TIDMWRKS
RNS Number : 7912F
TheWorks.co.uk PLC
20 July 2021
20 July 2021
TheWorks.co.uk plc
("The Works", the "Company" or the "Group")
Preliminary results for the 53 weeks ended 2 May 2021
"Despite the significant challenges posed by the COVID-19
pandemic, The Works has delivered a resilient performance and
emerged a stronger business."
TheWorks.co.uk plc the multi-channel value retailer of arts,
crafts, toys, books and stationery, announces its preliminary
results for the 53 weeks ended 2 May 2021 (the "Period" or
"FY21").
Financial highlights
-- Total revenue decreased by 19.7 per cent to GBP180.7 million
(FY20: GBP225.0 million) due to pandemic-related temporary
store closures. Encouragingly, despite the impact of the
pandemic, store LFL sales(2) grew by 6.0% when trading and
online sales grew by 120.9% compared with FY20.
-- The pre IFRS 16 Adjusted EBITDA was GBP4.3m (FY20: GBP10.8m),
which was in-line with the Group's original internal forecast.
-- The statutory loss before tax was GBP2.8m (FY20: loss of
GBP18.0m). The net effect of Adjusting items in FY21 was
much smaller than in FY20 which included Adjusting items
of GBP20.4m relating principally to non-cash impairment charges.
-- Generated GBP7.9m net cash resulting in a stronger balance
sheet at the Period end, with GBP0.8m net cash (excluding
leases) compared with GBP7.1m net bank debt at the end of
FY20.
FY21 FY20
GBPm GBPm
Revenue 180.7 225.0
Revenue (decline)/growth (19.7%) 3.5%
Pre-IFRS16 Adjusted(1) EBITDA 4.3 10.8
PBT (2.8) (18.0)
Adjusted(1) PBT (3.6) 2.4
Basic EPS (pence) (3.7) (28.3)
Adjusted(1) basic EPS (pence) (4.9) 3.0
Net bank cash/(debt) 0.8 (7.1)
IFRS16 impact on PBT (0.2) (3.7)
Adjusting items before tax excluded
from Adjusted(1) results 0.8 (20.4)
Operational highlights
-- The broad appeal of The Works' proposition and the loyalty
of its customers were demonstrated by strong sales performance
when stores were able to trade, and throughout the period
online.
-- Core arts and crafts ranges, books and jigsaws were popular
throughout the year, as families sought to entertain their
children, and people looked for new activities. As the year
progressed, demand grew for products to support mental health
and wellbeing, such as adult colouring books and puzzle books.
-- Our online store catered for unprecedented demand when our
stores were closed, contributing to a step change in its
profitability - repaying the investment we made to provide
increased fulfilment capacity and a new more robust web platform.
-- We continued the process that had begun pre-pandemic to evolve
our strategy - including de-emphasising new store openings
in favour of profitable digital growth and driving improvements
through the existing store estate.
-- As a result of the refocused strategy, quick action to invest
online when the pandemic hit and careful cost management,
The Works has ended the year in a strong financial position,
with no net bank borrowings and operationally stronger than
before the pandemic.
-- We delivered our highest ever colleague engagement score,
demonstrating how our colleagues have pulled together during
the pandemic.
Trading update for the 11 weeks ended 18 July 2021
-- We are pleased with the performance since the beginning of
the new financial year, which is ahead of our internal plan.
-- On a 2 year LFL basis, i.e. comparing FY22 sales with the
corresponding weeks at the beginning of FY20, LFL sales for
the 11 weeks have grown by 13.0%. (Sales comparisons with
FY21 are not quoted, as most of our stores were closed for
seven weeks of the comparative period.)
-- Online and store LFLs are both positive, with online sales
levels approximately double the FY20 comparisons.
-- Sales are being driven by growth in categories including
jigsaws and art and craft, which have been popular throughout
the pandemic. In addition, progress against strategic objectives
is starting to bear fruit, for example through improved availability
and in store merchandising of core stock.
-- The outcome for FY22 will be heavily influenced by the strength
of sales in the important months of November and December
but, overall, the positive start to trading in the new financial
year positions the Company well for the full year.
-- We are carefully monitoring the situation in the global freight
system although, at present, the higher costs per container
are covered by our forecasts.
Board Changes
As announced separately this morning, following seven years'
involvement with The Works, Dean Hoyle has decided to step down as
Chairman after the AGM on 30 September and will be replaced by
Carolyn Bradley, who will join the Board as Chair, on the same
date.
Gavin Peck, Chief Executive Officer of The Works, commented:
"It has been an intensely challenging year due to the COVID-19
pandemic but, because of our quick action, careful cost management
and 'can-do' culture, The Works has emerged as a stronger business.
Whilst we couldn't control temporary store closures, we focused on
the things we could control, such as improving operations, managing
costs carefully and continuing to invest in our online offer.
"I'd like to thank all our colleagues who supported the
business, and each other, throughout the pandemic and whilst stores
were temporarily closed. I'm immensely proud of how we've all come
together as a team; it's an example of what makes The Works such a
great business.
"If, at the beginning of FY21, we had known that our shops would
be closed for nearly six months of the year, we would not have
expected to achieve this resilient performance. The foundations we
laid before the pandemic helped us to navigate the year much more
successfully. We had already begun to de-emphasise store openings
in favour of accelerating profitable digital growth, and driving
improvements through the existing store estate, with the aim of
being not just a bigger version of ourselves, but a better
version.
"The net result is that we have ended the year in a strong
financial position, with no bank borrowings and are much more
effective operationally than we were before the pandemic. We are
now even better prepared to execute our refocused strategy and are
confident in the future prospects of the business."
Preliminary results presentation
A presentation for analysts will be held today at 9.30am via
video conference call. A copy of the presentation will shortly be
made available on the Company's website (
www.theworksplc.co.uk/investors ).
Enquiries:
TheWorks.co.uk plc via Sanctuary Counsel
Gavin Peck CEO
Steve Alldridge CFO
Sanctuary Counsel
Ben Ullmann +44 07944 868 288 theworks@sanctuarycounsel.com
Rachel Miller +44 07918 606 667
([1]) Adjusted profit figures exclude Adjusting items. See Note
4 of the extracts from the financial statements for further
details.
([2]) LFL sales are normally defined by the Group as the
year-on-year growth in gross sales from stores which have been
opened for a full 63 weeks (but excluding sales from stores closed
for all or part of the relevant period or prior year comparable
period), and from the Company's online store, calculated on a
calendar week basis. Store LFL sales for FY21 are for the 53 weeks
ended 2 May 2021, excluding periods when stores were required to be
closed to comply with COVID-19 restrictions on trading. Online LFL
sales are for the entire 53 week period, including when the stores
were closed. For individual LFL figures, which are more meaningful
in relation to FY21, please refer to the Revenue section of the
Financial Report.
This announcement contains information which, prior to its
disclosure, was inside information as stipulated under Regulation
11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310
(as amended).
The financial information set out in this statement does not
constitute the Company's statutory accounts for the periods ended 2
May 2021 or 26 April 2020, but is derived from those accounts.
Statutory accounts for FY20 have been delivered to the Registrar of
Companies and those for FY21 will be delivered in due course. The
auditor has reported on those accounts: their reports were (i)
unqualified and (ii) did not contain a statement under section 498
(2) or (3) of the Companies Act 2006. The audit of the statutory
accounts for the Period is now complete. Whilst the financial
information included in this announcement has been computed in
accordance with International Financial Reporting Standards
("IFRS") this announcement does not itself contain sufficient
information to comply with IFRS.
Chairman's statement
A separate announcement has been issued today noting my
intention to stand down as Chairman at the forthcoming Annual
General Meeting. Since I joined The Works as Chairman, the business
has undergone a significant transformation. I am extremely proud of
what has been achieved, such as the IPO, and opening our 500th
store but, more importantly, I am pleased with the journey The
Works has been on more recently to make it a more agile and modern
version of the business that our customers have always known and
loved. This is reinforced by the unique culture, which was
recognised again by Best Companies as being the 13(th) "Best Big
Company to Work For" in 2021. I am certain that this unique culture
played a crucial role in bringing our business through the
challenges of the last year; I am pleased now to leave the business
in capable hands, emerging strongly from COVID and well-positioned
for future growth.
The last year has been dominated by the COVID-19 pandemic, which
has impacted our business, our employees and the communities in
which we operate, in ways previously unimaginable. The challenges
created by the pandemic have been felt particularly by businesses
like The Works that have historically relied almost entirely on
in-store sales. However, it has encouraged us to adapt, to become
more efficient and to accelerate our existing plans to grow our
multi-channel offering.
The pandemic has also put our purpose into sharper focus with
all colleagues initially focused on one thing - getting our
business and each other through the pandemic. Now that our stores
have all reopened and the UK seems to be progressing towards
recovery, we have been able to shift our collective energy into a
new purpose, one that links our 'can do' people with our customers;
people who do, inspiring people to do. This clarity about why we
exist, has already played a big part in our recovery and will
continue to do so as our business and the wider market return to
full strength.
Before I cover the detail of my report, I want to take this
opportunity to offer my sincere thanks to every colleague at The
Works for their support over the last seven years, their continuing
hard work and, perhaps, most of all, their spirit, in facing the
challenges and working through the issues of the last year. It is
customary to give such recognition in these statements but, in
relation to FY21, it is particularly appropriate.
Trading
Our ability to operate was severely restricted by the government
enforced, temporary, store closures across the UK and Republic of
Ireland for a significant proportion of the year, which has had an
inevitable impact on our financial performance. Total revenue
declined significantly as a result of these temporary store
closures, however our LFL sales performance tells an entirely
different story. The swift action taken by the business to adapt,
the ongoing investment in our online offering and the loyalty of
our customers meant that our LFL sales performance was good in the
weeks when stores were able to trade and was excellent online, more
than double the previous year. Overall, it is pleasing to see that
despite the significant level of uncertainty prevailing at this
time last year, The Works delivered a performance that is broadly
in line with what we planned for at the beginning of FY21, although
not in the way we originally expected. This gives us confidence as
to the relevance of our proposition, even in the most challenging
of years.
Leadership
This resilient performance would not have been possible without
the steadfast leadership team who have worked tirelessly during the
pandemic to protect colleagues, customers and the business. They
had already started the process of refining the strategy before the
pandemic, which meant that, despite the significant uncertainty,
their focus remained on things within their control, including
taking swift action to reduce costs and increasing online capacity,
all whilst keeping the wellbeing of colleagues and customers front
of mind. It is no easy feat being thrust into a pandemic only a few
months after becoming CEO, but Gavin Peck rose to the occasion and
with the support of his leadership team the business has emerged in
a position of strength. I am confident that under his leadership
and with the support and guidance of the new Chair, Carolyn
Bradley, The Works will go from strength to strength.
During the pandemic the leadership team also launched new
company values based on the concept of "people who do", which are
closely aligned with the Company's new purpose. People who work at
The Works have always been crafty, caring, with a can-do attitude
and we now have a codified set of values that are led from the very
top. These values have already, and will continue to, define how
the business operates, guide colleagues in the way that they serve
customers and care for one another.
Outlook
The business we operate today has evolved considerably from the
one I joined almost seven years ago. Our key strengths - our brand
and culture - have remained the same, but our scale and our
proposition have evolved significantly. The journey to make us a
more agile and modern version of the business that our customers
know and love is well underway.
I sincerely hope that we are all past the worst of what has been
an incredibly challenging year, but our business will continue to
feel some of the impacts of the pandemic in the year ahead.
Although we are in a strong financial position our priority will be
to continue strengthening the balance sheet before resuming the
payment of dividends. The Board remains committed to resuming
dividend payments to shareholders in the medium term, and currently
plans to review the position in January 2023, based on Christmas
2022 trading performance, with a view to potentially resuming the
payment of dividends at that time.
Trading since our stores reopened has been strong and we expect
this early progress to continue, driven by our refocused strategy
that puts customer needs at the heart of everything we do. This,
together with the ongoing appeal of The Works' proposition, the
resilience demonstrated during the pandemic and the investment made
to make The Works a more agile and modern business, gives the Board
confidence in its future prospects. I strongly believe that The
Works has exciting growth opportunities ahead and remain fully
supportive of this business, its leadership team and all of its
incredible colleagues.
Dean Hoyle
Chairman
20 July 2021
Chief Executive's Report
Introduction
It has been an intensely challenging year but, because of our
quick action, careful cost management and 'can-do' culture, The
Works has emerged as a stronger business. I would like to start by
thanking all our colleagues who supported the business, and each
other, throughout the pandemic and during store closures. I am
immensely proud of how we have all come together as a team. Having
learned lessons from the pandemic, we are now even better prepared
to execute our refocused strategy, described below, and are
confident in the future prospects of the business.
