (1.0) (14.3)
Depreciation 0.1 0.1 0.2 0.2 0.1 64.5
Adjusting items 0.0 0.0 0.0 0.0 0.0 0.0
Distribution costs
per statutory accounts 6.8 7.6 5.9 6.1 (0.9) (13.1)
===== ========= ===== ========= ========== ===========
Distribution costs include the cost of picking and delivery of
stock, with the exception of direct labour costs incurred in
fulfilling online orders, which are included in "Other direct
costs" as described above.
Distribution costs increased by GBP1.0m, 14.3 per cent. compared
to the prior year, due to the costs of fulfilling higher online
sales, less savings from the store fulfilment operation during the
period when picking and deliveries to stores were suspended. The
higher online fulfilment cost includes an investment made to
support increased online fulfilment capacity in anticipation of
higher demand during the 2020 peak trading season. This proved
worthwhile, given the subsequent restrictions on trading via
stores, imposed during November 2020.
Administration costs H1 FY21 H1 FY20
GBPm % of GBPm % of GBPm % variance
revenue revenue variance
------ --------- ------ --------- ---------- -----------
Pre-IFRS 16, adjusted
administration costs 9.4 10.6 9.5 9.9 0.1 1.3
Depreciation 1.4 1.6 1.1 1.1 (0.3) (30.5)
Adjusting items 0.2 0.2 0.0 0.0 (0.2) (100.0)
IFRS 16 impact
(non adjusting element) (0.2) (0.2) (0.1) (0.1) 0.1 >100.0
Administration costs
per statutory accounts 10.8 12.2 10.5 10.9 (0.4) (3.3)
====== ========= ====== ========= ========== ===========
Administration costs include rent and rates for the Group's head
office and distribution centre and the payroll and overhead cost of
the head office and retail field support teams.
Administration costs reduced by GBP0.1m, 1.3 per cent. compared
to the prior year. There were savings in head office salary costs,
travel costs and training costs as a result of the head office
being closed for part of the Period and actions taken to control
costs. However, these were mostly offset by the costs of purchasing
personal protective equipment required to operate in the modified
circumstances dictated by the COVID-19 pandemic.
Adjusting items
Adjusting items before tax in the period amounted to a charge of
GBP0.2m (FY20: GBP0.7m), analysed below. Whilst the total sum is
immaterial, the items have been treated as Adjusting to retain
consistency with the treatment of similar or related transactions
in prior periods. Refer also to note 6 of the condensed unaudited
financial statements.
H1 FY21 H1 FY20
GBPm GBPm
-------- --------
Within cost of sales
Impairment charges (net) 0.0 0.3
Provision for previously underpaid
duty 0.0 0.4
0.0 0.7
======== ========
Within administration expenses
Salary costs relating to former
director 0.3 0.0
Packaging and waste provision
release (0.1) 0.0
0.2 0.0
======== ========
Total adjusting items (before
tax) 0.2 0.7
======== ========
Net financing expense
Net financing costs in the Period were GBP2.7m (FY20:
GBP2.1m).
Bank interest payable was GBP0.2m (H1 FY20: GBP0.2m); GBP2.4m of
the net financing cost relates to notional interest on the
calculated lease liability arising under IFRS 16 "lease
liabilities" (H1 FY20: GBP1.9m). The year on year increase in the
IFRS 16 interest calculation was due to movement in the estimated
incremental borrowing rate and, an additional tranche of stores
being included within the IFRS 16 definition of a lease due to
changes to the terms of occupancy following the conclusion of
negotiations with landlords.
Profit/loss before tax
The statutory loss before tax for H1 FY21 was GBP4.3 million (H1
FY20: GBP8.5 million). Due to the seasonality of the business the
first half of the financial year is typically loss making for The
Works, but the statutory loss before tax for H1 FY21 was
significantly smaller than the H1 FY20 comparative.
Adjusted profit/loss before tax
Adjusted loss before tax was GBP4.1 million in the period (H1
FY20: GBP7.8 million).
Tax
The Group's total income tax credit in respect of the Period was
GBP1.0m (H1 FY20: GBP2.1m). The effective tax rate on the total
loss before tax was 23.2 per cent. (H1 FY20: 24.3 per cent.) whilst
the adjusted tax rate was 23.8 per cent. (H1 FY20: 25.6 per
cent.).
The difference between the total effective tax rate and the
adjusted tax rate for H1 FY21 and H1 FY20 related to certain
non-recurring costs and depreciation charges being non-deductible
for tax purposes.
At the FY20 year end, a provision of GBP0.8m was included in
connection with a review of duty rates. During H1 FY21, HMRC
concluded its review, which resulted in a charge that was in line
with the provision held at the FY20 year end.
Earnings per share
The basic and the diluted losses per share for the Period were
5.2 pence (H1 FY20: 10.3 pence).
Before adjusting items, the basic and the diluted underlying
losses per share for the Period were 5.0 pence (H1 FY20: 9.3
pence).
Capital expenditure
Capital expenditure amounted to GBP1.1 million in the Period (H1
FY20: GBP4.1m). This significant reduction reflects the change in
strategy announced in January 2020 to reduce the number of new
stores opened and secure landlord funding for the limited number of
stores that are opened and, decisions taken at the beginning of
this financial year to reduce capital expenditure to preserve cash
in light of the COVID-19 pandemic. It is expected that net capital
expenditure during FY21 will be approximately GBP3.0m, in line with
previous estimates.
H1 FY21 H1 FY20* Variance
GBP'm GBP'm GBPm
-------- --------- ---------
New stores and relocations 0.0 2.6 (2.6)
Store refits and maintenance 0.1 0.2 (0.1)
IT hardware and software 0.3 0.4 (0.1)
Online development expenditure 0.6 0.4 0.2
Other 0.1 0.5 (0.4)
-------- --------- ---------
Total capital expenditure 1.1 4.1 (3.0)
======== ========= =========
* The H1 FY20 figures have been restated to correctly reflect
the accounting for movements in the period in relation to IFRS 16
right of use assets.
4 new stores opened during the Period (although, as noted above,
8 stores closed so there was a net reduction of 4 in the number of
stores from which the Group trades). A further 2 new stores have
opened since the end of the Period, and there is one further store
to which the Group is legally committed and which had been expected
to open during H2 FY21, but the opening date is now under review as
a result of the most recent lockdown restrictions. As noted
previously, the Board will consider, on a case by case basis,
opportunities to open stores in strategically important locations,
where the landlord is prepared to fund fit out costs, such that the
store is cash generative immediately following opening.
The capex figures above include the cost of implementing a new
online sales platform in July 2020; the remainder of the capex
related to maintenance and minor projects.
Inventory
Inventory levels were GBP38.5m at the end of the Period (H1
FY20: GBP42.5m), a decrease of 9.4 per cent. The inventory level is
normally higher at the end of the first half of the financial year
than at the year end, due to the trading cycles of the business
and, accordingly, the value of inventory was GBP11.9m higher than
at the end of FY20. However, the value is GBP4.0m lower than at the
corresponding time last year, due to stronger sales in the Period
and improvements to stock management practices.
Since the Period end, the business has experienced further
periods of trading restriction, creating the need to manage stock
in a way that is not expected under normal trading conditions.
Accordingly, management is working on mitigating actions to ensure
that inventory levels remain at an acceptable level. Nevertheless,
it is possible that stock levels at the end of FY21 may be higher
than initially planned.
Cashflow
The table below shows an abbreviated summarised cashflow
analysis to aid the description of the significant cashflow
movements during the Period. "Cashflow pre-working capital" in the
table is derived from management reports and the table is presented
on a non IFRS 16 basis; the condensed unaudited financial
statements include a statutory consolidated cashflow statement.
H1 FY21 H1 FY20 Variance
GBPm GBPm GBPm
-------- -------- ---------
Cashflow pre-working capital 0.7 (4.5) 5.2
Net movement in working capital 19.3 (7.5) 26.8
Capex (per preceding table) (1.1) (4.1) 3.0
Tax paid (0.1) (0.3) 0.2
Interest and financing costs (0.8) (0.1) (0.7)
Dividends 0.0 (1.5) 1.5
Cashflow before loan movements 18.0 (17.9) 35.9
Drawdown of new CLBILS loan 7.5 0.0 7.5
Drawdown/(repayment) of RCF (10.0) 7.0 (17.0)
Net increase/(decrease) in
cash
and cash equivalents(1) 15.5 (10.9) 26.4
======== ======== =========
(1) This total represents cash and cash equivalents,
and therefore excludes exchange rate movements.
During the Period the Group drew down GBP7.5m from the
Government "CLBILS" loan scheme and repaid GBP10.0m previously
drawn under its revolving credit facility ("RCF"). Prior to taking
account of this, the net cash inflow for the Period was GBP18.0m
(H1 FY20: outflow of GBP17.9m).
The improved year on year cash position was due to the increased
profitability during the Period, lower capex and improved working
capital management and timing differences. The main factors
affecting working capital were an increase in creditors due to the
extension of payment terms with suppliers and, as noted in the 5
November 2020 trading update, the working capital balance also
included approximately GBP4.0m of favourable short term timing
differences. Most of the working capital benefit from the extended
payment terms had been expected to reverse by the end of the
financial year, but in light of the further restrictions on trading
currently being experienced, further extensions may be
implemented.
The H1 FY21 working capital movement was significantly different
to that in H1 FY20. The FY20 figure was impacted by a higher
closing stock figure, reflecting lower than planned sales in H1
FY20 and, short term timing differences relating to creditors,
which operated in the opposite direction to that experienced in H1
FY21.
Borrowing, bank facilities and financial position
At the end of the Period the Group held net cash of GBP11.3m (H1
FY20: net bank debt of GBP14.1m). Please refer to note 17 of the
condensed unaudited financial statements for further information
regarding borrowings. This figure was higher than the GBP8.4m
included in the trading update of 5 November 2020, which
represented the cleared funds on the final banking day of the
Period and therefore excluded the accrued takings from the final
two days of the Period, less any uncleared payments.