Trading performance and financial results
As expected, given that all our stores were temporarily closed
for a significant proportion of the year during the lockdown
periods, our sales were down 19.7 per cent on the previous year. We
did see phenomenal growth in our online business (up 120.9 per
cent. on a LFL basis), as customers migrated online, and we
delivered a good performance in-store when we were able to trade,
up 6.0 per cent. on a LFL basis. Although online now comprises a
larger proportion of our sales (c.20 per cent. vs. c.10 per cent.
pre-COVID), the balance is still heavily weighted towards stores,
which meant that growth online did not offset the loss in sales
whilst our stores were temporarily closed.
The last year has demonstrated the relevance of our proposition
to a range of customers across the UK and Republic of Ireland and
through each phase of the pandemic. We collated a number of our
products into our successful "Boredom busters" proposition, which
had great appeal to customers of all ages during periods of
lockdown. We also saw strong demand for our core arts and crafts
ranges, books and jigsaws, throughout the year, as families have
sought to entertain their kids, and people have looked for new
activities. As the year progressed, we also saw increased demand
for products to support mental health and wellbeing, such as adult
colouring books and puzzle books. Encouragingly, we are continuing
to see strong demand for these products since lockdowns have
lifted, suggesting that new customers made The Works their go-to
destination for products to entertain, and existing customers also
discovered newfound hobbies and interests.
Whilst we couldn't control store closures, we focused on the
things we could; improving operations, careful cost management and
investment in our online offer. If, at the beginning of FY21, we
had known that our shops would be closed for nearly 6 months of the
year, we could not have imagined delivering the resilient
performance that we did. I n the end, the FY21 result was in line
with our original "COVID-19" budget although we arrived there via a
very different path, with much longer periods of enforced store
closures but stronger sales performance online and in our stores
when we were able to trade.
The pre IFRS 16 Adjusted EBITDA for the year was GBP4.3m (FY20:
GBP10.8m). Given the considerable challenges, I believe this was a
good result and, as noted above, it was in line with our internal
expectation set at the beginning of the year when the pandemic was
in its early stages.
The statutory loss before tax was GBP2.8m (FY20: GBP18.0m loss).
The significant reduction in the size of the statutory loss before
tax compared with the prior year is primarily because, in contrast
to FY20, there was no requirement to book any additional impairment
charges during FY21.
The foundations we laid before the pandemic helped us to
navigate the year much more successfully. We had already begun the
evolution of our strategy, to de-emphasise store rollouts in favour
of accelerating digital growth, and driving improvements through
the existing store estate, with the aim of being not just a bigger
version of ourselves, but a better version of ourselves. Despite
the pandemic, we have already begun to implement key building
blocks for this strategy such as strengthening our Supply Chain and
IT teams and kick-starting a project to review our end-to-end stock
management systems and processes, with an initial focus on our
import and replenishment systems.
The net result is that we have ended the year in a strong
financial position with no borrowings (non IFRS 16 basis) and are
much stronger operationally than we were before the pandemic. I
believe we are therefore well positioned to benefit with our
multi-channel offering as pandemic related restrictions continue to
be removed.
Evolving our strategy - Being Better, Not Just Bigger
As I set out last year, our strategy has evolved, and the
thinking behind this was well underway before the pandemic. The
elements that make our business strong and differentiate us - like
our brand and culture - did not need to change but, as part of our
plan, we will reinforce them, through increased focus and clarity
of purpose. Areas where we can improve and evolve our proposition
include, for example, focusing on availability of core lines that
drive repeat purchases, and developing coherent and complementary
online range extensions in our key product categories, offering
customers more choice. We will continue to offer our customers
fantastic value for money and launch hundreds of new lines every
week, supporting the "discovery" element of what customers love
about us.
The requirement to divert significant resources to successfully
manage the response to the COVID-19 pandemic did hinder the pace of
roll-out of the new strategy but it also provided us the
opportunity to fine tune it and strengthen the team to execute it.
In fact, we learnt a lot during the pandemic and the temporary
closure of our stores, which helped us hone our thinking. As we
move forwards, our future growth strategy will be based on the
following key pillars.
We will continue to develop our brand and increase our customer
engagement. Seeing how our colleagues carried us through this
pandemic and how many new customers were attracted to our brand
confirmed to us that we must continue to invest in engaging
colleagues and customers, which is why we launched our new purpose
and values across the whole business. There are still too many
people who do not know who we are and what we do. By focussing on
fulfilling our new purpose, delivering a product offering aligned
to this and developing marketing plans that clearly communicate the
key differentiators of our brand, we will inspire more people to
discover us, and existing customers to increase their loyalty to
us. This will be underpinned by better customer insight and
analysis, along with better leveraging our "together" loyalty
scheme.
We will enhance our online proposition which will be focused on
bringing new customers to the brand and offering our existing
customers a broader product base, complementary to the ranges we
already offer, that is not constrained by the size of our stores.
We attracted many new customers to our website during the pandemic
and, with a step change in online profitability, a new web platform
and increased fulfilment capacity, we can grow our online business
with confidence, taking advantage of the expected ongoing increase
in penetration of this channel.
We will optimise our store estate. We have a loyal store
customer base, who temporarily migrated online when our stores were
shut, but we believe they remain store shoppers at heart. Our store
estate is the lifeblood of our business, delivering over 80% of our
sales and remains profitable, with only a small tail of
loss-makers. We strongly believe that, through active management,
this will endure for many years to come and therefore we expect to
continue to run an estate of 500+ stores. We will undertake
selective new store openings, limited to no more than ten new
stores per annum in the near term, with a focus on the top 100
locations that we do not currently trade in. We will also exit
loss-making stores where we cannot either increase sales or reach
an agreement with landlords on rent to make these stores
commercially viable. However, the key part of our new strategy is
to improve the in-store customer experience in our existing stores
through better ranging, merchandising and making the stores easier
to shop. We will also ensure that we continue to benefit from
reductions in market rents through our flexible lease terms, which
allow terms to be re-evaluated regularly.
We will drive operational improvements, with an initial focus on
our end-to-end stock management processes and investment in our
systems and data. Our historic focus on rolling out 50 new stores
per annum, at pace, means that many of our processes and ways of
working are outdated and inefficient for a business of our size.
Addressing these current challenges provides opportunities to drive
improved capability and efficiency across our operations, as well
as better product choice and availability for our customers. We are
also taking a more long-term partnership approach with key
suppliers to help drive value after learning over the past 12
months which suppliers are willing to partner with us in this
approach.
Colleagues
The Works has a unique 'can-do' culture, built over decades
which, in the last year, has been distilled into our new purpose:
"people who do, inspiring people to do", along with our core
values: "we are crafty, we are caring, we are can-do". The
importance of having this strong culture became evident during the
pandemic where colleagues were apart physically, and we couldn't be
in-store with customers.
I am really proud of how colleagues have pulled together over
the last year, caring for one another and for customers. It's just
another example of what makes The Works such a great business and
I'm even more pleased to see this externally recognised by the Best
Companies 2021 "Best Big Companies to Work For", which ranked The
Works in 13(th) place, up from 18(th) last year. We also recorded
our highest ever colleague engagement score in our annual survey in
September.
Our colleagues are our most important asset, which is why we
will continue to invest in them to ensure that we continue to have
one of the most engaged and enthusiastic workforces in the sector.
In the last year we have learnt that effective working remotely is
possible, but office working still has a place, so we will
incorporate both into our operations going forward.
Since I took on the role of Chief Executive, we have also made
several management changes, building our team and capabilities in
order to deliver our better, not just bigger strategy. In 2020 we
welcomed several new colleagues who between them bring breadth and
depth of retail experience: Dean Hawkridge as Supply Chain
Director, Jeremy Smith as Property Director and Darren MacDonald as
Retail Operations Director and in July this year we appointed Nina
Findley as Commercial Director. I was also really pleased that
Steve Alldridge, who joined as interim CFO last year, agreed to
stay on permanently in May 2021. We have built a formidable senior
team that has the experience and the can-do attitude to execute our
strategy and propel our business from strength-to-strength.
I know that colleagues will join me in saying a fond farewell to
Dean Hoyle who is stepping down as Chairman and has played such an
important part in The Works' growth and development over the last
seven years. His counsel has been invaluable in guiding our
business through some challenging periods, not least the COVID-19
pandemic, and we wish him all the best for the future. We also look
ahead with optimism as Carolyn Bradley joins The Works as our new
Chair at the end of September. Her experience in retail, brand and
developing customer propositions will be vitally important in
supporting The Works and I look forward to working with Carolyn to
deliver our next stage of growth.
Environmental, Social, and Governance (ESG)
For many companies, initiatives to improve their environmental,
social and governance credentials have understandably taken a
backseat during the COVID-19 pandemic, whilst the focus has been on
protecting the viability of the business. Whilst reviewing our
operations and seeking potential efficiencies, we also took the
opportunity to review our ESG responsibilities, and concluded that
there was a lot more we could do as a
business as part of being better, not just bigger .
We are now jointly focused on recovering from the pandemic and
making less of an impact on the world in which we operate and the
people in it, which is being led by our newly formed ESG Steering
Group. This steering group, which I am proud to chair, is being led
by members of our leadership team and is in the early stages of
making plans to strengthen the structures and processes needed to
improve our ESG capabilities across four key pillars: Giving
Something Back, Inclusion and Diversity, Health and Wellbeing and
Environmental. Although the nature of our business means that we
will not be able to eliminate the consumption of resources, we
recognise our duty to find the right balance, and look forward to
making progress and reporting against each pillar in the years
ahead.
The first milestone we reached in the last year was to cross the
finish line in our #RaceToGBP1million for Cancer Research UK. Since
the launch of our partnership with Cancer Research UK back in 2016
we have tallied up a wealth of achievements, including raising over
GBP180k in contributions from the sales of branded bookmarks and
raising over GBP140k in our last financial year, despite the
challenges of the pandemic. I am incredibly proud of our colleagues
for their efforts over the years to support this worthy cause.
Prioritising mental health has never been more important,
particularly in light of a year of lockdowns and social distancing.
That is why we have chosen to enter into a new tri-nation
partnership with three leading mental health charities - MIND,
SAMH, and Inspire - which we launched with colleagues during Mental
Health Awareness week 2021. They all do vital work in the nations
where we operate, and will also provide support for our colleagues,
and a new objective to fundraise for.
Summary and outlook
In summary, we have come out of a very difficult year with a
strong team, a robust set of results and in a strong financial
position, demonstrating the resilience of our business. We can
rightly be proud of the way we have navigated the pandemic and the
way that colleagues across the business pulled together during it -
giving us a solid foundation for building our future growth. We've
learned lessons, fine-tuned our strategy, assembled a new
leadership team and are now well placed to execute our refocused
strategy; being better, not just bigger.
The consumer recovery is underway but uncertainty still remains.
Since coming out of the third lockdown trading has been very
encouraging but Christmas continues to be our most important
trading period so, whilst we can be pleased with these early signs,
there is still a long way to go. By staying focused on the things
we can control - having a clear and unified purpose and striving to
be a better version of ourselves - we will retain loyalty of our
customers, attract new ones and put ourselves in the best possible
position for future growth.
Gavin Peck
Chief Executive Officer
20 July 2021
Financial review
The FY21 accounting period relates to the 53 weeks ended 2 May
2021 (also referred to as the Period) and the comparative FY20
accounting period relates to the 52 weeks ended 26 April 2020.
As is described more fully in Note 3 of the extracts from the
financial statements included within this report, the Group tracks
a number of alternative performance measures (APMs), as it believes
that these provide stakeholders with additional helpful
information. APMs used in this report include EBITDA, Adjusted
EBITDA and like for like ("LFL") sales. Where it produces a more
meaningful comparison, the FY21 figures in this report are related
to the Adjusted FY20 comparatives.
The statutory loss before tax for FY21 was GBP2.8m (FY20: loss
of GBP18.0m). The net effect of Adjusting items in FY21 was small
compared with FY20 which included Adjusting items of GBP20.4m
relating principally to non cash impairment charges.
The pre IFRS 16 Adjusted EBITDA was GBP4.3m (FY20: pre IFRS 16
Adjusted EBITDA of GBP10.8m).
Overview
FY20's report noted the effect of the enforced closure of the
Group's stores towards the end of that financial year, and the
uncertainty created by the unfolding COVID-19 pandemic. As
expected, the pandemic was the dominant factor shaping FY21's
result and was the cause of reduced sales and profit levels
compared with the prior year. However, whilst the year on year
impact was negative, the EBITDA result was in line with our "Base
Case" scenario modelled at the beginning of the Period, and the
cash position at the end of the year was better than the Base Case
and better than at the end of FY20.
Therefore, although the pandemic had a significant adverse
effect on the Group's FY21 results, in the context of our revised
expectations, the overall outcome was good. As noted elsewhere in
the report, sales were strong online, and in stores when trading
was permitted, and the business worked hard to achieve savings,
particularly in property costs. The Group acknowledges the benefit
of GBP31.2m (FY20: GBP4.7m) from various Government support schemes
(see below for further details), which mitigated some of the
GBP82.4m year on year store sales lost due to The Works being
deemed a non-essential retailer.