The Group operates bank facilities which comprise:
-- A revolving credit facility ("RCF") which expires in
September 2022, with step downs from an initial GBP25.0m facility,
of GBP2.5m in January 2021 and GBP2.5m in January 2022, to reflect
the profile of the expected facility requirement.
-- A GBP7.5m term facility, under the Government's CLBILS
scheme, which also expires in September 2022. No repayments are due
until the expiry date.
-- The facility includes financial covenants in relation to the
level of EBITDA, net debt and capital expenditure
As a result of the COVID-19 pandemic, steps have been taken to
reduce costs and increase liquidity. In addition, scenarios have
been produced, to quantify the possible impacts on liquidity of
applying differing assumptions about how the pandemic might affect
future trading. Further details are included in note 1 (b) (i) of
the condensed unaudited financial statements regarding going
concern.
As a result of the strong trading performance, careful cost and
cash management and utilisation of the available Government support
schemes, the Group's liquidity position at the end of the Period
was strong, and significantly better than at the same point last
year, even allowing for the unwinding of short term timing
differences. Whilst the ongoing restrictions will have an impact on
the Group's ability to trade, and will unavoidably have a
detrimental effect on both the profit result for the financial year
and the liquidity position, based on its current forecasts, the
Board is satisfied that the Group's financial resources are
adequate.
Dividends
The Board's intention is to adopt a progressive Dividend Policy
once the prevailing high level of uncertainty recedes and the
trading outlook and financial position of the business make it
appropriate to do so. However, given the continuing high level of
uncertainty, and the recent announcements of further restrictions
on the Group's ability to trade from its retail stores, continuing
to maximise liquidity will remain a top priority and, consequently,
the Board will not be proposing payment of a dividend in relation
to FY21.
Gavin Peck
Director
22 January 2021
Unaudited Condensed Consolidated Income Statement
For the 26 weeks ended 25 October 2020
26 weeks to 25 26 weeks to 27 52 weeks to 26 April
October 2020 October 2019 (Restated 2020
- note 1b)
-------------------------------------- ----------------------------- ----------------------------------
Adjusted Adjusting Total Adjusted Adjusting Total Adjusted Adjusting Total
items items items
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Revenue 3 88,930 - 88,930 96,416 - 96,416 225,042 - 225,042
Cost of sales 6 (85,146) 17 (85,129) (85,729) (680) (86,409) (190,557) (4,110) (194,667)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Gross profit 3,784 17 3,801 10,687 (680) 10,007 34,485 (4,110) 30,375
Other operating
income 4 12,276 - 12,276 4 - 4 4,677 - 4,677
Distribution
expenses (6,797) - (6,797) (5,909) - (5,909) (12,656) - (12,656)
Administrative
expenses 6 (10,640) (199) (10,839) (10,478) - (10,478) (19,619) (16,295) (35,914)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Operating
profit/(loss) (1,377) (182) (1,559) (5,696) (680) (6,376) 6,887 (20,405) (13,518)
Finance income 7 31 - 31 - - - 12 - 12
Finance
expenses 7 (2,722) - (2,722) (2,099) - (2,099) (4,466) - (4,466)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Net financing
expense (2,691) - (2,691) (2,099) - (2,099) (4,454) - (4,454)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Profit/(loss)
before
tax (4,068) (182) (4,250) (7,795) (680) (8,475) 2,433 (20,405) (17,972)
Taxation 10 969 17 986 1,995 66 2,061 (529) 799 270
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Profit/(loss)
for
the period 5 (3,099) (165) (3,264) (5,800) (614) (6,414) 1,904 (19,606) (17,702)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Profit/(loss)
before
tax and IFRS
16 5 (3,032) (182) (3,214) (7,518) (680) (8,198) 3,338 (17,560) (14,222)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Basic earnings
per share
(pence) 11 (5.0) (5.2) (9.3) (10.3) 3.0 (28.3)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
Diluted
earnings
per share
(pence) 11 (5.0) (5.2) (9.3) (10.3) 3.0 (28.3)
--------------- ----- ------------ -------------- -------- -------- --------- -------- --------- ------------ ---------
All results arise from continuing operations. Profit for the
period is attributable to equity holders of the Parent company.
Unaudited Condensed Consolidated Statement of Comprehensive
Income
For the period ended 25 October 2020
26 weeks 26 weeks 52 weeks
to to to
25 October 27 October 26 April
2020 2019 2020
GBP000 GBP000 GBP000
-------------------------------------------- ----------- ----------- ---------
Loss for the year (3,264) (6,414) (17,702)
Items that may or may not be recycled
subsequently into profit and loss
Cash flow hedges - changes in fair
value (1,347) (29) 932
Cash flow hedges - reclassified to
profit and loss 131 138 (91)
Cost of hedging reserve - changes in
fair value (85) (820) 312
Cost of hedging reserve - reclassified
to profit and loss (155) (9) (197)
Tax relating to components of other
comprehensive income - 88 (248)
-------------------------------------------- ----------- ----------- ---------
Other comprehensive income for the
period, net of income tax (1,456) (632) 708
-------------------------------------------- ----------- ----------- ---------
Total comprehensive income for the
period attributable to equity shareholders
of the Parent (4,720) (7,046) (16,994)
-------------------------------------------- ----------- ----------- ---------
Unaudited Condensed Consolidated Statement of Financial
Position
As at 25 October 2020
25 October 27 October 26 April
2020 2019 (Restated 2020
- note 1b)
Note GBP000 GBP000 GBP000
-------------------------------------- ---- ----------------------- --------------- ---------------------
Non-current assets
Intangible assets 13 2,573 18,744 3,194
Property, plant and equipment 14 18,763 20,939 21,061
Right of use assets 14 113,701 100,569 116,763
Deferred tax assets 1,802 1,882 1,802
-------------------------------------- ---- ----------------------- --------------- ---------------------
136,839 142,134 142,820
Current assets
Inventories 16 38,516 42,511 26,594
Trade and other receivables 5,873 9,884 8,130
Derivative financial asset 20 134 156 1,531
Current tax asset 1,787 1,967 687
Cash and cash equivalents 18,771 444 6,546
-------------------------------------- ---- ----------------------- --------------- ---------------------
65,081 54,962 43,488
-------------------------------------- ---- ----------------------- --------------- ---------------------
Total assets 201,920 197,096 186,308
Current liabilities
Bank overdraft 17 - 7,567 3,605
Interest bearing loans and borrowings 17 7,214 6,938 9,938
Lease liabilities 17 22,423 18,283 22,002
Trade and other payables 54,430 44,456 26,189
Provisions 18 914 495 979
Derivative financial liability 20 294 1,005 -
Current tax liability - - -
-------------------------------------- ---- ----------------------- --------------- ---------------------
85,275 78,744 62,713
Non-current liabilities
Interest bearing loans and borrowings 17 (262) (42) (11)
Lease liabilities 17 107,497 94,590 110,200
107,235 94,548 110,189
-------------------------------------- ---- ----------------------- --------------- ---------------------
Total liabilities 192,510 173,292 172,902
-------------------------------------- ---- ----------------------- --------------- ---------------------
Net assets 9,410 23,804 13,406
Equity attributable to equity
holders of the Parent
Share capital 19 625 625 625
Share premium 19 28,322 28,322 28,322
Merger reserve (54) (54) (54)
Share based payment reserve 1,552 1,468 1,506
Hedging reserve 393 (519) 1,171
Retained earnings (21,428) (6,038) (18,164)
-------------------------------------- ---- ----------------------- --------------- ---------------------
Total equity 9,410 23,804 13,406
-------------------------------------- ---- ----------------------- --------------- ---------------------
Unaudited Condensed Consolidated Statement of Changes in
Equity
Attributable to equity holders
----------------------------------------------------------------------
Share based
Share Share Merger Hedging payment Retained Total
capital premium reserve reserve(1) reserve earnings equity
For the 26 Weeks Ended 25 October 2020 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
As at 26 April 2020 625 28,322 (54) 1,171 1,506 (18,164) 13,406
Total comprehensive income for the period
Loss for the period - - - - - (3,264) (3,264)
Other comprehensive expense - - - (1,456) - - (1,456)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Total comprehensive income for the period - - - (1,456) - (3,264) (4,720)
Hedging gains and losses and costs of hedging
transferred to the cost of inventory - - - 678 - - 678
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Transactions with owners of the Company
Share-based payment charges - - - - 46 - 46
Total transactions with owners - - - - 46 - 46
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Balance at 25 October 2020 625 28,322 (54) 393 1,552 (21,428) 9,410
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
For the 26 Weeks Ended 27 October 2019
(Restated - note 1b)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Balance at 28 April 2019 625 28,322 (54) 144 1,373 7,927 38,337
Transition to IFRS 16 - - - - - (6,139) (6,139)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Restated balance at 29 April 2019 625 28,322 (54) 144 1,373 1,788 32,198
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Total comprehensive income for the period
Loss for the period - - - - - (6,414) (6,414)
Other comprehensive income / (expense) - - - (720) - 88 (632)
Total comprehensive income for the period - - - (720) - (6,326) (7,046)
Hedging gains and losses and costs of hedging
transferred to the cost of inventory - - - 57 - - 57
Transactions with owners of the Company
Share-based payment charges - - - - 95 - 95
Dividend (Note 12) - - - - - (1,500) (1,500)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Total transactions with owners - - - - 95 (1,500) (1,405)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Balance at 27 October 2019 625 28,322 (54) (519) 1,468 (6,038) 23,804
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
For the 52 Weeks Ended 26 April 2020
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Balance at 28 April 2019 625 28,322 (54) 144 1,373 7,927 38,337
Transition to IFRS 16 - - - - - (6,139) (6,139)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Restated balance at 29 April 2019 625 28,322 (54) 144 1,373 1,788 32,198
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Total comprehensive income for the period
Loss for the period - - - - - (17,702) (17,702)
Other comprehensive income - - - 695 13 - 708
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Total comprehensive income for the period - - - 695 13 (17,702) (16,994)
Hedging gains and losses and costs of hedging
transferred to the cost of inventory - - - 332 - - 332
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Transactions with owners of the Company
Share-based payment charges - - - - 120 - 120
Dividend (Note 12) - - - - - (2,250) (2,250)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Total transactions with owners - - - - 120 (2,250) (2,130)
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
Balance at 26 April 2020 625 28,322 (54) 1,171 1,506 (18,164) 13,406
---------------------------------------------- ------- ------- ------- ---------- ----------- -------- --------
(1) Hedging reserve includes GBP12,645 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 (52
weeks ended 26 April 2020: GBP137,387; 26 weeks ended 27 October
2019: GBP500,161).