Other financial milestones during the Period included a
successful refinancing of the Group's bank facilities and the
agreement of a settlement with HMRC relating to historic duty rates
applied by the Group (referred to in Note 6 of the FY20 financial
statements). The settlement figure was in line with the provision
included in the FY20 accounts.
Whilst uncertainty remains as to the possible continued effects
of the pandemic, it is hoped that FY22 will not be characterised by
further lockdowns and that the Group will be able to trade from all
of its stores throughout the remainder of the period. Assuming that
this transpires, a key financial objective for FY22 will be to
continue to strengthen the balance sheet, affording greater
resilience. Once this objective is achieved, the Board's intention
would be to reintroduce dividends.
Due to rounding, numbers presented throughout this document may
not add up precisely to the totals provided and percentages may not
precisely reflect the absolute figures.
Revenue analysis
Total revenue during the year decreased by 19.7 per cent to
GBP180.7 million (FY20: GBP225.0 million). Store LFL sales during
the period grew by 6.0 per cent. and online sales grew by 120.9 per
cent. compared with FY20.
A quarterly LFL results table has previously been included to
illustrate the trading patterns throughout the year. However, due
to the disruptions to trading as a result of COVID-19, this is
omitted in this year's report.
The table on the following page shows LFL and non LFL sales
growth for the Period, and a reconciliation of sales used to
calculate the LFL, with statutory revenue. The Group does not
typically quote separate LFL figures for stores and online, as this
would be inconsistent with the ethos of a multi-channel business,
but the introduction and subsequent lifting of trading restrictions
throughout FY21, and the consequential disruption to sales
patterns, hinders the interpretation of a combined store and online
LFL sales figure. Therefore, in the current exceptional
circumstances, and to provide some indication of the trading
performance, individual LFLs are quoted in respect of FY21. The
total LFL is included in the table for the purpose of reconciling
the LFL to statutory turnover.
The positive store LFL was a result of strong demand when the
stores were able to trade, demonstrating the appeal of the
proposition and the loyalty of customers. The significant increase
in online sales reflects strong underlying performance, and the
switch of shopping channel by many customers when they were unable
to shop in store. The high demand thus created was able to be met
as a result of investments made to increase online capacity, and in
the new customer website, which enabled the achievement of online
sales well above the level initially planned.
FY21 FY20 Variance Variance
GBPm GBPm GBPm %
------- ------- --------- ---------
LFL store sales when stores were
open(1) 128.9 121.6 7.3 6.0%
Online sales 62.1 28.1 34.0 120.9%
------- ------- --------- ---------
Total LFL sales for the period 191.0 149.7 41.3 27.6%
Non LFL store sales(2) 15.2 104.9 (89.7) (85.5)%
Total Gross Sales 206.2 254.6 (48.4) (19.0)%
VAT (24.3) (27.9) 3.6 (12.9)%
Cost of loyalty scheme points redeemed (1.2) (1.7) 0.5 (29.4)%
------- ------- --------- ---------
Revenue per statutory accounts 180.7 225.0 (44.3) (19.7)%
======= ======= ========= =========
Memo: total store sales (LFL plus
non-LFL) 144.1 226.5 (82.4) (36.4)%
Footnote:
(1) LFL sales are normally defined by the Group as the year on
year growth in gross sales from stores which have been opened for a
full 63 weeks (but excluding sales from stores closed for all or
part of the relevant period or prior year comparable period), and
from the Company's online store, calculated on a calendar week
basis. Store LFL sales for FY21 are for the 53 weeks ended 2 May
2021, excluding periods when stores were required to be closed to
comply with COVID-19 restrictions on trading. Online LFL sales are
for the entire 53 week period, including when the stores were
closed.
(2) The non LFL store sales figure for the prior year includes
sales from "LFL" stores during weeks when those stores were
required to be closed during FY21
The number of stores trading (ignoring any COVID-19 related
closures) reduced by seven during the period, from 534 to 527. This
was in line with the strategy of optimising the retail store
estate, which entailed closing eleven stores, opening four new
stores, and relocating two stores. The number of stores opened and
closed is shown in the table below. Most of the capital cost of
opening the new stores was funded via capital contributions from
landlords, minimising the impact on the Group's cashflow. The new
stores are trading successfully with sales levels above their
financial appraisal targets.
Store numbers FY21 FY20
----- -----
Opening store numbers 534 497
Opened in the period 4 51
Closed in the period (11) (14)
Closing store numbers 527 534
===== =====
The cost of loyalty points redeemed dropped due to the lower
sales levels; the cost in relation to sales was broadly in line
with the previous year.
Books are zero rated for VAT, and in FY21 represented a lower
proportion of online sales than store sales. The high online sales
relative to store sales during the year resulted in a reduction in
sales mix of books and consequently a slight incr ease in the
effective VAT rate.
Product gross margin and adjusted cost of sales
Product gross margin and gross margin percentage
The product gross margin (the difference between revenue and the
cost of goods sold) decreased by 10bps to 61.7% (FY20: 61.8%).
The underlying product gross margin was broadly unchanged year
on year, although this was the net effect of some variances which
offset one another. During H2 FY21, global freight rates increased
significantly compared to the prior year, but this was largely
offset by a reduction throughout the Period in the level of
discounting, particularly online. The hedged FX rates were broadly
similar year on year, resulting in a neutral FX effect. Progress on
plans to increase the gross margin percentage through increased use
of direct sourcing was hindered by restrictions on travel to Asia
as a result of COVID-19; nevertheless, this remains an area of
focus, and implementation will begin when it is possible to resume
travel to visit suppliers.
Due to the enforced temporary closures of the stores, it was not
possible to complete the full programme of stock counts during the
year, nor was it possible to clear the usual volumes of terminal
stock in the January 2021 sale. These factors necessitated an
increased level of Period end stock provisions compared with the
prior year, however, the overall impact on the profit and loss
account charge was lessened by the fact that a lower volume of
stock adjustments were processed during the course of FY21. The net
adverse impact on the product gross margin compared to FY20 was
approximately 0.3%.
FY21 FY20 Variance Variance
GBP'm GBP'm GBP'm %
------ ------------- --------------- ---------
Revenue 180.7 225.0 (44.3) (19.7%)
Cost of goods sold 69.1 86.1 17.0 19.7%
Product gross margin 111.5 138.9 (27.4) (19.7%)
====== ============= =============== =========
Product gross margin % 61.7% 61.8% (0.1%)
Adjusted cost of sales
The key movements in the Adjusted cost of sales figures included
in the Consolidated Income Statement may be described by reference
to the sub classifications shown in the table below, which are
consistent with how these items are analysed internally.
FY21 FY20
(Restated(1)
))
----------------- -----------------
Pre IFRS16 cost of sales GBPm % of GBPm % of GBPm % Variance
analysis revenue revenue Variance
------ --------- ------ --------- ---------- -----------
Cost of goods sold 69.1 38.3 86.1 38.2 16.9 19.7
Store payroll 37.7 20.8 42.1 18.7 4.4 10.5
Store property costs 32.75 18.1 44.3 19.7 11.6 26.1
Other direct costs 20.3 11.2 14.5 6.5 (5.8) (39.8)
---------- -----------
Cost of sales (per internal
reporting) 159.8 88.5 187.0 83.1 27.2 14.5
====== ========= ====== ========= ========== ===========
Depreciation within cost
of sales 5.2 2.9 5.2 2.3 - 0.2
IFRS16 impact (non Adjusting) (4.2) (2.3) (2.7) 1.2 1.5 57.4
Adjusting items (1.0) (0.1) 4.1 1.8 5.1 n/a
---------- -----------
Cost of sales per statutory
accounts 159.8 88.4 193.7 86.0 33.8 17.0
====== ========= ====== ========= ========== ===========
(1) See property costs below and Note 2 of the extract from the
financial statements.
Cost of goods sold
This comprises the cost of purchasing stock, including import
duty and freight/carriage costs. The cost of goods sold decreased
by GBP16.9m compared with FY20; the majority was due to the
decrease in revenue, in addition to the factors noted above in
relation to the gross product margin percentage.
Store payroll
Store payroll costs decreased by GBP4.4m compared with FY20.
This was largely due to store colleagues being furloughed when
stores were required to be closed, during most of which time,
salaries were paid at 80% of normal levels, in line with the
amounts which could be reclaimed under the Government's Coronavirus
Job Retention Scheme. Note that amounts claimed pursuant to this
scheme are classified as Other operating income.
The costs include the annual increase in the National Living
Wage. The underlying level of store labour productivity improved
slightly year on year, reflecting the realisation of some early
benefits from the strategy to simplify store operations to remove
unnecessary tasking. It is hoped that the continued focus on this,
which will be aided by initiatives in other areas of the business
(for example, supply chain) will partially mitigate future
increases in the National Living Wage.
Store property costs
Store property costs include store rents, business rates and
service charges. Store utility and maintenance costs are classified
within "Other direct costs", below.
Store property costs decreased by GBP11.6m compared with FY20 as
a result of COVID-19 business rates relief of GBP14.1m (FY20:
GBP1.0m) and negotiations with landlords to reduce rents or obtain
rent free periods when stores were closed. The reduction in costs
was partially offset due to stores opened during FY20 incurring a
full year's property costs during FY21. In the prior year financial
statements, business rates relief was disclosed as other operating
income, with cost of sales grossed up accordingly. These amounts
have been restated, and the business rates relief is reflected as a
reduction in cost of sales.
Other direct costs of sale
This includes credit/debit card transaction fees, store utility
costs, store maintenance costs, online marketing costs, online
fulfilment labour costs and store point of sale material costs
(window graphics, in-store promotional signage etc.).
Other direct costs of sale were GBP5.8m higher than in FY20,
primarily due to the significant increase in online sales, which
caused online fulfilment and marketing costs to increase, albeit
the marketing cost element increased by a much smaller percentage
than the online sales increase. There was a reduction in store
electricity costs due to the stores being closed for extended
periods along with a reduction in store marketing and promotional
spend.
Operating income and expenses (pre. IFRS 16 and Adjusting
items)
Other operating income
Other operating income was GBP17.1m (FY20: GBP3.7m). As noted
above, in the prior year financial statements, business rates
relief was incorrectly disclosed as other operating income, with
cost of sales grossed up accordingly. These amounts have been
restated, and the business rates relief is reflected via a
reduction in cost of sales.
FY21 FY20 Variance
GBPm GBPm GBP'm
----- ----- ---------
Coronavirus Job Retention Scheme grants
receivable 15.3 3.7 11.6
COVID-19 business grants receivable 1.8 - 1.8
Other operating income 17.1 3.7 13.4
===== ===== =========
Expenses
Expense comparison: FY21 FY20
--------------------------- ----------------- ---------- -----------
GBPm % of GBPm % of GBPm % Variance
revenue revenue Variance
---------------- --------- ------ --------- ---------- -----------
Pre-IFRS16, adjusted
distribution costs 15.0 8.3 12.4 5.5 (2.5) (20.4)
Depreciation 0.1 0.1 0.2 0.1 0.1 55.3
IFRS16 impact (non - - - - - -
Adjusting)
---------------- --------- ------ --------- ---------- -----------
Distribution costs
per statutory accounts 15.1 8.3 12.7 5.6 (2.4) (19.2)
================ ========= ====== ========= ========== ===========
Pre-IFRS16, adjusted
administration costs 18.8 10.4 18.5 8.2 (0.3) (1.7)
Depreciation 1.7 0.9 1.6 0.7 (0.1) (8.7)
IFRS16 impact (non
Adjusting) (0.4) (0.2) (0.4) (0.2) 0.0 0.2
Adjusting items 0.2 0.1 16.3 7.2 16.1 98.8
Administration costs
per statutory accounts 20.3 11.2 35.9 16.0 15.7 43.6
================ ========= ====== ========= ========== ===========
Distribution costs
Distribution costs include the cost of picking and delivery of
stock, except the direct labour costs of fulfilling online orders,
which are included in "Other direct costs" as described above.
Distribution costs increased by GBP2.5m, 20.4 per cent compared
with FY20.
The increase in distribution costs was primarily a function of
the increase in online sales; the increase in the online fulfilment
capacity to facilitate this also incurred some additional costs;
these increases were partially offset by lower pallet delivery
costs to stores as a result of the store closures.
Administration costs
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 increased by GBP0.3m, 1.7 per cent.
compared to the prior year, driven by an increase in audit and
other professional fees. This was partially offset by savings in
travel, accommodation and training costs.
Adoption of IFRS 16 - Leases
The Group adopted IFRS 16 'Leases' in FY20. IFRS 16 specifies
how to recognise, measure, present and disclose leases and replaces
IAS17 'Leases'.