Unaudited Condensed Consolidated Cash Flow Statement
For the 26 weeks ended 25 October 2020
25 October 2020 27 October 2019 26 April 2020
(Restated -
Note 1b)
---
GBP000 GBP000 GBP000
----------------------------------------------------------- --------------- --------------- -------------
Cash Flows From Operating Activities
Loss for the period (3,264) (6,414) (17,702)
Adjustments for:
Depreciation of property, plant and equipment 2,594 2,608 5,261
Impairment of property, plant and equipment - 165 509
Reversal of impairment of property, plant and equipment - (176) (176)
Depreciation of right-of-use assets 11,635 9,940 20,611
Impairment of right-of-use assets - 341 2,991
Amortisation of intangible assets 563 560 1,170
Impairment of intangible assets - - 16,180
Derivative exchange (gain) / loss (68) 25 (290)
Financial expense 318 195 425
Financial income (31) - (12)
Interest on lease liabilities 2,404 1,904 4,041
Loss on sale of property, plant and equipment 218 68 299
Loss on disposal of right-to-use asset 373 574 795
Loss on disposal of intangible assets 620 - -
Profit on disposal of lease liability (463) (648) (870)
Share based payment charges 46 95 120
Taxation (986) (2,061) (270)
---------------------------------------------------------------- --------------- --------------- -------------
Operating cash flows before changes in working capital 13,959 7,176 33,082
Decrease in trade and other receivables 2,257 4,629 6,336
Increase in inventories (11,228) (17,324) (1,410)
Increase / (decrease) in trade and other payables 28,314 4,861 (13,822)
Increase / (decrease) in provisions (65) 308 792
---------------------------------------------------------------- --------------- --------------- -------------
Cash inflows from operating activities 33,237 (350) 24,978
Corporation tax paid (114) (272) (1,039)
---------------------------------------------------------------- --------------- --------------- -------------
Net cash from operating activities 33,123 (622) 23,939
Cash flows from investing activities
Acquisition of property, plant and equipment (514) (3,275) (6,625)
Acquisition of intangible assets (562) (810) (2,050)
Interest received 31 - 12
---------------------------------------------------------------- --------------- --------------- -------------
Net cash from investing activities (1,045) (4,085) (8,663)
---------------------------------------------------------------- --------------- --------------- -------------
Cash flows from financing activities
Interest paid (219) (97) (230)
Payment of lease liabilities (capital) (10,848) (9,732) (19,829)
Payment of lease liabilities (interest) (2,404) (1,904) (4,041)
Dividends paid - (1,500) (2,250)
Issue of bank loan 7,500 7,000 10,000
Repayment of bank borrowings (10,000) - -
Payment of RCF costs (619) - -
---------------------------------------------------------------- --------------- --------------- -------------
Net cash from financing activities (16,590) (6,233) (16,350)
Net increase / (decrease) in cash and cash equivalents 15,488 (10,940) (1,074)
Exchange rate movements 342 130 328
Cash and cash equivalents at beginning of Period 2,941 3,687 3,687
---------------------------------------------------------------- --------------- --------------- -------------
Cash and cash equivalents at end of Period 18,771 (7,123) 2,941
---------------------------------------------------------------- --------------- --------------- -------------
Notes to the Unaudited Condensed Consolidated Interim Financial
Statements
For the 26 weeks ended 25 October 2020
1 Accounting Policies
(a) General Information
TheWorks.co.uk plc ('the Company') is a public limited company
domiciled in the United Kingdom and its registered office is
Boldmere House, Faraday Avenue, Hams Hall Distribution Park,
Coleshill, Birmingham, B46 1AL. These unaudited condensed
consolidated interim financial statements ('interim financial
statements') as at and for the 26 weeks ended 25 October 2020
comprise the Company and its subsidiaries (together referred to as
'the Group').
(b) Basis of preparation
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting, and should be
read in conjunction with TheWorks.co.uk plc financial statements
for the 52 weeks ended 26 April 2020. The interim financial
statements do not include all of the information required for a
complete set of IFRS financial statements. However, selected
explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in the
Group's financial position and performance since the last annual
financial statements.
The consolidated financial statements are presented in pounds
sterling and all values are rounded to the nearest thousand
(GBP000), except when otherwise indicated.
(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 identified as being relevant to it. The Directors
consider that the risks described in the Group's FY20 Annual Report
and Accounts ("ARA") are still broadly applicable; a table
summarising the key risks is set out in the section following these
interim financial statements, and includes brief notes explaining
how the risks are perceived to have evolved. The Directors have
assessed that the overall level of risk to the business from the
COVID-19 pandemic may have decreased marginally since the ARA was
published, but remains high. The risk relating to Brexit is
considered to have reduced due to the recent announcement of a
trade agreement.
At the date of publishing the ARA, there was a high degree of
uncertainty concerning the possible impact of COVID-19 on the
critical peak trading months of November and December 2020, but
this uncertainty is now removed due to the effluxion of time. A
vaccination programme has also been introduced since the
publication of the FY20 ARA which is expected, in due course, to
reduce the risk level. However, notwithstanding these positive
factors, the recent imposition of a further U.K. national lockdown
indicates that the risk from this pandemic remains high,
particularly in the short term.
The Group operates a plan within which scenario planning and
stress testing has been carried out.
In assessing the appropriateness of the basis of preparation of
the financial statements, the Directors have considered:
-- The external environment.
-- The Group's financial position and bank facilities.
-- Measures taken to increase and maintain liquidity.
-- The potential impact on the financial performance of the business of the principal risks.
-- The output of a "Base Case" scenario financial model, which
uses assumptions designed to reflect the most likely expected
effect on trading of the COVID-19 situation.
-- The resilience of the Group to worsened trading conditions,
evaluated via a revised model referred to as the "Reasonable Worst
Case" ("RWC") scenario financial model.
-- The availability and expected effectiveness of any mitigating
actions that would be taken in response to circumstances arising
such as those modelled under the RWC.
-- The Board has considered the impact on the Group's cash flows, headroom and covenants.
The Base Case and RWC scenario models have been used to make a
judgement regarding using the going concern basis of preparation of
the financial statements.
External environment
As noted above, there continues to be significant uncertainty as
to the future impact on the Group of the COVID-19 global pandemic
and the Directors' assessment is that whilst the level of
uncertainty has marginally reduced, it remains high in the short
term.
The level of uncertainty arising from the UK leaving the
European Union has decreased since the publication of the FY20 ARA,
due to the recent completion of a trade agreement with the EU.
Financial position and bank facilities
The Group operates banking facilities comprising an RCF with a
current limit of GBP22.5m and a GBP7.5m term facility, under the
Government's CLBILS scheme. The RCF limit reduces to GBP20.0m in
January 2022 for the remaining term of the agreement, which expires
in September 2022. The facilities include financial covenants in
relation to the level of EBITDA, net debt and capital
expenditure.
The Group repaid the full amount previously drawn down under its
RCF on 25 September 2020. At the Period end, the Group held net
cash (excluding leases) of GBP11.3m (FY20: net debt of GBP14.1m).
The Group has not made any drawdowns from its RCF facility since
making the repayment on 25 September, but the GBP7.5m CLBILS term
loan has remained fully drawn since its inception in August
2020.
The Group's cash position was strong on entering the lockdown
affecting England in November 2020 which forced it to close most of
its stores. This period coincided with the second most important
trading month of the year, yet it has not been necessary to make
further use of the RCF. However, the recent imposition of another
national lockdown makes it likely that the Group will need to draw
on its RCF facility in the coming months.
Measures to maintain liquidity
The Directors have continued to employ appropriate measures to
maintain or improve liquidity and, in response to the national
lockdown in the UK announced on 4 January 2021, will be
intensifying the measures taken. This will include seeking
additional cooperation from suppliers and landlords. In addition,
the Government's support schemes have partially offset the loss of
sales during the periods when stores have been forced to close and
the Board intends to continue to make full use of these.
Evaluation of Base Case and RWC financial scenarios
To assist the Board in confirming the continued appropriateness
of using the going concern basis in the preparation of the interim
financial statements, two financial scenarios have been used to
quantify the possible impacts on liquidity of applying differing
assumptions. These scenarios cover the FY21 to FY23 financial
years.
These models were first used as the basis for evaluating similar
scenarios in respect of the FY20 year end accounts, and the Board
considers that, taking into account developments since the
publication of the FY20 ARA, the assumptions and sensitivities
applied at that time continue to be relevant and appropriate.
Broadly speaking, the recent UK lockdown represents a worse
situation in relation to post Christmas trading than the models
assumed, but the Group's financial position on entering this phase
of restrictions was significantly better and, on balance, it is
expected that these factors will offset one another.
Under the central Base Case scenario, which represents the
Board's estimate of the most likely level of risk impact, the Group
expects to have sufficient financial resources and the going
concern basis of preparation of the financial statements is
therefore considered appropriate.
Under the more severe RWC scenario, taking into account the
mitigating actions which would be taken in the event of further
impact from COVID-19, and the assumption that the Group would
continue to be able to access the liquidity from its bank
facilities, in the opinion of the Board, there are sufficient
financial resources for the Group to continue to be viable under
this scenario, albeit with reduced headroom compared with the Base
Case.
Conclusion regarding basis of preparation
In addition to the foregoing, in considering the appropriateness
of adopting the going concern basis of preparation, the Directors
also took account of the fact that it is difficult, even now, to
predict with confidence the final impact of COVID-19 on the Group's
profitability in this financial year and, whether there may be
further impacts in the next financial year and, if so, the impact
that these may have.
In light of this level of uncertainty over the duration and
severity of any further disruption, there are scenarios under which
the Group would breach its EBITDA covenant at certain points during
FY22, which represents a material uncertainty that may cast
significant doubt on the Group's and the Company's ability to
continue as a going concern.