The Group adopted IFRS 16 from 29 April 2019 using the modified
retrospective approach, under which the cumulative effect of the
initial application of the new standard was recognised as an
adjustment to the opening balance of retained earnings at 29 April
2019.
The net impact on the loss before tax for the period was an
expense of GBP0.1m (FY20: GBP3.7m). Further information is provided
in Note 8 of the extracts from the financial statements included in
this report.
Adjusting items
Adjusting items before tax in the period amounted to a credit of
GBP0.8m (FY20: charge of GBP20.4m). Most of the items treated as
Adjusting related to impairment reversals; aside from these,
Adjusting items were immaterial. Further details are included in
Note 4 of the extracts from the financial statements.
Net financing expense
Net financing costs in the year were GBP5.5m (FY20: GBP4.5m),
most of which relates to notional non-cash interest charges on
lease liabilities, created by the operation of IFRS 16. This
represented GBP4.9m of the total (FY20: GBP4.0m).
In August 2020, the Group completed a refinancing of its bank
facilities, at a cost of GBP0.6m, which is being amortised over the
life of the facility. Costs relating to the old facility were
written off and are included within Other interest payable, along
with the amortisation of the costs of the new facility.
The Group made minimal use of its bank facilities during the
year and, consequently, underlying bank interest payable was
immaterial, and broadly in line with last year.
Foreign exchange
Approximately forty per cent. of the Group's stock purchases are
made in US dollars. The Group uses simple forward contracts to
smooth the effect of exchange rate fluctuations, and hedge
accounting is used to account for foreign exchange hedging
contracts, to minimise unnecessary volatility in earnings. Further
details of the Group's foreign exchange hedging policy are included
in Note 25 of the FY21 Annual Report and Accounts.
FY21's average hedged rate was c. US$1.30 (FY20: US$1.27). Most
of the anticipated dollar requirements for FY22 are hedged via
forward contracts, at an average rate of c. US$1.29.
Adjusted loss/profit before tax
The Adjusted loss before tax and IFRS 16 was GBP3.4m in the year
(FY20: profit of GBP3.3 million).
Tax
The Group's total income tax credit in respect of FY21 was
GBP0.5m (FY20: credit of GBP0.3m). The effective tax rate on total
profit before tax was 17.9 per cent. (FY20: 1.5 per cent.), whilst
the effective tax rate on the total loss before adjusted items was
14.0 per cent. (FY20: 21.7 per cent.).
The difference between the total effective tax rate and the
adjusted tax rate for FY21 relates to fixed asset impairment
reversals within Adjusting items being non-deductible for tax
purposes (FY20: primarily related to goodwill impairment within
Adjusting items being non-deductible for tax purposes).
Earnings per share
The basic and diluted loss per share for the year was 3.7 pence
(FY20: loss of 28.3 pence).
Before Adjusting items, the basic and diluted underlying loss
per share for the year was 4.9 pence (FY20: earnings of 3.0 pence).
More details regarding earnings per share are included in Note 12
of the FY21 Annual report and Accounts.
Capital expenditure
Capital expenditure amounted to GBP2.4m in the year (FY20:
GBP8.7m), which is broadly in line with the GBP3m anticipated level
indicated in last year's Annual Report. The majority of the capex
defrayed on opening new stores was funded by landlord
contributions. As noted last year, in order to preserve liquidity
during the COVID-19 pandemic, capex was planned at a de-minimis
level for FY21, which is reflected in the low level of expenditure
detailed below.
FY21 FY20 Variance
GBP'm GBP'm GBP'm
------ ------ ---------
New stores and relocations 0.6 4.8 4.2
Store refits and rebrands 0.7 0.4 (0.3)
IT hardware and software 0.6 0.8 0.2
Web development 0.5 1.4 0.9
Other 0.1 1.3 1.2
------ ------ ---------
Total capital expenditure 2.4 8.7 6.3
====== ====== =========
Inventory
Inventory (stock) levels were GBP29.1m at the end of FY21 (FY20:
26.6m), an increase of 9.4%.
FY21 FY20
GBPm GBPm
------ ------
Gross stock value 31.0 27.6
Less: stock provisions for shrinkage and obsolescence (4.4) (1.9)
------ ------
Goods for resale net of provisions 26.7 25.6
Stock in transit 2.5 0.8
Inventory 29.1 26.6
====== ======
The stock level at the end of the Period was higher than at the
end of FY20 due to the stores being closed for several months prior
to the end of FY21, as a result of the third phase of lockdown
restrictions. FY20 was similarly affected, but the period of
closure of the stores at the end of FY20 was much shorter than in
FY21.
Whilst the stock level is higher than the optimal level, it is
entirely manageable, and will be progressively reduced during FY22.
It is likely that some additional discounting will be needed to
assist in this, and appropriate allowance has therefore been made
within the stock obsolescence provisions, which are significantly
higher than in prior years. The stock shrinkage provision also
includes allowance for a higher than normal level of unrecognised
stock loss, due to the interruption of the normal stock counting
and adjustment process when the stores were closed. These
calculations have entailed the use of estimates and judgements
combined with mechanistic calculations and extrapolations. Brief
details of the shrinkage and obsolescence provisions are noted
below, and please refer also to Note 9 of the extracts from the
financial statements included in this report.
Shrinkage provision
In a normal year not affected by lockdowns, the Group would
carry out stock counts in its retail stores on a regular basis such
that, at the end of the financial year, all, or substantially all
of the stock in stores had been counted. The closure of the stores
due to lockdowns interrupted this process and, therefore, it was
not possible to achieve full coverage of the stock file.
Consequently, the stock records were not able to be updated to
reflect the results of stock counts for all stores and, therefore,
the provision required for unrecognised shrinkage was significantly
greater than normal. This increased the level of estimation
uncertainty relating to the provision.
Obsolescence provision
The nature of what the group sells means that there is usually
little stock which has a "shelf life", or is at risk of going out
of fashion. Slow selling lines, or lines that have sold
successfully and become fragmented as they reach the natural end of
their planned selling period, are usually discounted and sold
during routine "sale" events, for example the January sale. The
closures of the stores due to lockdowns interrupted this process,
so at the balance sheet date, the Group carried a higher than
normal level of terminal stock. Accordingly, an increase has been
made in the provision for obsolescence; calculating this entailed a
greater than normal degree of judgement, due to uncertainty
regarding how much discounting may be required to sell the
stock.
Cashflow
The table shows a summarised non IFRS 16 presentation cashflow
to aid the description of the significant cashflow movements during
the period. The financial statements include a statutory
consolidated cashflow statement.
FY21 FY20 Variance
GBP'm GBP'm GBP'm
------ ------- ---------
Cashflow pre-working capital 3.3 9.2 (5.9)
Working capital in / (out) flow 7.7 (8.1) 15.8
Capex (2.4) (8.7) 6.3
Tax paid - (1.0) 1.0
Bank facility refinancing (0.6) - (0.6)
Interest (0.3) (0.2) (0.1)
Foreign exchange movements 0.2 0.3 (0.1)
Dividends - (2.3) 2.3
------ ------- ---------
Total movement in net cash/(bank debt) 7.9 (10.8) 18.7
------ ------- ---------
Cash at end of period 8.3 2.9 5.4
Debt at end of period (7.5) (10.0) 2.5
------ ------- ---------
Net cash/(bank debt) 0.8 (7.1) 7.9
====== ======= =========
The net cash inflow for the year was GBP7.9m (FY20: GBP10.8m
outflow).
The working capital inflow of GBP7.7m includes the receipt of a
GBP3.7m prior year debtor in relation to the Coronavirus Job
Retention Scheme for colleagues furloughed during the latter weeks
of FY20. As a result of extensions to payment terms (including rent
deferrals), some of which are permanent and some temporary, the
working capital inflow includes a higher Period end creditor
balance than at the end of FY20. At least GBP2.0m of this is
expected to reverse during the course of FY22.
During the year the Group repaid GBP10.0m (FY20: GBP10.0m draw
down) of its GBP25.0m revolving credit facility ("RCF"), but drew
down a GBP7.5m CLBILS term loan.
Bank facilities and financial position
The financial position of the Group improved significantly
during the Period, at the end of which, there were no net bank
borrowings. At the Period end, the Group held net cash (excluding
lease liabilities) of GBP0.8m (FY20: net bank debt of GBP7.1m)
resulting in headroom of GBP30.0m within its bank facility limit.
Despite sales levels being significantly lower than normal,
liquidity was improved through the tight control of costs allied to
careful cash management and the decision to make use of the
available Government support schemes.
The Group's bank facilities comprise a revolving credit facility
('RCF') of GBP22.5m and a GBP7.5m term loan facility written under
the Government's CLBILS scheme, both of which expire on 30
September 2022. The RCF limit reduces to GBP20.0m in January 2022
and remains at this level until its expiry. Based on the supportive
stance taken by the bank, HSBC, and the Group's careful management
of the relationship, the Board expects these facilities to be
extended or replaced, as required, in due course.
The facility includes financial covenants in relation to the
level of EBITDA, net debt and capital expenditure. The covenant
levels in relation to EBITDA have recently been revised by the
bank, to allow for the effects of the winter 2020/21 lockdowns,
which affected the historic last twelve months or 'LTM' cumulative
EBITDA calculation used in the covenant.
The cash and borrowings of the Group at the period end are shown
in Notes 19 (Cash and cash equivalents) of the FY21 Annual Report
and Accounts and Note 10 (Borrowings) of the extracts from the
financial statements included in this report . In addition, Note 25
(Financial risk management) of the FY21 Annual report and Accounts
describes the Group's approach to capital and financial risk
management.
Dividends
In line with previous guidance issued, and due to the impact of
COVID-19, the Board will not be recommending a dividend in respect
of FY21, prioritising instead the further strengthening of the
balance sheet. Nevertheless, the Board remains committed to paying
dividends in the medium term and plans to review the
appropriateness of doing so in January 2023, based on the Christmas
2022 trading performance.
Steve Alldridge
Chief Financial Officer
20 July 2021
Consolidated Income Statement
For 53 week period ended 2 May 2021
52 weeks to 26 April 2020
53 weeks to 02 May 2021 (Restated - Note 2)
---------------------------------------------- --------------------------------
Result Result
before before
Adjusting Adjusting Adjusting Adjusting
items items Total items items Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Revenue 3 180,680 - 180,680 225,042 - 225,042
Cost of sales (160,733) 975 (159,758) (189,537) (4,110) (193,647)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Gross profit 19,947 975 20,922 35,505 (4,110) 31,395
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Other operating
income 2 17,081 - 17,081 3,657 - 3,657
Distribution expenses (15,075) - (15,075) (12,656) - (12,656)
Administrative
expenses (20,062) (199) (20,261) (19,619) (16,295) (35,914)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Operating profit/(loss) 5 1,891 776 2,667 6,887 (20,405) (13,518)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Finance income 18 - 18 12 - 12
Finance expenses (5,486) - (5,486) (4,466) - (4,466)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Net financing expense (5,468) - (5,468) (4,454) - (4,454)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Profit/(loss) before
tax (3,577) 776 (2,801) 2,433 (20,405) (17,972)
Taxation 502 - 502 (529) 799 270
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Profit/(loss) for
the period (3,075) 776 (2,299) 1,904 (19,606) (17,702)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Profit/(loss) before
tax and IFRS 16 3 (3,395) 707 (2,688) 3,338 (17,560) (14,222)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Basic earnings
per share (pence) (4.9) (3.7) 3.0 (28.3)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Diluted earnings
per share (pence) (4.9) (3.7) 3.0 (28.3)
------------------------ ---- ---------- ----------------------- --------- ---------- --------- ---------
Profit for the period is attributable to equity holders of the
Parent.