Based on all of the above considerations, and having carefully
considered the material uncertainty and mitigating actions
available, the Directors believe that it remains appropriate to
prepare the financial statements on a going concern basis.
(ii) Accounting policies
The interim financial statements for the 26 weeks ended 25
October 2020 have been prepared on a basis consistent with the
accounting policies published in the Group's financial statements
for the 52 weeks ended 26 April 2020.
(iii) Restatement of figures previously reported in the interim
financial statements for H1 FY20
Adjusted measures
As a result of the COVID-19 pandemic and subsequent UK
Government restrictions, the Group classified impairment charges as
adjusting items for the first time in its FY20 Annual Report and
Accounts. The corresponding items in the FY20 interim comparatives
have, therefore, been restated to make them consistent with this
treatment.
The restatement of the prior year comparatives has no impact on
the prior year's statutory measures of reported profit or on the
Group's cash flows or financial position for the 26 week period
ended 27 October 2019. The prior period's adjusted profit measure
has increased by GBP0.3m, due to the classification of the net
store impairment charge as an Adjusting item.
IFRS 16 Right of use assets
In the FY20 interim accounts, the IFRS 16 right of use assets
were grouped together with property, plant and equipment on the
face of the balance sheet. The comparatives have been split out in
these interim financial statements.
IFRS 16 balances arising on adoption
In the preparation of the Group's FY20 Annual Report and
Accounts, certain leases and lease related assets and liabilities
were identified, which had, incorrectly, not been identified as
leases subject to IFRS 16 in the October 2019 interim financial
statements. The comparative figures have been restated for these
items, resulting in the following changes to the reported
numbers:
As at 27 October 2019 (reported) Adjustment As at 27 October 2019 (restated)
GBP000 GBP000 GBP000
------------------------------ -------------------------------- ---------- --------------------------------
Property, plant and equipment 21,397 (458) 20,939
Deferred tax assets 2,494 (612) 1,882
Trade and other payables (45,711) 760 (44,951)
Retained earnings 5,728 310 6,038
------------------------------- -------------------------------- ---------- --------------------------------
Capitalised loan costs
In the FY20 interim accounts, unamortised capital loan costs of
GBP104k were disclosed within "Trade and other receivables" rather
than within "Interest bearing loans and borrowings". The
comparatives have been adjusted to ensure consistency.
Bank overdraft
As at 27 October 2019 the entire cash balance was shown within
"bank overdraft", however only the GBP account was in an overdraft
position. The comparatives have been restated to correctly show the
cash vs. overdraft split.
Duty provision
A provision relating to an estimate of duty due to HMRC was
disclosed within accruals rather than provisions in the FY20
interim accounts. The comparatives have been amended to show this
item as a provision.
(c) Alternative Performance Measures and Adjusting items
In reporting financial information, the Group includes
alternative performance measures (APMs). These 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 the use of APMs, which are not
considered to be a substitute for or superior to IFRS measures, can
provide stakeholders with additional helpful information on the
performance of the business. The business uses APMs in its
operational planning and reporting and within internal management
reporting to the Board. Some APMs are also used for setting
remuneration targets.
APMs should be viewed as supplemental to measures presented in
the Group's consolidated financial statements, which are prepared
in accordance with IFRS. The Group believes that these APMs are
useful indicators of its performance.
The key APMs that the Group uses include: like-for-like sales
growth; Earnings before interest, tax, depreciation and
amortisation (EBITDA), Profit before tax and IFRS 16, Adjusted
EBITDA, Adjusted Profit; and Adjusted earnings per share. The APMs
used by the Group and explanations of how they are calculated and
how they can be reconciled to a statutory measure where relevant,
are set out in Note 5.
"Adjusted" measures are calculated by adding back or deducting
Adjusting Items. Adjusting Items are those items which the Group
analyses separately in order to present a further measure of the
Group ' s performance. Each of these items, costs or incomes, is
considered to be significant in nature and/or quantum or are
consistent with items treated as adjusting in prior periods.
Separately identifying these items from profit metrics provides
additional information on the performance of the business across
periods because it is consistent with how the business performance
is planned by, and reported to, the Board.
On this basis the following items were included in Adjusting
Items in the Period (see also Note 6):
-- Release of part of a provision relating to estimate of duty believed to be due to HMRC.
-- Payments made to former director.
-- Release of packaging waste provision.
None of these items were material in the Period, but each has
been classified as an adjusting item because a related transaction
had been similarly treated in one or more prior period.
(d) Critical accounting judgements and 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 accounting policies. Where a significant risk
of materially different outcomes exists due to management
assumptions or sources of estimation uncertainty, this will
represent a key source of estimation uncertainty. Estimates and
judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates.
The estimates which have a significant risk of causing a
material adjustment to the carrying amount of assets and
liabilities within the next 12 months are discussed below.
Critical accounting judgements
Adjusting items
The directors believe that the Adjusted profit and earnings per
share measures provide additional useful information to
shareholders on the performance of the business. These measures are
consistent with how business performance is measured internally by
the Board and management. The Adjusted profit measures are not
recognised under IFRS and may not be directly comparable with
Adjusted profit measures used by other companies. The
classification of Adjusting items may require significant
management judgement. The Group's definitions of Adjusting items
are outlined within both the Group accounting policies and Note 6.
These definitions have been applied consistently year on year. Each
of the Adjusting items included in these interim financial
statements has had a related or similar transaction in prior
periods that has also been treated as Adjusting.
Note 6 provides further details of items classified as Adjusting
in the Period.
Hedge accounting
The Group is exposed to foreign currency risk, most
significantly to the US dollar as a result of sourcing certain
products from Asia which are paid for predominantly in US dollars.
The Group hedges these exposures using forward foreign exchange
contracts and hedge accounting is applied when the requirements of
IFRS 9 are met, which include that a forecast transaction must be
"highly probable".
The Group has applied judgement in assessing whether the
forecast purchases remain "highly probable", particularly in light
of the decline in expected sales resulting from the COVID-19
pandemic and the related temporary store closures.
The Group's policy is that approximately 50 per cent. of the
forecast purchase requirements are initially hedged, approximately
12 months prior, with incremental hedges taken out over time, as
the buying period approaches and therefore as certainty increases
over the forecast purchases. As a result of this progressive
strategy, reducing the supply pipeline of inventory, should this
occur, does not immediately lead to over-hedging and the
disqualification of "highly probable". If the forecast transactions
were no longer expected to occur, any accumulated gain or loss on
the hedging instruments would be immediately reclassified to profit
or loss.
Key sources of estimation uncertainty
Impairment of property, plant and equipment, right of use assets
and intangibles
Property, plant and equipment, right-of-use assets and
intangible assets are reviewed for impairment if events or changes
in circumstances indicate that the carrying amount may not be
recoverable. The Directors consider an individual retail store to
be a cash-generating unit ('CGU'). The trade restrictions
implemented by the Government during 2020 as a result of the
COVID-19 pandemic are considered an impairment trigger and as a
result all stores have been tested for impairment.
Significant impairment charges were made in FY20 relating to
property, plant and equipment and right of use assets. The Board
has concluded that no further impairment charges were required as
at the Period end date.
The carrying value of the Group's Goodwill was fully impaired in
FY20 and therefore no further provision is required.
2 Segmental reporting
IFRS 8 requires segment information to be presented on the same
basis as is used by the Chief Operating Decision Maker for
assessing performance and allocating resources.
The Group has two revenue streams, in store and online, the
results of which are aggregated into one reportable segment. This
reflects the Group's management and reporting structure as viewed
by the Board of Directors, which is considered to be the Group's
Chief Operating Decision Maker. Aggregation is deemed appropriate
due to store and online channels having significant economic
interdependencies, similar products on offer and a similar customer
base.
3 Revenue
The Group's revenue is derived from the sale of finished goods
to customers. The following table shows the primary geographical
markets from which revenue is derived.
26 weeks ended 26 weeks ended 52 weeks ended
25 October 2020 27 October 201 9 26 April 2020
GBP000 GBP000 GBP000
--------------- ---------------- ----------------- --------------
Sale of goods
- UK 87,057 94,454 220,581
- EU 1,873 1,962 4,461
--------------- ---------------- ----------------- --------------
Total revenues 88,930 96,416 225,042
--------------- ---------------- ----------------- --------------
Seasonality of operations
The Group's revenue is subject to seasonal fluctuations as a
result of the Christmas period. The peak period is from October
through to January; consequently, the first half of the year from
April to October is expected to generate less revenue than the
second half.
The figures above reflect the impact of COVID-19, which required
the stores to be closed from the beginning of the Period until mid
June, when the majority of them were permitted to reopen.
4 Other operating income
26 weeks ended 25 October 26 weeks ended 27 October 52 weeks ended 26 April 2020
2020 2019
GBP000 GBP000 GBP000
---------------------------- ---------------------------- ---------------------------- ----------------------------
COVID-19 Job Retention
Scheme grants receivable 4,472 - 3,650
COVID-19 Business Rates
Relief 7,125 - 1,020
COVID-19 Retail, Hospitality
and Leisure Grant Fund 675 - -
Rent receivable 4 4 7
---------------------------- ---------------------------- ---------------------------- ----------------------------
12,276 4 4,677
---------------------------- ---------------------------- ---------------------------- ----------------------------
The Group has used the financial support packages made available
by the UK Government to businesses that have been adversely
affected by trading restrictions imposed as a consequence of
COVID-19, including the Coronavirus Jobs Retention Scheme, Business
Rates Relief Scheme and the Retail, Hospitality and Leisure Grant
Fund. The above table shows the sums derived from these support
packages.
5 Alternative performance measures ("APMs")
Like-for-like sales
These are defined as the year-on-year growth in gross sales from
stores which have been opened for a full 63 weeks (but excluding
sales from stores closed for all or part of the relevant period or
prior year comparable period), and from its e-commerce platform,
calculated on a calendar week basis. The measure is used widely in
the retail industry as an indicator of sales performance. A
reconciliation of revenue to sales on a like-for-like basis is set
out below. "Total Like-for-like sales" includes a full 26 weeks of
trading for the comparative period ended 27 October 2019; the
reconciliation below shows H1 FY21 LFL sales pre lockdown and post
lockdown to aid comparisons:
26 weeks ended 25 October 26 weeks ended 27 October 52 weeks ended 26 April
2020 2019 2020
GBP000 GBP000 GBP000
-------------------------- ------------------------- -------------------------- --------------------------
LFL sales during lockdown 7,545 24,933 4,873
LFL sales post lockdown 87,931 79,533 218,583
----------------------------- ------------------------- -------------------------- --------------------------
Total Like-for-like sales 95,476 104,466 223,456
----------------------------- ------------------------- -------------------------- --------------------------
Sales from new / closed
stores 5,974 4,681 31,178
Total gross sales 101,450 109,147 254,634
----------------------------- ------------------------- -------------------------- --------------------------
VAT (11,920) (12,032) (27,931)
Loyalty points redeemed (600) (699) (1,661)
----------------------------- ------------------------- -------------------------- --------------------------
Turnover per consolidated
income statement 88,930 96,416 225,042
----------------------------- ------------------------- -------------------------- --------------------------
EBITDA, Adjusted EBIDTA and Adjusted profit after tax
EBITDA is defined by the Group as earnings before interest, tax,
depreciation, amortisation and profit/loss on the disposal of fixed
assets. Adjusted EBITDA is calculated by adding back or deducting
Adjusting items to EBITDA. See Note 1 (c) and (d) for further
information regarding Adjusting items.
In addition, the Group has shown another measure of Adjusted
EBITDA, which removes the impact of IFRS 16. The table below
provides a reconciliation of Adjusted EBITDA to loss after tax, and
shows the impact of IFRS 16 on adjusted EBITDA:
26 weeks 26 weeks 52 weeks
ended 25 ended ended
October 27 October 26 April
2020 2019 2020
GBP000 GBP000 GBP000
---------------------------------------------- --------- ----------- ---------
Non IFRS 16 Adjusted EBITDA 1,483 (3,920) 10,809
---------------------------------------------- --------- ----------- ---------
IAS17 income statement charges not recognised
under IFRS 16 12,762 11,464 23,433
Foreign exchange differences on euro
leases (82) (130) (89)
---------------------------------------------- --------- ----------- ---------
Post IFRS 16 Adjusted EBITDA 14,163 7,414 34,153
---------------------------------------------- --------- ----------- ---------
Loss on disposal of right-of-use assets (373) (574) (795)
Profit on disposal of lease liability 463 648 870
Loss on disposal of property, plant
and equipment (218) (76) (299)
Loss on disposal of intangible assets (620) - -
Depreciation (14,229) (12,548) (25,872)
Amortisation (563) (560) (1,170)
Finance expenses (2,722) (2,099) (4,466)
Finance income 31 - 12
Tax (charge) / credit 969 1,995 (529)
---------------------------------------------- --------- ----------- ---------
Adjusted profit / (loss) after tax (3,099) (5,800) 1,904
---------------------------------------------- --------- ----------- ---------
Adjusting items (182) (680) (20,405)
---------------------------------------------- --------- ----------- ---------
Tax (charge) / credit 17 66 799
---------------------------------------------- --------- ----------- ---------
Loss after tax (3,264) (6,414) (17,702)
---------------------------------------------- --------- ----------- ---------
Profit before tax and IFRS 16
The following tables provides a reconciliation of profit/(loss)
before tax and IFRS 16 adjustments to profit/(loss) before tax.
26 weeks to 25 26 weeks to 27 52 weeks to 26
October 2020 October 2019 April 2020
Adjusting Adjusting Adjusting
Adjusted items Total Adjusted items Total Adjusted items Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- -------- --------- -------- -------- --------- ------- -------- --------- --------
Profit / (loss)
before tax before
IFRS 16 adjustments (3,032) (182) (3,214) (7,518) (680) (8,198) 3,338 (17,560) (14,222)
---------------------- -------- --------- -------- -------- --------- ------- -------- --------- --------
Remove IAS 17 rental
charge 12,717 - 12,717 11,393 - 11,393 23,292 - 23,292
Remove hire costs
from hire of
equipment 45 - 45 71 - 71 141 - 141
Remove depreciation
charged on the
existing assets 214 - 214 146 - 146 298 - 298
Remove interest
charged on the
existing liability 19 - 19 14 - 14 30 - 30
Depreciation charge
on right of use
asset (11,635) - (11,635) (9,941) - (9,941) (20,611) - (20,611)
Interest cost on
lease liability (2,404) - (2,404) (1,904) - (1,904) (4,041) - (4,041)
Loss on disposal
of right of use
asset (373) - (373) (574) - (574) (795) - (795)
Profit on disposal
of lease liability 463 - 463 648 - 648 870 - 870
Foreign exchange
difference on euro
leases (82) - (82) (130) - (130) (89) - (89)
Additional impairment
charge under IAS
36 - - - - (101) (101) - (2,991) (2,991)
Onerous lease
provision
not applicable
under IFRS 16 - - - - 101 101 - 146 146
---------------------- -------- --------- -------- -------- --------- ------- -------- --------- --------
Net Impact on profit
/ (loss) before
tax (1,036) - (1,036) (277) - (277) (905) (2,845) (3,750)
---------------------- -------- --------- -------- -------- --------- ------- -------- --------- --------
Profit / (loss)
before tax (4,068) (182) (4,250) (7,795) (680) (8,475) 2,433 (20,405) (17,972)
---------------------- -------- --------- -------- -------- --------- ------- -------- --------- --------
Other adjusted profit metrics
Other key profit measures including operating profit, profit
before tax, profit for the period, and earnings per share are also
calculated on an Adjusted basis by adding back or deducting
Adjusting items. See Note 1 (c) and (d) for further information
regarding Adjusting items. These adjusted metrics are included
within the consolidated income statement and statement of other
comprehensive income, with further details of Adjusting items
included below in Note 6.
6 Adjusting items
During the period, the items analysed below have been classified
as Adjusting:
26 weeks ended 25 October 26 weeks ended 27 October 52 weeks ended 26 April 2020
2020 2019
GBP000 GBP000 GBP000
---------------------------- ---------------------------- ---------------------------- ----------------------------
Cost of sales
Impairment charges (1) - 506 3,500
Impairment reversals (1) - (176) (176)
Duty Provision(2) (17) 350 786
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total cost of sales (17) 680 4,110
---------------------------- ---------------------------- ---------------------------- ----------------------------
Administrative expenses
Goodwill Impairment(3) - - 16,180
Salary costs(4) 322 - 115
Packaging and waste costs
penalty(5) (123) - -
Total administrative
expenses 199 - 16,295
Total adjusting items 182 680 20,405
---------------------------- ---------------------------- ---------------------------- ----------------------------
(1) These relate to fixed asset impairment charges and reversals
of prior year impairment charges.
(2) Due to reduction in a provision previously recognised
regarding a review of the Group's duty rates, which has
subsequently been concluded.
(3) This relates to the impairment of goodwill during FY20.
(4) Salary costs relate to payments to a former Director.
(5) This relates to the release of an excess provision held
regarding a historical packaging and waste cost penalty.
7 Finance income and expense
26 weeks ended 25 October 26 weeks ended 27 October 52 weeks ended 26 April 2020
2020 2019
GBP000 GBP000 GBP000
---------------------------- ---------------------------- ---------------------------- ----------------------------
Finance income
Bank interest receivable 31 - 12
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total finance income 31 - 12
Finance expense
Bank interest payable 173 164 363
Other interest payable 145 31 62
Interest payable on lease
liabilities 2,404 1,904 4,041
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total finance expense 2,722 2,099 4,466
---------------------------- ---------------------------- ---------------------------- ----------------------------
8 Share based payment arrangements
No additional share options were awarded under TheWorks.co.uk
2018 Long Term Incentive Plan or Save As You Earn Scheme ('SAYE')
during the period (26 weeks ended 27 October 2019 and 52 weeks
ended 26 April 2020: 1,044,915 and 2,622,411 respectively).
During the period, 714,286 restricted stock awards were granted
to key management and senior employees, with a two year vesting
period (26 weeks ended 27 October 2019 and 52 weeks ended 26 April
2020: 79,188).
Expense recognised in the income statement
The IFRS 2 charge recognised during the period can be summarised
as follows:
26 weeks ended 25 October 26 weeks ended 27 October 52 weeks ended 26 April 2020
2020 2019
GBP000 GBP000 GBP000
---------------------------- ---------------------------- ---------------------------- ----------------------------
LTIP - Share based payment
expense 28 94 14
SAYE - Share based payment
expense 18 - 106
Total IFRS 2 charges 46 94 120
---------------------------- ---------------------------- ---------------------------- ----------------------------
9 Employee Benefits
The group operates a defined contribution pension scheme. The
pension charge for the period represents contributions payable by
the group to the scheme and amounted to GBP313k (26 weeks ended 27
October 2019: GBP400k; 52 weeks ended 26 April 2020: GBP782k).
10 Taxation
The income tax expense or credit is determined by multiplying
the loss before tax for the interim reporting period by
management's best estimate of the weighted average annual income
tax rate expected for the full financial year, adjusted for the tax
effect of certain items recognised in full in the interim period.
As such, the effective tax rate in the interim financial statements
may differ from management's estimate of the effective tax rate for
the annual financial statements.
The Group's total income tax credit in respect of the 26 weeks
ended 25 October 2020 was GBP0.986 million (26 weeks ended 27
October 2019: GBP2.061 million). The effective tax rate on total
loss before tax was 23.2 per cent. (26 weeks ended 27 October 2019:
24.3 per cent.) whilst the Adjusted tax rate was 23.8 per cent. (26
weeks ended 27 October 2019: 25.6 per cent.). The difference
between the total effective tax rate and the Adjusted tax rate for
the 26 weeks ended 25 October 2020 and the 26 weeks ended 27
October 2019 relates to certain underlying costs and depreciation
charges being non-deductible for tax purposes.
11 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 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.