Consolidated Statement of Comprehensive Income
For the 53 week period ended 2 May 2021
FY21 FY20
GBP000 GBP000
----------------------------------------------------- ------- --------
Loss for the year (2,299) (17,702)
Items that may be recycled subsequently into profit
and loss
Cash flow hedges - changes in fair value (2,865) 932
Cash flow hedges - reclassified to profit and
loss 252 (91)
Cost of hedging reserve - changes in fair value (90) 312
Cost of hedging reserve - reclassified to profit
and loss (160) (197)
Tax relating to components of other comprehensive
income 536 (248)
----------------------------------------------------- ------- --------
Other comprehensive (loss)/income for the period,
net of income tax (2,327) 708
----------------------------------------------------- ------- --------
Total comprehensive loss for the period attributable
to equity shareholders of the Parent (4,626) (16,994)
----------------------------------------------------- ------- --------
Consolidated Statement of Financial Position
As at 2 May 2021
FY21 FY20
Note GBP000 GBP000
-------------------------------------- ---- -------- --------
Non-current assets
Intangible assets 6 2,463 3,194
Property, plant and equipment 7 18,325 21,061
Right-of-use assets 8 111,741 116,763
Deferred tax assets 2,852 1,802
-------------------------------------- ---- -------- --------
135,381 142,820
Current assets
Inventories 9 29,132 26,594
Trade and other receivables 6,913 8,130
Derivative financial asset - 1,531
Current tax asset 704 687
Cash and cash equivalents 10 8,315 6,546
-------------------------------------- ---- -------- --------
45,064 43,488
-------------------------------------- ---- -------- --------
Total assets 180,445 186,308
-------------------------------------- ---- -------- --------
Current liabilities
Bank overdraft 10 - 3,605
Interest-bearing loans and borrowings 10 7,095 9,938
Lease liabilities 8 31,552 22,002
Trade and other payables 26,188 26,189
Provisions 718 979
Derivative financial liability 1,649 -
-------------------------------------- ---- -------- --------
67,202 62,713
Non-current liabilities
Interest-bearing loans and borrowings 10 - (11)
Lease liabilities 8 104,362 110,200
Derivative financial liability 53 -
-------------------------------------- ---- -------- --------
104,415 110,189
-------------------------------------- ---- -------- --------
Total liabilities 171,617 172,902
-------------------------------------- ---- -------- --------
Net assets 8,828 13,406
-------------------------------------- ---- -------- --------
Equity attributable to equity holders
of the parent
Share capital 625 625
Share premium 28,322 28,322
Merger reserve (54) (54)
Share-based payment reserve 1,601 1,506
Hedging reserve (1,203) 1,171
Retained earnings (20,463) (18,164)
-------------------------------------- ---- -------- --------
Total equity 8,828 13,406
-------------------------------------- ---- -------- --------
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Company
-----------------------------------------------------------------------------
Share-based
Share Share Merger payment Hedging Retained Total
capital premium reserve reserve reserve([1]) earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Balance at 28 April 2019 625 28,322 (54) 1,373 144 7,927 38,337
Transition to IFRS 16 - - - - - (6,139) (6,139)
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Restated balance at 29
April 2019 625 28,322 (54) 1,373 144 1,788 32,198
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Total comprehensive income
for the period
(Loss)/Profit for the
period - - - - - (17,702) (17,702)
Other comprehensive income - - - 13 695 - 708
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Total comprehensive income
for the period - - - 13 695 (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 - - - - - (2,250) (2,250)
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Total transactions with
owners - - - 120 - (2,250) (2,130)
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Balance at 26 April 2020 625 28,322 (54) 1,506 1,171 (18,164) 13,406
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Total comprehensive income
for the period
(Loss)/Profit for the
period - - - - - (2,299) (2,299)
Other comprehensive income - - - 14 (2,341) - (2,327)
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Total comprehensive income
for the period - - - 14 (2,341) (2,299) (4,626)
Hedging gains and losses
and costs of hedging
transferred to the cost
of inventory - - - - (33) - (33)
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Transactions with owners
of the Company
Share-based payment charges - - - 81 - - 81
Dividend - - - - - - -
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Total transactions with
owners - - - 81 - - 81
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
Balance at 2 May 2021 625 28,322 (54) 1,601 (1,203) (20,463) 8,828
---------------------------- -------- -------- -------- ----------- ------------- --------- --------
1 Hedging reserve includes GBP155,124 (2020: GBP137,387) in
relation to changes in forward points which are recognised in other
comprehensive income and accumulated as a cost of hedging within
the hedging reserve.
Consolidated Cash Flow Statement
For 53 week period ended 2 May 2021
FY20
(Restated
- Note
FY21 8)
GBP000 GBP000
----------------------------------------------------- -------- ----------
(Loss) for the year (including Adjusting items) (2,299) (17,702)
Adjustments for:
Depreciation of property, plant and equipment 5,187 5,261
Impairment of property, plant and equipment 156 509
Reversal of impairment of property, plant and
equipment (1,000) (176)
Depreciation of right-of-use assets 23,311 23,133
Impairment of right-of-use assets 805 2,991
Reversal of impairment of right-of-use assets (874) -
Amortisation of intangible assets 947 1,170
Impairment of intangible assets - 16,180
Derivative exchange loss/(gain) (444) (290)
Financial income (18) (12)
Financial expense 617 425
Interest on lease liabilities 4,869 4,041
Loss on disposal of property, plant and equipment 262 299
Loss on disposal of right-of-use asset 373 795
Profit on disposal of lease liability (464) (870)
Loss on disposal of intangible assets 311 -
Share-based payment charges 81 120
Taxation (502) (270)
----------------------------------------------------- -------- ----------
Operating cash flows before changes in working
capital 31,318 35,604
Decrease in trade and other receivables 1,217 6,336
Increase in inventories (2,284) (1,410)
Increase/(decrease) in trade and other payables 167 (13,822)
(Decrease)/Increase in provisions (261) 792
----------------------------------------------------- -------- ----------
Cash flows from operating activities 30,157 27,500
Corporation tax paid (30) (1,039)
----------------------------------------------------- -------- ----------
Net cash inflow from operating activities 30,127 26,461
Cash flows from investing activities
Acquisition of property, plant and equipment (1,869) (6,625)
Acquisition of intangible assets (526) (2,050)
Interest received 18 12
----------------------------------------------------- -------- ----------
Net cash outflow from investing activities (2,377) (8,663)
Cash flows from financing activities
Payment of lease liabilities (capital) (14,327) (22,351)
Payment of lease liabilities (interest) (4,869) (4,041)
Payment of RCF fees (619) -
Other interest paid (279) (230)
Dividends paid - (2,250)
Repayment of bank borrowings (10,000) -
Issue of bank loan 7,500 10,000
----------------------------------------------------- -------- ----------
Net cash outflow from financing activities (22,594) (18,872)
Net increase/(decrease) in cash and cash equivalents 5,156 (1,074)
Exchange rate movements 218 328
Cash and cash equivalents at beginning of year 2,941 3,687
----------------------------------------------------- -------- ----------
Cash and cash equivalents at end of year 8,315 2,941
----------------------------------------------------- -------- ----------
Notes
1. Accounting policies
Where accounting policies are particular to an individual note,
narrative regarding the policy is included with the relevant note,
for example, the accounting policy in relation to inventory is
detailed in Note 9 (Inventories) of the extracts from the financial
statements .
(a) General information
TheWorks.co.uk plc is one of the UK's leading multi-channel
value retailers of arts and crafts, stationery, toys, and books,
offering customers a differentiated proposition as a value
alternative to full price specialist retailers. The Group operates
a network of over 500 stores in the UK & Ireland and an online
store.
TheWorks.co.uk plc (the Company) is a UK based public limited
company (11325534) with its registered office at Boldmere House,
Faraday Avenue, Hams Hall Distribution Park, Coleshill, Birmingham,
B46 1AL.
These consolidated financial statements for the 53 weeks ended 2
May 2021 ('FY21' or the 'Period') comprise the results of the
Company and its subsidiaries (together referred to as 'the Group'),
and are presented in pounds sterling. All values are rounded to the
nearest thousand (GBP000), except when otherwise indicated.
(b) Basis of preparation
The financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of policies, and the reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience, future budgets and
forecasts, and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods. The Group's
significant judgements and estimates relate to the classification
of Adjusting items, hedge accounting, the impairment of property,
plant and equipment, right-of-use assets and intangibles, and the
quantification and valuation of inventory.
(i) Going concern
The financial statements have been prepared on a going concern
basis, which the Directors consider appropriate for the reasons set
out below.
The Directors have assessed the prospects of the Group, taking
into account its current position and the potential impact of the
principal risks documented in the Strategic Report included in the
FY21 Annual Report and Accounts.
The Group has prepared cashflow forecasts, reflecting the
approved budget for FY22, for a period of at least 12 months from
the date of approval of these financial statements, referred to as
the "Base Case" scenario. In addition, two "severe but plausible"
downside case sensitivities have been prepared to support the
Board's conclusion regarding going concern, by stress testing the
Base Case to indicate levels of financial headroom resulting from
applying more pessimistic assumptions. The two sensitivities are
referred to as a "Management downside", which represents the
Board's view of a severe but plausible sensitivity, and a "Lockdown
downside" which provides an additional point of reference but is
considered to represent a less likely severe but plausible scenario
than the Management downside. These models are described in more
detail below.
In assessing the basis of preparation the Directors have
considered:
-- The external environment.
-- The Group's financial position including the quantum and
expectations regarding availability of bank facilities.
-- Measures taken or, which could be taken if necessary, to maintain or increase liquidity.
-- The potential impact on financial performance of the risks described in the Strategic Report.
-- The output of the Base Case model, which represents the
Group's estimate of the most likely financial performance over the
forecast period.
-- The resilience of the Group to the manifestation of a more
severe impact from these risks, evaluated via the severe but
plausible downside case models noted above.
-- The availability and expected effectiveness of any mitigating
actions that would be taken in response to circumstances arising
such as those modelled under the downside cases.
-- The impact on the Group's cash flows, bank facility headroom and covenants.
These factors are described below.
External environment
There continues to be uncertainty as to the future impact on the
Group of the COVID-19 pandemic. It appears that, currently, the
greatest source of uncertainty arises from the different variants
of the virus, and their potential to be resistant to vaccine
induced immunity. Reflecting this, the severe but plausible
downside scenarios include assumptions that there may be further
disruption, particularly during the second half of FY22.
Nevertheless, the Board's view is that the level of uncertainty and
risk due to COVID-19 is at a significantly lower level than at this
time last year. In addition, the business has demonstrated a high
degree of resilience to the disruption caused by the pandemic.
The Board's assessment is that the level of uncertainty arising
from the UK leaving the European Union has also decreased since
last year. Uncertainties remain, and the Group is experiencing some
additional administrative burden as a result of the change, but
this is more of an inconvenience than a major risk. The most
significant further impacts on the Group may be in relation to its
business in the Republic of Ireland and Northern Ireland, but due
to their scale, Brexit related disruption to these operations would
be unlikely to represent a significant threat to the Group's
ability to operate as a going concern.
Financial position and bank facilities
The cash and borrowings of the Group at the period end are shown
in Notes 19 (Cash and cash equivalents) of the FY21 Annual report
and Accounts and 10 (Borrowings) of the extracts from the financial
statements included in this report. In addition, Note 25 (Financial
risk management) describes the Group's objectives, policies and
processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging
activities; and its exposure to credit risk and liquidity risk.
At 2 May 2021 the Group held net cash (excluding lease
liabilities) of GBP0.8m (FY20: net bank debt of GBP7.1m). This
comprised net cash of GBP8.3m and a draw-down of GBP7.5m against a
CLBILS term loan.
The Group's bank facilities comprise a revolving credit facility
('RCF') of GBP22.5m, which is undrawn at the date of approval of
these financial statements and a GBP7.5m term loan facility written
under the Government's CLBILS scheme, both of which expire on 30
September 2022. The RCF limit reduces to GBP20.0m in January 2022
and remains at this level until its expiry. Based on the supportive
stance taken recently by the Group's bank, and the Group's careful
management of the banking relationship, the Board expects these
facilities to be extended or replaced, as required, in due
course.
The facilities include financial covenants in relation to the
level of LTM (last twelve months' rolling) EBITDA, net bank debt
and capital expenditure. The covenant levels in relation to LTM
EBITDA have recently been revised by the bank, to allow for the
effects of the winter 2020/21 lockdowns, which affected the
historic LTM EBITDA calculation.
Measures to maintain or increase liquidity
During FY21 a number of measures were implemented to maintain or
improve liquidity, including the decision to utilise the support
available from the Government. In aggregate, these measures,
combined with a strong trading performance, resulted in the Group's
net cash position improving by GBP7.9m during the year.
In the event of further disruptions to trading being experienced
during FY22 or subsequently, if deemed necessary, mitigating
actions would be taken in response, which would increase liquidity.
These may include, for example, delaying and reducing stock
purchases, stock liquidation, reductions in capital expenditure and
the review of payment terms. In order to retain clear visibility as
to the unmitigated effects of applying the sensitivity assumptions,
these potential mitigations have not been built into the models
described. The Group has demonstrated its ability during FY21 to
deploy mitigating actions to support liquidity.
Potential impact of risks on financial scenarios
The "Principal risks and uncertainties" section at the end of
this report sets out the main risks that the Board considers could
threaten the Group's business model, future performance, solvency
or liquidity.
It is considered unlikely that all the risks would manifest
themselves simultaneously in a way that would adversely affect the
business. The Directors have estimated what the most likely
combination of risks might be that could materialise within the
going concern assessment period and how the business might be
affected; this combination of risks is reflected in the Base Case
assumptions. The most prominent risks in the near term would appear
to be connected with COVID-19, which could affect sales, costs and
liquidity. Other risks, such as market and economic environment
could have similar manifestations to COVID-19, and Brexit could
impact these areas as well as the supply chain.