25 October 2020 27 October 2019 26 April 2020
Number Number Number
--------------------------------------------------------------- --------------- --------------- -------------
Number of shares in issue 62,500,000 62,500,000 62,500,000
Number of dilutive share options - 3,885 -
--------------------------------------------------------------- --------------- --------------- -------------
Number of shares for diluted earnings per share 62,500,000 62,503,885 62,500,000
--------------------------------------------------------------- --------------- --------------- -------------
GBP000 GBP000 GBP000
--------------------------------------------------------------- --------------- --------------- -------------
Loss for the financial period (3,264) (6,414) (17,702)
Adjusting items 165 614 19,606
Total adjusted profit / (loss) for adjusted earnings per share (3,099) (5,800) 1,904
--------------------------------------------------------------- --------------- --------------- -------------
Pence Pence Pence
--------------------------------------------------------------- --------------- --------------- -------------
Basic earnings per share (5.2) (10.3) (28.3)
Diluted earnings per share (5.2) (10.3) (28.3)
Adjusted basic earnings per share (5.0) (9.3) 3.0
Adjusted diluted earnings per share (5.0) (9.3) 3.0
--------------------------------------------------------------- --------------- --------------- -------------
12 Dividends
Pence per 25 October 2020 27 October 2019 26 April 2020
share GBP000 GBP000 GBP000
-------------------------------------------------- --------- --------------- --------------- -------------
Final dividend for the year ended 28 April 2019 2.4p - 1,500 1,500
Interim dividend for the year ended 26 April 2020 1.2p - - 750
-------------------------------------------------- --------- --------------- --------------- -------------
Total dividend paid to shareholders in the period - 1,500 2,250
-------------------------------------------------- --------- --------------- --------------- -------------
No dividend has been declared by the Company in respect of the
period ended 25 October 2020.
13 Intangible assets
Goodwill Software Total
GBP000 GBP000 GBP000
--------------------------------- -------- -------- -------
Cost
Balance at 26 April 2020 16,180 8,415 24,595
Additions - 562 562
Disposals - (1,208) (1,208)
--------------------------------- -------- -------- -------
Balance at 25 October 2020 16,180 7,769 23,949
--------------------------------- -------- -------- -------
Amortisation/Impairment
Balance at 26 April 2020 16,180 5,221 21,401
Amortisation charge for the year - 563 563
Disposals - (588) (588)
--------------------------------- -------- -------- -------
Balance at 25 October 2020 16,180 5,196 21,376
--------------------------------- -------- -------- -------
Net book value
--------------------------------- -------- -------- -------
At 26 April 2020 - 3,194 3,194
--------------------------------- -------- -------- -------
At 25 October 2020 - 2,573 2,573
--------------------------------- -------- -------- -------
Goodwill impairment testing
Goodwill of GBP16.2 million arose in 2015 when The Works.co.uk
plc acquired The Works Stores Limited (TWSL) in a share for share
transaction. As such, all of the goodwill has been allocated to one
cash generating unit (CGU) being TWSL. A full impairment provision
was made against this balance in the FY20 accounts and no further
impairment assessment is required.
14 Property, plant and equipment
RoUA - RoUA - Plant & Land and Plant & Fixtures &
Property Equipment buildings equipment fittings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- -------- ----------------- --------- --------- ---------- -------
Cost
Balance at 26 April 2020 138,470 1,724 10,591 2,539 25,738 179,062
Additions 8,758 188 66 319 129 9,460
Disposals (623) - (64) (20) (305) (1,012)
--------------------------------- -------- ----------------- --------- --------- ---------- -------
Balance at 25 October 2020 146,605 1,912 10,593 2,838 25,562 187,510
--------------------------------- -------- ----------------- --------- --------- ---------- -------
Depreciation and impairment
Balance at 26 April 2020 22,972 459 4,586 2,185 11,036 41,238
Depreciation charge for the year 11,367 268 499 276 1,819 14,229
Impairment charges - - - - - -
Impairment reversals - - - - - -
Disposals (250) - (16) (15) (140) (421)
--------------------------------- -------- ----------------- --------- --------- ---------- -------
Balance at 25 October 2020 34,089 727 5,069 2,446 12,715 55,046
--------------------------------- -------- ----------------- --------- --------- ---------- -------
Net book value
--------------------------------- -------- ----------------- --------- --------- ---------- -------
At 26 April 2020 115,498 1,265 6,005 354 14,702 137,824
--------------------------------- -------- ----------------- --------- --------- ---------- -------
At 25 October 2020 112,516 1,185 5,524 392 12,847 132,464
--------------------------------- -------- ----------------- --------- --------- ---------- -------
Impairment losses
Property, plant and equipment is reviewed for impairment if
events or changes in circumstances indicate that the carrying value
may not be recoverable. When a review for impairment is conducted
the recoverable amount is estimated based on either value-in-use
calculations or fair value less costs of disposal. Value-in-use
calculations are based on management's estimates of future cash
flows expected to be generated by the assets and an appropriate
discount rate. Consideration is also given to whether the
impairment assessments made in prior years remain appropriate based
on the latest expectations in respect of recoverable amounts.
An impairment review was conducted at 26 April 2020 whereby the
Group determined that each store is a separate CGU. Each CGU was
tested for impairment at that date because the UK Government trade
restrictions implemented as a result of the COVID-19 pandemic were
considered an impairment trigger for such a test.
At 25 October 2020 no additional indicators of impairment have
been identified and no further impairment charges have been
recognised during the Period (52 weeks to 26 April 2020: GBP3,500k;
26 weeks to 27 October 2019: GBP506k).
15 Capital Commitments
As at 25 October 2020, the Group had capital commitments at
GBP249k (26 April 2020: GBP94k, 27 October 2019: GBP1,305k).
16 Inventory
25 October 2020 27 October 2019 26 April 2020
GBP000 GBP000 GBP000
Goods for resale 32,968 36,628 25,750
Goods not for resale - 982 -
Stock in transit 5,548 4,901 844
----------------------- --------------- --------------- -------------
Inventory 38,516 42,511 26,594
----------------------- --------------- --------------- -------------
An inventory provision of GBP2.2m for obsolescence and shrinkage
has been recognised at the period end (27 October 2019: GBP1.3m, 26
April 2020, GBP1.9m). The provision is an estimate, which is based
on stock ageing and historical trends and is reviewed by management
throughout the year.
17 Borrowings
26 weeks ended 26 weeks ended 52 weeks ended
25 October 2020 27 October 2019 (Restated - Note 1b) 26 April 2020
GBP000 GBP000 GBP000
--------------------------------------------- ---------------- ------------------------------------- --------------
Non-current liabilities
Lease liabilities 107,497 94,590 110,200
Unamortised debt issue costs (262) (42) (11)
--------------------------------------------- ---------------- ------------------------------------- --------------
Non-current liabilities 107,235 94,548 110,189
--------------------------------------------- ---------------- ------------------------------------- --------------
Current liabilities
Secured bank loans 7,500 7,000 10,000
Unamortised debt issue costs (286) (62) (62)
--------------------------------------------- ---------------- ------------------------------------- --------------
Current interest bearing loans and borrowings 7,214 6,938 9,938
--------------------------------------------- ---------------- ------------------------------------- --------------
Bank overdraft - 7,567 3,605
Lease liabilities 22,423 18,283 22,002
--------------------------------------------- ---------------- ------------------------------------- --------------
Current liabilities 29,637 32,788 35,545
--------------------------------------------- ---------------- ------------------------------------- --------------
The Group's bank facilities comprise:
-- A GBP22.5m revolving credit facility ("RCF") which expires in
September 2022, with a step down of GBP2.5m in January 2022, to
reflect the profile of the expected facility requirement.
-- A GBP7.5m term loan facility, under the Government's CLBILS
scheme, which also expires in September 2022. No repayments are due
until the expiry date.
-- The facility includes financial covenants in relation to the
level of EBITDA, net debt and capital expenditure.
The RCF has been undrawn since 25 September 2020.
Net debt reconciliation
25 October 2020 27 October 2019 26 April 2020
GBP000 GBP000 GBP000
------------------------------------------------------ --------------- --------------- -------------
Net debt (excluding unamortised debt costs)
CLBILS/RCF 7,500 7,000 10,000
Bank overdraft - 7,567 3,605
Cash and cash equivalents (18,771) (444) (6,546)
Net (cash) / debt at bank (11,271) 14,123 7,059
Non IFRS 16 lease liabilities 957 720 952
------------------------------------------------------- --------------- --------------- -------------
Non IFRS 16 net (cash) / debt (10,314) 14,843 8,011
------------------------------------------------------- --------------- --------------- -------------
IFRS 16 lease liabilities 128,963 112,153 131,250
------------------------------------------------------- --------------- --------------- -------------
Net debt / (cash) including IFRS 16 lease liabilities 118,649 126,996 139,261
------------------------------------------------------- --------------- --------------- -------------
18 Provisions
HMRC duty
Dilapidations provision Total
GBP000 GBP000 GBP000
-------------------------------------- ------------- ----------------------- ------
Balance at 26 April 2020 192 787 979
-------------------------------------- ------------- ----------------------- ------
Provisions made during the period 138 - 138
Provisions used during the period (32) (154) (186)
Provisions released during the period - (17) (17)
Balance as at 25 October 2020 298 616 914
-------------------------------------- ------------- ----------------------- ------
Dilapidation provision
In accordance with IAS 37 Provisions, an estimate has been made
in respect of estimated dilapidation costs associated with
anticipated lease terminations. These costs are expected to be paid
during the course of the year and therefore are not discounted.
HMRC duty provision
During the prior year HMRC initiated a review of the import duty
paid by the Company. This identified that duty was underpaid in the
Stationary, Canvases and Toys product categories.
HMRC's detailed review of the Toys category has been concluded
since the FY20 year end, with a final underpaid duty figure of
GBP550k which was already provided for and has been settled since
the Period end. Professional fees of GBP36k and potential penalty
interest of GBP30k were also provided for as at 25 October 2020.
The penalty was subsequently assessed at GBP750, a de-minimis
amount, in recognition of the Group's cooperative approach to
HMRC's review.
19 Share Capital
As at the 25 October 2020 the company had the following share
capital:
GBP000
-------------- ------
Share capital 625
Share premium 28,322
-------------- ------
20 Financial Instruments
The following table details the Group's expected maturity for
its financial liabilities. The tables below are based on the
undiscounted contractual maturities of the financial liabilities
including interest that will be payable on those liabilities.
Within 1 year 2-5 years 5+ years Total
Contractual maturity of financial liabilities GBP000 GBP000 GBP000 GBP000
------------------------------------------------ ------------- --------- -------- -------
25 October 2020
Non Derivative
Interest bearing 7,500 - - 7,500
Non-interest bearing 54,430 - - 54,430
Finance lease liabilities 22,423 78,293 29,204 129,920
Derivative
Forward currency contracts 294 - - 294
------------------------------------------------ ------------- --------- -------- -------
84,647 78,293 29,204 192,144
------------------------------------------------ ------------- --------- -------- -------
27 October 2019
Non Derivative
Interest bearing 14,567 - - 14,567
Non-interest bearing 44,456 - - 44,456
Finance lease liabilities 18,283 94,590 - 112,873
Derivative
Forward currency contracts 1,005 - - 1,005
------------------------------------------------ ------------- --------- -------- -------
78,311 94,590 - 172,901
------------------------------------------------ ------------- --------- -------- -------
26 April 2020
Non Derivative
Interest bearing 13,605 - - 13,605
Non-interest bearing 26,189 - - 26,189
Finance lease liability (discounted cash flows) 22,002 76,835 33,365 132,202
Derivative
Forward currency contracts - - - -
------------------------------------------------ ------------- --------- -------- -------
61,796 76,835 33,365 171,996
------------------------------------------------ ------------- --------- -------- -------
Fair value measurements
Financial instruments carried at fair value are measured by
reference to the following fair value hierarchy, based on the
degree to which the fair value is observable;
-- Level 1 fair value measurements are derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are derived from inputs other
than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Derivative financial instruments are carried at fair value under
a Level 2 valuation method. All other financial instruments carried
at fair value are measured using the Level 1 valuation method.
There were no transfers between the levels during the current or
prior period.
Derivative Financial Instruments
The fair value of derivative financial instruments at the
Balance Sheet date is as follows:
26 weeks ended 26 weeks ended 52 weeks ended
25 October 2020 27 October 2019 26 April 2020
------------------------------------- ---------------- ---------------- --------------
Net Derivative Financial Instruments
Foreign exchange contracts (160) (849) 1,531
------------------------------------- ---------------- ---------------- --------------
Classification of financial instruments
The tables below shows the classification of financial assets
and liabilities as at 25 October 2020. The fair values of financial
instruments have been assessed as approximately their carrying
value.
Financial
Cash flow assets at Other
Mandatorily hedging amortised financial
at FVTPL instruments cost liabilities
GBP000 GBP000 GBP000 GBP000
------------------------------------------------- ----------- ----------- --------- -----------
Financial assets measured at fair value
Derivative financial instruments - 134 - -
Financial assets not measured at fair value
Trade and other receivables - - 5,873 -
Cash and cash equivalents - - 18,771 -
Financial liabilities measured at fair value
Derivative financial instruments - (294) - -
Financial liabilities not measured at fair value
Bank overdraft - - - -
Unsecured bank loans - - - (7,500)
Finance lease liability - - - (129,920)
Trade and other payables - - - (54,430)
------------------------------------------------- ----------- ----------- --------- -----------
As at 25 October 2020 - (160) 24,644 (191,850)
------------------------------------------------- ----------- ----------- --------- -----------
Financial
Cash flow assets at Other
Mandatorily hedging amortised financial
at FVTPL instruments cost liabilities
GBP000 GBP000 GBP000 GBP000
------------------------------------------------- ----------- ----------- --------- -----------
Financial assets measured at fair value
Derivative financial instruments - 156 - -
Financial assets not measured at fair value
Trade and other receivables - - 9,884 -
Cash and cash equivalents - - 444 -
Financial liabilities measured at fair value
Derivative financial instruments - (1,005) - -
Financial liabilities not measured at fair value
Bank overdraft - - - (7,567)
Unsecured bank loans - - - (7,000)
Finance lease liability - - - (112,873)
Trade and other payables - - - (44,456)
------------------------------------------------- ----------- ----------- --------- -----------
As at 27 October 2019 - (849) 10,328 (171,896)
------------------------------------------------- ----------- ----------- --------- -----------
Financial
Cash flow assets at Other
Mandatorily hedging amortised financial
at FVTPL instruments cost liabilities
GBP000 GBP000 GBP000 GBP000
------------------------------------------------- ----------- ----------- ----------- -----------
Financial assets measured at fair value - - - -
Derivative financial instruments - 1,531 - -
Financial assets not measured at fair value
Trade and other receivables - - 8,130 -
Cash and cash equivalents - - 6,546 -
Financial liabilities measured at fair value
Derivative financial instruments - - - -
Financial liabilities not measured at fair value
Bank Overdraft - - - (3,605)
Unsecured bank overdraft - - - (10,000)
Finance lease liabilities - - - (132,202)
Trade and other payables - - - (26,189)
------------------------------------------------- ----------- ----------- ----------- -----------
As at 26 April 2020 - 1,531 14,676 (171,996)
------------------------------------------------- ----------- ----------- ----------- -----------
21 Related parties
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. There were no
transactions with related parties who are not members of the Group
during this financial period.
22 Contingent liabilities
There were no contingent liabilities noted during the period
ending 25 October 2020.
Responsibility statement of the Directors in respect of the
interim financial statements
We confirm that to the best of our knowledge:
-- the condensed unaudited set of financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first half of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining half of the
year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first half of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
By Order of the Board
Gavin Peck
Director
22 January 2021
Principal risks and uncertainties
The Board has assessed the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity and reviews the Group's most
significant risks at least twice a year.
Risks and uncertainties in addition to those detailed below, not
presently known to management, or deemed less material currently,
may also 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. The principal risks and uncertainties
facing the Group as at the date of this interim management report
are set out below, together with details of how these are currently
mitigated.
Risk Description Mitigation Change in
level of risk
from prior
year
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
COVID-19 COVID-19 has created an unprecedented challenge. We believe the risks to the Group posed by The health and wellbeing of colleagues, customers and wider communities is the Board's overriding New risk
the COVID-19 pandemic are as follows: priority. identified in
-- Potential for significant and prolonged impact on Events are closely monitored by the Board which evaluates the potential impacts and designs FY20 Annual
economic conditions. appropriate response strategies. Report and
The Group maintains a prudent approach to costs, however a number of additional temporary Accounts.
-- The likelihood of continuing /further Government measures were also taken to reduce costs and/or conserve cash, including;
restrictions on trading will affect the ability to -- Use of all applicable Government support schemes. At that time,
trade and may affect the ability of the third party the biggest
logistics provider and parcel delivery provider to -- Reducing store rent payments whilst stores were potential
service online fulfilment. closed, wherever possible, through cooperation with impact was
landlords; expected to be
-- Potential increase in employee absenteeism. during the
-- Careful management of stock intake; peak
-- Supply chain disruption, including disruption to pre-Christmas
stock availability and potential cost inflation. -- Suspended non-essential capital investment, including sales period
new store rollout programme (with the exception of a in FY21.
-- Liquidity risk: the risks listed above could small number of stores which were legally committed); Whilst sales
adversely impact liquidity. were affected
-- Minimised discretionary operational expenditure; due to store
closures, the
business
The Group has worked with its third party logistics partner to increase capacity safely, which entered
worked well during peak trading in November & December 2020. the period
The Group has implemented changes to stores, the distribution centre and store support centre with strong
(including hygiene and social distancing measures and enabling the majority of head office financial
colleagues to be able to work remotely where practical to do so). resources and
although this
disruption
will affect
the financial
result for the
year, the
Group's
liquidity
position
remains sound.
Whilst further
disruption
to trading is
currently
being
experienced,
it is hoped
that the roll
out of a
vaccination
programme
during 2021
will gradually
reduce the
risk level.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Finance Insufficient finance available and/or insufficient headroom in banking facilities. Covenant headroom monitored and forecast covenants calculated on a monthly basis and reported Same risk
Potential to Board. level
for breach of banking covenants if financial performance is significantly worse than Bank facilities renewed August 2020, with increased covenant headroom and expiry date extended
planned. to September 2022.
Strategic emphasis now more on costs and efficiency than previous store roll out plan,
Availability of credit insurance to suppliers may be reduced or removed resulting in an reducing
increased risk.
cash requirement. Constructive dialogue maintained with suppliers, regarding payment terms.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Market The Group generates most of its revenue from the sale of books, toys, art and craft and Ongoing focus on "product discovery" and development of "own brand" offering, helps Same risk
stationery differentiate level
products. Although the Group has a proven track record of understanding customers' needs The Works, bringing unique, quality, products to market at great prices.
within Experienced trading team monitors emerging trends and has a track record of responding to
these categories, these markets are highly competitive, with increasing competition from changing consumer tastes.
"hard Competitor pricing and product offering closely monitored, with key developments discussed
discounters" and customers' tastes and shopping habits can change quickly. at weekly trading meetings and at Board level on a regular basis.
Failure to effectively predict and respond to these changes could affect the Group's sales, Customer feedback is monitored and reported against regularly.
performance and reputation. Sales data, insight from loyalty card database and various online feedback channels are used
Most of the Group's sales are derived from physical shops. The challenges facing the high to drive purchasing and marketing decisions.
street could significantly impact on the Group's future strategy and growth plans. We continue to invest in online capability to ensure that this channel complements the
proposition
in the retail estate, and vice versa, as customers increasingly engage with both channels
whilst shopping.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Economic The Group's business is sensitive to general economic, consumer spending and business The Board considers that the Group's proposition as an alternative to full price specialist Increased risk
environment conditions. retailers, offering quality good value products, positions it well for customers looking to level due to
A decline in economic conditions or a reduction in consumer confidence could impact upon trade-down in times of economic uncertainty. COVID-19
customer Sales trends are monitored at weekly trading meetings, attended by senior management, with pandemic but
spending and subsequently have an adverse effect on the Group's revenue and profitability. mitigating actions agreed to drive sales and/or reduce costs accordingly. Brexit risk
This risk is currently heightened due to COVID-19 and potential concerns regarding Brexit. The senior management team has significant relevant experience. appears to
have reduced
following
announcement
of trade
agreement.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Brand and 'TheWorks.co.uk' is the Group's key brand asset. Protecting and enhancing the Group's brand Values of the business are well communicated to colleagues and the senior management team Same risk
reputation and reputation is vital to the success of the Group. leads by example. level
Failure to protect the brand, in particular regarding product quality and safety, could Intellectual property guidance and education is provided to design and sourcing teams.
result Customer and market research focuses on understanding brand perception.
in the Group's reputation, sales and future prospects being adversely affected. Customer product reviews are monitored closely, with swift action taken to remove products
from sale where quality issues are identified.