The severe but plausible downside models take into consideration
the same risks, but assume that their effects are more severe,
especially the level of disruption that could be experienced if the
COVID-19 situation worsens during the coming winter.
Base Case scenario
The Base Case scenario assumptions are aligned with the Group's
internal budget and three year plan.
-- The retail stores are assumed not to be affected by further
lockdowns or significant disruptions during the going concern
period. Nevertheless, reflecting some degree of continuing
uncertainty as to the outlook for consumer spending and the
assumption that the proportion of online sales continues to
increase, LFL store sales are assumed to be below pre-COVID-19
levels during FY22 and into FY23.
-- Online sales levels during FY22 are assumed to be lower than
in FY21, when the retail stores were closed for significant
periods, but higher than in FY20, reflecting improvements in the
Group's online proposition, and the continuing growth of online
sales relative to store sales.
-- The gross margin assumptions include provision for higher
than normal ocean container freight costs during FY22 due to the
continued impact of imbalances within the global freight system but
this is assumed to have normalised by FY23. FY22 FX requirements
were hedged during 2020 at approximately $1.29 and the plan
reflects this.
-- The plan reflects the continuation of cost savings made
during FY21, for example permanent rent reductions. It also
includes provision for investment in certain areas to support
delivery of the strategic plan, provision for known or expected
inflationary increases such as further increases in the National
Living Wage, but reduced direct COVID-19 related costs, such as, in
relation to PPE.
-- Capital expenditure levels are in line with bank covenants
for FY22 and show modest increases thereafter. The plan does not
allow for the resumption of dividend payments whilst the Group is
utilising the CLBILS loan written under the terms of the
Government's business loan scheme.
Under this Base Case scenario, headroom of at least GBP17m
compared with the liquidity covenant is maintained throughout the
remaining life of the bank facilities, and at least GBP5m in
relation to the LTM EBITDA covenant (with a significant part of the
LTM periods including the lockdowns during FY21).
The output of the Base Case scenario model therefore indicates
that the Group would have sufficient financial resources to
continue to meet its liabilities as they fall due over the going
concern period.
Severe but plausible downside case scenarios
Management downside scenario
The management downside scenario makes the following assumptions
to reflect more adverse conditions compared to the Base Case:
-- Store LFL sales are assumed to be approximately 10% below
FY20 levels during the whole of H2 FY22; this could occur, for
example, due to an increased level of impact from COVID-19 if the
situation worsens during the winter months, or a general reduction
in demand if consumer spending falls.
-- Online growth is also modelled at a lower level than in the
Base case, even though recent experience has shown that online
sales increased when store sales were negatively affected by
restrictions related to COVID-19.
-- Sales levels remain below the Base Case into FY23.
-- The gross margin has been assumed to be adversely affected
more than is already reflected in the Base Case, due to higher
ocean container freight costs. The peak impact is assumed to be a
further 1% reduction in Q4 of FY22, with a 0.5% reduction during
the preceding and the subsequent six months.
-- Costs are only adjusted to the extent that they move directly
with sales levels, for example online fulfilment and marketing
costs are assumed to reduce to correspond with the lower online
sales, but the model does not reflect other mitigating actions that
may be taken, depending on management's assessment of the situation
at the time. These may include, for example, adjustments to stock
purchases, reducing capital expenditure, seeking agreement from
suppliers/landlords to extensions to payment terms and reductions
in headcount if the adverse effect was expected to endure for a
longer period of time.
-- This downside assumes that there would not be any further government support available.
Under this scenario, the Group continues to have not less than
GBP11m headroom within its liquidity covenant and there is
approximately GBP1m headroom within the LTM EBITDA covenant during
January and February 2022 and from June to September 2022, before
the impact of any mitigating actions. Accordingly, under the
Management downside scenario, the Board's expectation is that the
business would continue to have adequate resources to continue in
operation.
Lockdown downside scenario
Under the Lockdown downside scenario, all retail stores are
assumed to be affected by two further periods of full national
lockdown, one in the fourth quarter of the 2021 calendar year and
one in the first quarter of 2022. This scenario takes into account
previous experience of trading during full lockdowns, for example,
either side of the lockdown period, sales levels increased, online
sales are assumed to increase and cover part of the sales lost due
to the assumed store closures, and it has been assumed that similar
support from government is available corresponding with the periods
of closure, e.g. the furlough scheme. Costs which naturally flex
when sales change, such as online fulfilment costs, alter within
this scenario, but the scenario does not reflect the additional
headroom which would be created as a result of taking the
mitigating actions referred to in relation to the Management
downside.
For the period of the going concern forecasts falling within
FY23, the assumptions in this downside are the same as the Base
Case.
Under this scenario, the Group continues to have not less than
GBP11m headroom within its liquidity covenant and there is
approximately GBP1m headroom within the LTM EBITDA covenant from
November 2021 to February 2022 before the impact of mitigating
actions referred to above.
Conclusion regarding basis of preparation
Due to the ongoing COVID-19 pandemic, there continues to be a
level of uncertainty which is greater than what would previously
have been regarded as normal. However, the Board's assessment is
that the level is lower than at this time last year, and that the
resilience demonstrated by the business during FY21, in very
challenging conditions, provides additional assurance about the
Group's ability to continue as a going concern in the event of
further COVID-19 related disruption.
Consequently, the Directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
financial statements and have therefore prepared the financial
statements on a going concern basis.
(ii) New accounting standards
The Group has applied the following new standards and
interpretations for the first time for the annual reporting period
commencing 27 April 2020:
-- Amendments to References to Conceptual Framework in IFRS Standards
-- Definition of a Business (Amendments to IFRS 3)
-- Definition of Material (Amendments to IAS 1 and IAS 8)
-- Interest Rate Benchmark Reform, Phase 1 amendments to IFRS 9, IAS 39 and IFRS 7
The adoption of the standards and interpretations listed above
has not led to any changes to the Group's accounting policies nor
had any other material impact on the financial position or
performance of the Group.
(c) 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 the Group accounting policies.
Where a significant risk of materially different outcomes exists
due to management assumptions or sources of estimation uncertainty,
this will represent a key source of estimation uncertainty.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
Critical accounting judgements , which are material to the
financial statements, are described in the context of the matters
to which they relate and can be found in the following notes:
-- Adjusting items - Note 4 of the extracts from the financial statements
-- Hedge accounting- Note 25 in the FY21 Annual Report and Accounts
Key sources of estimation uncertainty which are material to the
financial statements are described in the context of the matters to
which they relate, in the following notes:
-- Impairment of property, plant and equipment and right of use
assets - Note 7 of the extracts from the financial statements
-- Inventory - Note 9 of the extracts from the financial statements
2. Other operating income
Accounting policy
The business was classified as a "non-essential retailer" and
was therefore required to close its shops during periods of
lockdown. Accordingly, the Group has made full use of the support
schemes available from the Government, to partially mitigate the
loss of profit caused by the various periods of closure of the
retail stores. Support has been received through three mechanisms,
described below, and as summarised in the table:
1. The Coronavirus Job Retention scheme (CJRS), the Government's
support measure relating to employment. This provided grants to
cover wages of furloughed colleagues, with payments available of up
to 80% of colleagues' wages, up to a maximum of GBP2,500 per month
plus national insurance and auto-enrolled pension contributions, to
the extent these could be claimed.
2. Business rates relief.
3. Local business support grants.
Amounts received relating to the CRJS scheme and local business
support grants must be classified as a government grant and
accounted for in accordance with IAS 20 Government Grants. Such
grants are recognised in the Income Statement in the period in
which the associated costs for which the grants are intended to
compensate are incurred. The grant income is reported as 'Other
operating income' in the Income Statement.
The total business rates relief received during the year was
GBP14.1m (FY20: GBP1.0m). In the prior year financial statements
business rates relief was disclosed as other operating income, with
cost of sales grossed up accordingly. These amounts have been
restated, and the business rates relief is reflected via a GBP1.0m
reduction in cost of sales (from GBP194.7k to GBP193.6k) and a
corresponding reduction in other operating income (from GBP4.7m to
GBP3.7m). As a consequence, gross profit has increased from
GBP30.4m to GBP31.4m. There is no impact on operating loss or loss
for the Period ended 26 April 2020 and no impact on prior year
opening or closing net assets.
FY20
(Restated
-
FY21 see above)
GBP000 GBP000
------------------------------------------- ------- -----------
COVID-19 Furlough Scheme Grants Receivable 15,309 3,650
COVID-19 Business Grants Receivable 1,765 -
Rent receivable 7 7
------------------------------------------- ------- -----------
17,081 3,657
------------------------------------------- ------- -----------
3. Alternative performance measures ("APMs")
Accounting policy
The Group tracks a number of APMs in managing its business,
which are not defined or specified under the requirements of IFRS
because they exclude amounts that are included in, or include
amounts that are excluded from, the most directly comparable
measure calculated and presented in accordance with IFRS, or are
calculated using financial measures that are not calculated in
accordance with IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance
of the business. They are consistent with how the business
performance is planned and reported internally, and are also
consistent with how these measures have been reported historically.
Some of the APMs are also used for the purpose of setting
remuneration targets.
The APMs should be viewed as supplemental to, but not as a
substitute for, measures presented in the consolidated financial
statements prepared in accordance with IFRS. The Group believes
that the APMs are useful indicators of its performance but they may
not be comparable with similarly-titled measures reported by other
companies due to the possibility of differences in the way they are
calculated.
Like-for-like sales
LFL sales are normally defined by the Group as the year-on-year
growth in gross sales from stores which have been opened for a full
63 weeks (but excluding sales from stores closed for all or part of
the relevant period or prior year comparable period), and from the
Company's online store, calculated on a calendar week basis. Store
LFL sales for FY21 are for the 53 weeks ended 2 May 2021, excluding
periods when stores were required to be closed to comply with
COVID-19 restrictions on trading. Online LFL sales are for the
entire 53-week period, including when the stores were closed.
Non LFL store sales figures for the prior year includes sales
from "LFL" stores during weeks when those stores were required to
be closed during FY21.
The measure is used widely in the retail industry as an
indicator of sales performance. A reconciliation of IFRS revenue to
sales on a like-for-like basis is set out below:
FY21 FY20
GBP000 GBP000
------------------------------------------- -------- --------
LFL store sales when stores were open 128,901 121,617
Online sales 62,084 28,107
------------------------------------------- -------- --------
Total like-for-like sales 190,985 149,724
------------------------------------------- -------- --------
Non LFL store sales 15,176 104,910
Total gross sales 206,161 254,634
------------------------------------------- -------- --------
VAT (24,290) (27,931)
Loyalty points (1,191) (1,661)
------------------------------------------- -------- --------
Revenue per consolidated income statement 180,680 225,042
------------------------------------------- -------- --------
Memo: total store sales (LFL plus non-LFL) 144,077 133,017
------------------------------------------- -------- --------
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 4 for a description of
Adjusting items.
The Group also reports another measure of Adjusted EBITDA, which
removes the impact of IFRS 16, to allow comparisons against prior
years, and to provide a measure that is consistent with internal
reporting and is as used by the Group in its investment appraisals.
The table provides a reconciliation of Adjusted EBITDA to
(loss)/profit after tax, and the impact of IFRS 16:
FY21 FY20
space (Restated
-Note 8)
GBP000 GBP000
--------------------------------------------------- -------- ----------
Non-IFRS 16 Adjusted EBITDA(1) 4,285 10,809
--------------------------------------------------- -------- ----------
IAS 17 income statement charges not recognised
under IFRS 16 27,572 25,955
Foreign exchange difference on euro leases (59) (89)
Post IFRS 16 Adjusted EBITDA(1) 31,798 36,675
--------------------------------------------------- -------- ----------
Loss on disposal of right-of-use assets recognised
under IFRS 16 (353) (795)
Profit on disposal of lease liability recognised
under IFRS 16 464 870
--------------------------------------------------- -------- ----------
Loss on disposals of property, plant and equipment (262) (299)
Loss on disposals of intangible assets (311) -
Depreciation of PPE (5,187) (5,261)
Depreciation of RoUA (23,311) (23,133))
Amortisation (947) (1,170)
Finance expenses (5,486) (4,466)
Finance income 18 12
Tax charge 502 (529)
--------------------------------------------------- -------- ----------
Adjusted (loss) / profit after tax (3,075) 1,904
--------------------------------------------------- -------- ----------
Adjusting items (including impairment charges
and reversals) 776 (20,405)
Tax charge 0 799
--------------------------------------------------- -------- ----------
Loss after tax (2,299) (17,702)
--------------------------------------------------- -------- ----------
(1) Also adjusted for profit and loss on disposal of
right-of-use assets and liabilities, property, plant and equipment
and intangible assets.
Profit before tax and IFRS 16
The table provides a reconciliation of profit/(loss) before tax
and IFRS 16 adjustments to profit/(loss) before tax.
FY21
-----------------------------
Adjusting
Adjusted Items Total
GBP000 GBP000 GBP000
-------------------------------------------- -------- --------- --------
Loss before tax before IFRS 16 adjustments (3,395) 707 (2,688)
-------------------------------------------- -------- --------- --------
Remove IAS 17 rental charge 27,449 - 27,449
Remove hire costs from hire of equipment 124 - 124
Remove depreciation charged on the existing
assets 329 - 329
Remove interest charged on the existing
liability 44 - 44
Depreciation charge on right-of-use assets (23,311) - (23,311)
Interest cost on lease liability (4,869) - (4,869)
Loss on disposal of right-of-use assets (353) - (353)
Profit on disposal of lease liability 464 - 464
Foreign exchange difference on euro leases (59) - (59)
Additional impairment charge under IAS
36 - 69 69
Net Impact on loss (182) 69 (113)
-------------------------------------------- -------- --------- --------
Loss before tax (3,577) 776 (2,801)
-------------------------------------------- -------- --------- --------
Adjusted profit metrics
Key profit measures including operating profit, profit before
tax, profit for the period and earnings per share are calculated on
an adjusted basis by adding back or deducting Adjusting Items. See
Note 4 for a description of 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 in Note 4.
4. Adjusting items
Critical accounting judgement
The Directors believe that the adjusted profit and earnings per
share measures included in this report provide additional useful
information to shareholders. These measures are consistent with how
business performance is measured internally. The profit before tax
and Adjusting items measure is not a recognised profit measure
under IFRS and may not be directly comparable with adjusted profit
measures used by other companies. The classification of Adjusting
items entails the making of significant judgements.
If a transaction or related series of transactions has been
treated as an Adjusting item in one accounting period, the same
treatment will be applied consistently year on year.
In relation to FY21, the items classified as "Adjusting", as
shown below, were related to transactions that had been treated as
Adjusting in prior periods.
FY21 FY20
GBP000 GBP000
----------------------------------------- ------- -------
Cost of sales
Impairment charges1 961 3,500
Impairment reversals1 (1,873) (176)
HMRC duty provision2 (63) 786
----------------------------------------- ------- -------
Total cost of sales (975) 4,110
----------------------------------------- ------- -------
Administrative expenses
Goodwill impairment3 - 16,180
Salary and other costs4 322 115
Packaging waste costs provision release5 (123) -
Total administrative expenses 199 16,295
----------------------------------------- ------- -------
Total Adjusting items (776) 20,405
----------------------------------------- ------- -------
1 These relate to fixed asset impairment charges and reversals
of prior year impairment charges.
2 This relates to a provision recognised regarding an ongoing
HMRC review of the Group's duty rates.
3 This relates to the impairment of goodwill during the prior
year. Refer to Note 6 for further detail.
4 Salary and other costs relate to payments to past Directors
(refer to the FY20 Director's Remuneration Report for further
detail) and other associated costs.
5 This relates to the release of a provision recognised
regarding packaging waste cost penalties from FY18.
5. Operating profit
Operating profit (before Adjusting items) is stated after
charging/(crediting) the following items:
FY20
(Restated
FY21 - Note 8)
GBP000 GBP000
-------------------------------------------------- ------- -----------
Loss on disposal of property, plant and equipment 262 299
Loss on disposal of intangible assets 311 -
Loss on disposal of right-of-use assets 353 795
Profit on disposal of lease liability (464) (870)
Depreciation 28,498 28,394
Amortisation 947 1,170
Adjusting items (see Note 4) (776) 20,405
Operating lease payments:
- Hire of plant and machinery(1) 392 345
- Other operating leases(1) 439 2,208
Net foreign exchange losses 135 208
Cost of inventories recognised as an expense 69,364 86,398
Staff costs 49,989 54,401
-------------------------------------------------- ------- -----------
1 These balances relate to non-IFRS 16 operating lease rentals
during the year, please refer to Note 8 for further details of
these balances.
6. Intangible assets
Accounting policy
Goodwill
Goodwill arising on consolidation represents any excess of the
consideration paid and the amount of any non-controlling interest
in the acquiree over the fair value of the identifiable assets and
liabilities (including intangible assets) of the acquired entity at
the date of the acquisition. Goodwill is recognised as an asset and
assessed for impairment annually or as triggering events occur. Any
impairment in value is recognised within the income statement.
Software
Where computer software is not an integral part of a related
item of computer hardware, the software is treated as an intangible
asset. Capitalised software costs include external direct costs of
goods and services, as well as internal payroll-related costs for
employees who are directly associated with the project. Internal
payroll-related costs are capitalised if the recognition criteria
of IAS 38 'Intangible Assets' are met or are expensed as incurred
otherwise.
Capitalised software development costs are amortised on a
straight-line basis over their expected economic lives, normally
between three and seven years. Computer software under development
is held at cost less any recognised impairment loss. Any impairment
in value is recognised within the income statement.
Goodwill Software Total
GBP000 GBP000 GBP000
--------------------------------- -------- -------- -------
Cost
Balance at 27 April 2020 16,180 8,415 24,595
Additions - 526 526
Disposals - (898) (898)
--------------------------------- -------- -------- -------
Balance at 2 May 2021 16,180 8,043 24,223
--------------------------------- -------- -------- -------
Amortisation and impairment
Balance at 27 April 2020 16,180 5,221 21,401
Amortisation charge for the year - 947 947
Impairment charges - (588) (588)
--------------------------------- -------- -------- -------
Balance at 2 May 2021 16,180 5,580 21,760
--------------------------------- -------- -------- -------
Net book value
--------------------------------- -------- -------- -------
At 27 April 2020 - 3,194 3,194
--------------------------------- -------- -------- -------
At 2 May 2021 - 2,463 2,463
--------------------------------- -------- -------- -------
Goodwill Software Total
GBP000 GBP000 GBP000
--------------------------------- -------- -------- -------
Cost
Balance at 29 April 2019 16,180 6,365 22,545
Additions - 2,050 2,050
--------------------------------- -------- -------- -------
Balance at 26 April 2020 16,180 8,415 24,595
--------------------------------- -------- -------- -------
Amortisation
Balance at 29 April 2019 - 4,051 4,051
Amortisation charge for the year - 1.170 1.170
Impairment charges 16,180 - 16,180
--------------------------------- -------- -------- -------
Balance at 26 April 2020 16,180 5,221 21,401
--------------------------------- -------- -------- -------
Net book value
--------------------------------- -------- -------- -------
At 29 April 2019 16,180 2,314 18,494
--------------------------------- -------- -------- -------
At 26 April 2020 - 3,194 3,194
--------------------------------- -------- -------- -------
Goodwill impairment testing
Goodwill of GBP16.2 million was impaired to GBPNIL in FY20, and
no further impairment testing is necessary in relation to this.
7. Property, plant and equipment
Accounting policy
Items of property, plant and equipment are stated at their cost
of acquisition or production, less accumulated depreciation and
accumulated impairment losses.
Depreciation is charged on a straight-line basis over the
estimated useful lives as follows:
-- Leasehold property improvements: Over the life of the lease.
-- Fixtures and fittings: 15 per cent. per annum straight-line
or depreciated on a straight-line basis over the remaining life of
the lease, whichever is shorter.
-- Computer equipment: 25 to 50 per cent. per annum straight-line.
The assets' residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date, with the
effect of any changes in estimate accounted for on a prospective
basis. An asset's carrying amount is written down immediately to
its recoverable amount if the asset's carrying amount is greater
than its estimated recoverable amount.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. The gain or loss arising on
the disposal or scrappage of an asset is determined as the
difference between the sales proceeds and the carrying amount of
the asset and is recognised in profit or loss.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
the profit or loss in the period in which they are incurred.
IFRS 16
IFRS 16 creates the concept of 'right of use' assets. The
accounting policy and description of the accounting treatment in
respect of IFRS 16 is included within Note 8.
Key source of estimation uncertainty
Impairment of tangible and intangible assets
The carrying amounts of the Group's tangible and intangible
assets with a definite useful life are reviewed at each balance
sheet date to determine whether there is any indication of
impairment to their value. If such an indication exists, the
asset's recoverable amount is estimated and compared to its
carrying value. Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the
recoverable amount of the CGU to which the asset belongs. The
Directors consider an individual retail store to be a
cash-generating unit ('CGU').
The recoverable amount of an asset is the greater of its fair
value less disposal cost and its value-in-use (the present value of
the future cash flows that the asset is expected to generate). In
determining value in use the present value of future cash flows is
discounted using a pre-tax discount rate that reflects current
market assessments of the time value-of money in relation to the
period of the investment and the risks specific to the asset
concerned. Where the carrying value exceeds the recoverable amount
a provision for the impairment loss is established with a charge
being made to the income statement. When the reasons for a write
down no longer exist the write down is reversed in the income
statement up to the net book value that the relevant asset would
have had if it had not been written down and if it had been
depreciated. For intangible assets that have an indefinite useful
life the recoverable amount is estimated at each annual balance
sheet date
Measuring recoverable amounts
The key assumptions for the value-in-use calculations are those
regarding the growth rates of sales and gross margins, operating
costs, long-term growth rates, maintenance capital expenditure and
the post-tax discount rate used to discount the assumed cash flows
to present value. Due to Covid-19 and its impact on the UK economy
and the Group, an impairment review was performed on all stores.
The value-in-use calculations require the use of assumptions, which
are sources of estimation uncertainty.
Key assumptions
The key financial assumptions used in the estimation of the
recoverable amount are set out below. The values assigned to the
key assumptions represent management's assessment of current market
conditions and future trends and have been based on historical data
from both external and internal sources. Management determined the
values assigned to these financial assumptions as follows:
The pre-tax discount rate is derived from the Group's weighted
average cost of capital, which has been estimated using the capital
asset pricing model, the inputs of which include a country
risk-free rate, equity risk premium, Group size premium, a
forecasting risk premium and a risk adjustment (beta). The post-tax
WACC is subsequently adjusted to reflect the specific amount and
timing of the future tax cash flows.
FY21 FY20
------------------ ------ ------
Pre-tax discount
rate 16.8% 16.3%
Long-term growth
rate 0.0% 0.0%
------------------ ------ ------
Cash flow forecasts are derived from the most recent
Board-approved corporate plans that form the Base Case on which the
value in use calculations are based, and which are described in
note 1 (b) (i) (Going concern) of the extracts from the financial
statements.
The assumptions used in the estimation of future cash flows
are:
-- Rates of growth in sales and gross margins, which have been
determined on the basis of the factors described in Note 1 (b) (i)
(Going concern) of the extracts from the financial statements.
-- Operating cost estimates reflect expected changes in the
variables that underpin them and, in particular, expected increases
in the National Living Wage and rent payments.
-- Maintenance capital expenditure includes estimates of ongoing
capital expenditure required to maintain the store network, but
excludes any significant growth capital initiatives not committed.
In this context, it should be noted that the company's bank
facilities include a covenant which places a limit of GBP3.5
million on capital expenditure in respect of FY22.
Cash flows beyond the corporate plan period (2025 and beyond)
have been determined using the long term growth rate; this is based
on management's future expectations, reflecting, amongst other
things current market conditions and future trends and has been
based on historical data from both external and internal
sources.
Impairment charge
Goodwill was written down to nil in FY20. An impairment charge
of GBP3,500k was recorded against right of use assets, property,
plant and equipment in FY20 relating to 107 stores. Evidence is
available from internal reporting that indicates that the economic
performance of 85 of these stores has improved and is expected to
continue to do so. As a result, an impairment reversal of GBP1,874k
has been recognised relating to these stores. Conversely, during
FY21 an impairment charge of GBP961k was recognised against a
further 28 stores. A net reversal of GBP913k has therefore been
shown as an Adjusting item on the face of the Consolidated Income
Statement.
Sensitivity analysis and sources of estimation uncertainty
Whilst the Directors believe the assumptions adopted are
realistic, reasonably possible changes in key assumptions could
occur which would cause the recoverable amount of certain stores to
be lower or higher than the carrying amount. The directors consider
that the only key assumption, that could reasonably be different
and cause a material change in the impairment charge, is sales
growth. A reduction in sales of 5% from the Base Case plan to
reflect a potential downside scenario would result in an increase
in the impairment charge of GBP476k to GBP1,437k relating to a
total of 38 stores. An increase in sales of 5% from the Base Case
plan would increase the impairment reversal by GBP270k to GBP1,954k
relating to 88 stores.
Reasonably possible changes to other key assumptions, including
a 20 basis point increase in the pre-tax discount rate across all
stores, would not result in a significant impairment charge, either
individually or in combination.
Whilst the Directors consider their assumptions to be realistic,
should actual results, including those for the rates of growth in
sales and gross margins, be different from expectations, then it is
possible that the value of property, plant and equipment included
in the balance sheet could become materially different to the
estimates used.