The Group operates an in-house product quality assurance team to work with suppliers to ensure
product quality, safety and ethical production.
Third-party technical and ethical audits are conducted and suppliers are required to deliver
a valid product safety test certificate ahead of an order being fulfilled.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Supply The Group uses third parties, including many in Asia, for the supply of products. This An experienced buying team is responsible for the sourcing of products, who maintain strong Similar
chain creates relationships with key suppliers. overall risk
a number of potential areas of risk, including the potential for supplier failures and the The supplier base is continually reviewed. Supply options are diversified and/or changed where level re:
risks of manufacturing and importing of goods from overseas and potential disruption at needed, providing flexibility and reducing reliance on individual suppliers. COVID-19 and
various Tighter controls have been introduced throughout the import process, supported by the freight other risks,
stages of the supply chain. forwarder. We maintain relationships with other freight forwarders to mitigate the risk of lower risk
over-reliance on one provider. level
This disruption risk may be heightened due to COVID-19. Currently, the main supply chain regarding
impact We conduct business fairly, ethically and with respect to human rights. We are committed to Brexit.
is on ocean freight rates and availability of shipping containers. The industry has the prevention of slavery, forced labour or servitude, child labour and human-trafficking,
suffered in our business and supply chain. We have an established Ethical Trading Code of Conduct and
as a result of uneven demand and supply patterns occurring globally due to the pandemic. Human Rights Policy for our partners, manufacturers and suppliers.
Brexit uncertainty remains to some extent, as import and export processes will alter, but All suppliers must sign our Terms and Conditions of Purchase which state the supplier has
the recent agreement of a deal should reduce the risk level. read, understood and agrees to conform to our Ethical Trading Code of Conduct.
Suppliers may fail to act or operate in an ethically appropriate manner. Independent monitoring of suppliers is undertaken using third-party auditors having local
country knowledge and an understanding of social and ethical requirements. The audits take
place directly in the factories and monitor workplace conditions, interview workers and
evaluate
operating conditions. These are based on the Ethical Trade Initiative ('ETI') Base Code. We
also conduct independent product testing as part of our Product Surveillance Test Programme.
We continue to develop our supply chain management procedures and supplier audit programme.
Suppliers have direct contact with our in-house Quality Assurance function.
Recent disruption in the ocean freight industry has caused unprecedented increases in the
cost of shipping a standard container from the far east to the U.K., and also delays. The
impact on stock availability is less critical than might otherwise be the case because the
situation has occurred after the stock build ahead of the Christmas trading peak, and the
recent announcements of further restrictions on trading mean that the requirement for stock
is lessened in any event. We do not believe that this will be a permanent problem, and
compared
to the loss of sales due to trading restrictions, this is a relatively small issue.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Loss of key The Group's strategy and long-term success is heavily dependent on the quality of the Board Succession plans continue to be developed for each member of the senior management team and Same risk
personnel and senior management team. are discussed at Nomination Committee meetings. level
Objectives and development programmes are currently being put in place to support future
There is a risk that a lack of effective succession planning for the senior management team leaders.
and development of key colleagues, could harm future prospects and result in increased Recent recruitment experience suggests that high-calibre candidates want to join a successful
costs. and growing retail business.
The Group's remuneration policy is designed to ensure management incentives support the
long-term
success of the Group for the benefit of all stakeholders.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Business Significant disruption to key parts of the operation, in particular, internal IT systems, A disaster recovery plan and strategy is in place. Same risk
continuity the store support centre or a distribution centre, could severely impact The Group's Disaster recovery dry run exercises are undertaken periodically. level
ability The Group maintains appropriate business interruption insurance cover.
to supply stores or fulfil online sales resulting in significant financial or reputational An emergency generator at the store support centre insulates it from the effect of power cuts.
damage. System recovery is captured as part of the Business Continuity plan and any part could be
invoked depending on the nature of the issue with the system. An in-house development team
maintains the internal systems and can be deployed immediately a problem arises.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Regulation The Group is exposed to a growing number of legal and regulatory compliance requirements The Group's CFO and Company Secretary oversee regulatory compliance with support from external Same risk
and including: advisers. level
compliance the Bribery Act, the Modern Slavery Act, tax evasion and Senior Accounting Officer rules, Senior management team members are aware of the key compliance requirements within their
GDPR, Gender Pay Gap reporting, National Living and Minimum Wage, Environmental and Listing business
Rules. units and liaise with the CFO and external advisers to identify and manage issues.
Failure to comply with these regulations could lead to financial claims, penalties, The Group has a number of policies and procedures governing behaviours in all key areas, some
damages, addressing mandatory requirements (e.g. anti-bribery and corruption, adherence to national
fines or reputational damage which, in some cases, could be material and could living wage requirements) and others adopted voluntarily.
significantly A whistle-blowing policy and procedure is in place, allowing colleagues to confidentially
impact the financial performance of the business. report any concerns or inappropriate behaviour.
The Group has a GDPR policy, a data supervisor and an established GDPR governance meeting,
with minutes and actions circulated to the senior management team.
An out-sourced internal audit function is used as required to focus on key areas of control
which are judged to warrant review.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
IT systems The Group is reliant on the efficiency, reliability and resilience of key IT systems. Recovery of key business systems is captured as part of the Business Continuity Plan with Increased risk
and cyber Failure enhanced working from home capabilities deployed in response to COVID-19. level due to
security to develop and maintain these systems, or any prolonged system performance problems or Support contracts, with appropriate SLAs, are in place for all third-party systems with perception of
cyber-attack, in-house external
could affect the Group's ability to trade and/or could lead to significant fines and systems supported by an experienced in-house development team. environment
reputational Operational practices for maintaining security have been reviewed with revised and more
damage. frequent
patching cycles adopted.
More frequent vulnerability scans and penetration tests are used to validate the robustness
of security.
A Design Review Group meets weekly to assess changes and design security into new systems
and changes.
An audit of Cyber Security was completed by the third party internal audit provider in the
latter part of 2019 and all recommendations are being adopted.
The IT investment strategy is reviewed regularly with the Operating Board including security
and infrastructure investment programmes.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Cost Increases in costs, such as raw materials, commodity and wage costs, could adversely impact Budgets and forecasts prepared by the Group include the expected impact of the national living Potentially
inflation the Group's ability to deliver profit growth. wage and other known cost inflation (e.g. in electricity prices) and, therefore, the Board's slightly
This risk is currently heightened due to: strategic planning takes these into account. lowered risk
-- COVID-19 pandemic may cause increased costs to level due to
mitigate health and safety risks, along with unknown Cost control remains a central focus for the business. recent
impacts on imports and supply chain costs (see also Cost mitigation strategies are in place to offset, where possible, increases in national securing of
supply chain risk described above). minimum Brexit
and living wages (e.g. through productivity improvements). agreement but
-- The current political focus on raising national Hedging policy is in place to manage exposure to foreign exchange rate fluctuations in the potential
living and minimum wages given most of the Group's short term. inflation risk
colleagues are paid the national minimum or living Flexible nature of the Group's product offering means it has the ability to adapt or change due to wider
wage. products to meet margin requirements, supported by the continued growth in own brand offering. macro-economic
The flexible nature of the Group's property leases, approximately three years on average to conditions.
the next exit point, ensures the Group is able to benefit from the current downward trend Assessment is
in rental costs through the rolling renegotiation of its leases. that overall
risk level
is unchanged.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Stock Ineffective controls over the management of stock could impact on the achievement of gross Stock cover levels are set as part of an annual budget process with stock cover by product Same risk
management margin objectives, whilst lack of sufficient product availability could impact on sales. group, and at a total level, reviewed on a weekly basis against these budgeted levels. level
Perpetual Inventory counts are undertaken in stores and at distribution centres to monitor
stock losses.
'Aged stock' is monitored closely with regular markdown action on slow-moving product lines.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Store At the end of FY20, new store rollout was de-emphasised as a pillar of the strategy. The A store location modelling tool supports the new store assessment and sign-off process. Reduced risk
expansion ability UK retail vacancy rates continue to run at high levels, providing opportunities which will level
to identify a set number of suitably profitable new store locations is therefore less be pursued selectively.
critical Each new store opening is approved by the CEO and CFO and will be subject to particularly
than in previous years. close scrutiny in light of tighter capex constraints.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
Seasonality The Group historically makes all of its profit in the second half of the financial year, We continue to explore opportunities to reduce seasonality by growing the year-round appeal Risk level
of sales with of the proposition. remains
the peak Christmas trading period contributing substantially all of this profit. Weekly trading meetings, attended by all members of senior management, ensure action is taken inherently
Interruptions to supply, adverse weather or a significant downturn in consumer confidence to maximise sales based on current and expected trading conditions. high but risk
around this peak trading period could have a significant impact on the sales and The Group invested in increased capacity in its online fulfilment operation for the peak mitigations in
profitability season relation to
of the Group. of FY21, which was successful in avoiding disruptions to service experienced in the previous the COVID-19
two years despite very high online demand due to most of the Group's stores being closed impact
during in November
November 2020 due to lockdown restrictions. and December
2020 were
successful.
----------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------
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END
IR PPUQAGUPGGRG
(END) Dow Jones Newswires
January 22, 2021 02:00 ET (07:00 GMT)
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