Fixtures
RoUA - RoUA - Land and Plant and and Total
Property plant and Buildings Equipment Fittings
equipment
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- --------- ---------- ---------- ---------- --------- -------
Cost
Balance at 27 April
2020 140,992 1,724 10,591 2,539 25,738 181,584
Additions 18,404 189 151 859 859 20,462
Disposals (624) - (60) (22) (430) (1,136)
--------------------- --------- ---------- ---------- ---------- --------- -------
Balance at 2 May
2021 158,772 1,913 10,682 3,376 26,167 200,910
--------------------- --------- ---------- ---------- ---------- --------- -------
Depreciation and
impairment
Balance at 27 April
2020 25,494 459 4,586 2,185 11,036 43,760
Depreciation charge
for the year 22,794 517 975 594 3,618 28,498
Impairment charge 805 - 39 7 110 961
Impairment reversals (874) - (149) (49) (802) (1,874)
Disposals (251) - (7) (17) (226) (501)
--------------------- --------- ---------- ---------- ---------- --------- -------
Balance at 2 May
2021 47,968 976 5,444 2,720 13,736 70,844
--------------------- --------- ---------- ---------- ---------- --------- -------
Net book value
At 27 April 2020 115,498 1,265 6,005 354 14,702 137,824
--------------------- --------- ---------- ---------- ---------- --------- -------
At 2 May 2021 110,804 937 5,238 656 12,431 130,066
--------------------- --------- ---------- ---------- ---------- --------- -------
RoUA - Fixtures Total
Property RoUA - Land and Plant and and
plant and Buildings Equipment Fittings
(Restated equipment (Restated-
-Note 8) Note 8)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ---------- ---------- ---------- ---------- --------- -----------
Cost
Balance at 29 April
2019 - - 9,253 2,529 21,457 33,239
Adoption of IFRS
16 (Restated -
Note 8) 105,608 841 - - - 106,449
Adoption of IFRS
16 - Transfer to
RoUA - 457 - (457) - -
Additions 36,350 426 1,366 503 4,756 43,401
Disposals (966) - (28) (36) (475) (1,505)
----------------------- ---------- ---------- ---------- ---------- --------- -----------
Balance at 26 April
2020 140,992 1,724 10,591 2,539 25,738 181,584
----------------------- ---------- ---------- ---------- ---------- --------- -----------
Depreciation and
impairment
Balance at 29 April
2019 - - 3,329 1,756 7,368 12,453
Depreciation charge
for the year Restated
-Note 8) 22,674 459 1,092 609 3,560 28,394
Impairment charge 2,991 - 152 17 340 3,500
Impairment reversals - - - (176) - (176)
Disposals (171) - 13 (21) (232) (411)
----------------------- ---------- ---------- ---------- ---------- --------- -----------
Balance at 26 April
2020
(Restated -Note
8) 25,494 459 4,586 2,185 11,036 43,760
----------------------- ---------- ---------- ---------- ---------- --------- -----------
Net book value
At 29 April 2019 - - 5,924 773 14,089 20,786
----------------------- ---------- ---------- ---------- ---------- --------- -----------
At 26 April 2020 115,498 1,265 6,005 354 14,702 137,824
----------------------- ---------- ---------- ---------- ---------- --------- -----------
8. IFRS 16
Accounting policy
IFRS16 establishes principles for the recognition, measurement,
presentation and disclosure of leases.
IFRS 16 requires the use of a single definition of leases which
recognises a right-of-use asset (RoUA) and a lease liability for
all leases, with exceptions only permitted for short-term and
low-value leases. Accordingly, the impact of IFRS 16 is to require
recognition of a lease liability and a corresponding RoUA in
relation to leases previously classified as operating leases, which
were hitherto accounted for via a single charge to the profit and
loss account.
The most significant impact is that the Group's retail store
operating leases are recognised on the balance sheet as
right-of-use assets representing the economic benefits of the
Group's right to use the underlying leased assets, together with
the associated future lease liabilities.
The Group adopted IFRS 16 from 29 April 2019 using the modified
retrospective transition approach as described in paragraph C5 (b)
of the standard.
Under IFRS 16, the Group recognises right-of-use assets and
lease liabilities at the lease commencement date.
Identifying an IFRS 16 lease
At the inception of a contract, the Group assesses whether it
is, or contains, a lease. A contract is, or contains, a lease if it
conveys the right to control the use of an asset for a period of
time, in exchange for consideration. Control is conveyed where the
Group has both the right to direct the asset's use and to obtain
substantially all the economic benefits from that use. For each
lease or lease component, the Group follows the lease accounting
model as per IFRS 16, unless the permitted recognition exceptions
can be used.
Recognition exceptions
The Group leases many assets, including properties, IT
equipment, motor vehicles and warehouse equipment.
The Group has elected to account for lease payments as an
expense on a straight line basis over the lease term or another
systematic basis for the following types of leases:
(i) Leases with a term of 12 months or less.
(ii) Leases where the underlying asset has a low value.
For leases where the Group has taken the short-term lease
recognition exemption and there are any changes to the lease term
or the lease is modified, the Group accounts for the lease as a new
lease.
For leases where the Group has taken a recognition exemption as
detailed above, rentals payable under these leases are charged to
income on a straight-line basis over the term of the relevant lease
except where another more systematic basis is more representative
of the time pattern in which economic benefits from the lease asset
are consumed.
Lessee accounting under IFRS 16
Upon lease commencement the Group recognises a right-of-use
asset and a lease liability.
Initial measurement
The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located at the end of
the lease, less any lease incentives received.
The lease liability is initially measured at the present value
of the lease payments payable over the lease term, discounted at
the rate implicit in the lease if that can be readily determined.
If that rate cannot be readily determined, the Group uses the
incremental borrowing rate.
Variable lease payments that depend on an index or a rate are
included in the initial measurement of the lease liability and are
initially measured using the index or rate as at the commencement
date. Amounts expected to be payable by the Group under residual
value guarantees are also included. Variable lease payments that
are not included in the measurement of the lease liability are
recognised in profit or loss in the period in which the event or
condition that triggers payment occurs, unless the costs are
included in the carrying amount of another asset under another
accounting standard.
The Group has applied judgement to determine the lease term for
some lease contracts that include renewal options. The assessment
of whether the Group is reasonably certain to exercise such options
impacts the lease term, which significantly affects the value of
lease liabilities and right-of-use assets recognised.
The payments related to leases are presented under cash flows
from financing activities and cash flows from operating activities
in the cash flow statement.
Subsequent measurement
After lease commencement, the Group values right-of-use assets
using a cost model. Under the cost model a right-of-use asset is
measured at cost less accumulated depreciation and accumulated
impairment.
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payments made.
It is re-measured to reflect changes in: the lease term (using a
revised discount rate); the assessment of a purchase option (using
a revised discount rate); the amounts expected to be payable under
residual value guarantees (using an unchanged discount rate); and
future lease payments resulting from a change in an index or a rate
used to determine those payments (using an unchanged discount
rate).
The re-measurements are matched by adjustments to the
right-of-use asset. Lease modifications may also prompt
re-measurement of the lease liability unless they are determined to
be separate leases.
Depreciation of right-of-use assets
The right-of-use asset is subsequently depreciated using the
straight-line method, from the commencement date, to the earlier of
either, the end of the useful life of the right-of-use asset or,
the end of lease term. The estimated useful lives of right-of-use
assets are determined on the same basis as those of property, plant
and equipment. In addition the right-of-use asset is reduced by
impairment losses, if any, and adjusted for certain re-measurements
of the lease liability.
Extension and termination options
Extension and termination options are included in a number of
property leases across the Group. These terms are used to maximise
operational flexibility. The Group has applied judgement to
determine the lease term for some lease contracts in which it is a
lessee that includes renewal options and break clauses. The
assessment of whether the Group is reasonably certain to exercise
such options impacts the lease term, and therefore the amount of
lease liabilities and right-of-use assets recognised.
Judgements in determining the lease term
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not to exercise a termination option.
Extension options (or periods after termination options) are only
included in the lease term if the lease is reasonably certain to be
extended (or not terminated).
For property leases the following factors are the most
relevant:
-- The profitability of the leased store and future plans for the business.
-- If there are any significant penalties to terminate (or not
extend), the Group is typically reasonably certain to extend.
COVID-19 concessions
The Group has elected to account for qualifying COVID-19 related
rent concessions as variable lease payments, recognising the
concession in the period in which the event or condition that
triggers the payments occurs. Rent concessions are qualifying if
the following conditions are met:
-- The concession is a direct consequence of the COVID-19 pandemic.
-- The change in lease payments resulted in revised
consideration for the lease that is substantially the same as, or
less than, the consideration for the lease immediately preceding
the change.
-- The reduction in lease payments only affects payments due on or before 30 June 2021.
-- There is no substantive change to other terms and conditions of the lease.
The group has applied this practical expedient consistently to
all lease contracts with similar characteristics and in similar
circumstances.
Amounts recognised in the balance sheet
Right-of-use assets:
FY21 FY20
GBP000 GBP000
-------------------------- ------- -------
Land and buildings 110,804 115,498
Plant and equipment 937 1,265
-------------------------- ------- -------
Total right-of-use assets 111,741 116,763
-------------------------- ------- -------
Additions to the right-of-use assets during FY21 were
GBP19,727k.
Lease liabilities:
Lease liabilities included in the statement of financial
position as at the financial year end:
FY21 FY20
GBP000 GBP000
------------ ------- -------
Current 31,552 22,002
Non-current 104,362 110,200
------------ ------- -------
127,078 132,202
------------ ------- -------
Maturity analysis - contractual discounted cash flows:
FY21 FY20 ( Restated (1)
GBP000 GBP000
------------------------------------- ------- -------------------
Less than 1 year 35,978 26,542
2 to 5 years 86,601 87,674
More than 5 years 30,158 36,611
------------------------------------- ------- -------------------
Total undiscounted lease liabilities 152,737 150,827
------------------------------------- ------- -------------------
(1) In the FY20 financial statements the figures disclosed were
the discounted cash flows, therefore these amounts have been
restated to reflect the undiscounted financial liability.
Amounts recognised in the statement of profit and loss:
FY21 FY20
GBP000 ( Restated (1) GBP000
---------------------------------------------------------------------- ----------------- ----------------------
Depreciation charge on Right of Use Asset 23,311 23,133
Interest cost on lease liability 4,869 4,041
Profit on disposal of RoUA 353 795
Profit on disposal of lease liability (464) (870)
Foreign exchange difference on euro leases 59 89
Additional impairment charge under IAS 36 (69) 2,991
---------------------------------------------------------------------- ----------------- ----------------------
Operating lease rentals - hire of plant and equipment
- Motor Vehicle Lease Payments 282 326
- Low value leases 110 19
---------------------------------------------------------------------- ----------------- ----------------------
Total plant and equipment operating lease rentals 392 345
Operating lease rentals - store leases
* Stores with variable lease rentals 20 247
- Concession leases, the landlord has substantial substitution rights 1,310 1,347
- Low value leases (23) 1
- Lease is expiring within 12 month or has rolling break clauses 98 228
- Lease has expired(1) 149 385
- Variable lease payments as a result of COVID-19 concessions (1,115) -
---------------------------------------------------------------------- ----------------- ----------------------
Total store operating lease rentals 439 4,730
---------------------------------------------------------------------- ----------------- ----------------------
(1) In FY20, GBP2,769k was included on a separate line under
'Operating lease rentals - store leases'. Of this amount, GBP2,522k
related to depreciation on right of use assets and has therefore
been restated to be included in the line item 'Depreciation charge
on Right of Use Asset' in the table above. The remaining GBP247k
related to lease payments for stores with variable lease rentals,
and has therefore been restated to be included in the corresponding
line in the table above. There was no impact on the total lease
expense recorded.
This restatement came about due to a lease liability being
recorded in the prior year closing right of use asset and lease
liability balances, rather than opening balances adopted on
transition to IFRS 16. Therefore the opening balances for right of
use assets in the table in Note 7 have been restated by the same
amount. There was no net impact on FY20 opening or closing net
assets.
In the Consolidated Cash Flow Statement, the GBP2,522k of lease
payments have now been included in "Depreciation of right-of-use
assets". This has therefore been restated from GBP20,661k to
GBP23,133k, with a corresponding restatement of "Payment of lease
liabilities (capital)" from GBP19,829k to GBP22,351k. "Net cash
inflow from operating activities", which totalled GBP23,939k and
has been restated to GBP26,461k; a corresponding restatement has
been made to increase the "Net cash outflow from financing
activities" from GBP16,350k to GBP18,872k. The was no overall
impact on the "Net decrease in cash and cash equivalents".
Depreciation of right-of-use asset by class: FY21 FY20
space (Restated -
space see above)
GBP000 GBP000
--------------------------------------------- ------- ------------
Land and Buildings 22,794 22,674
Plant and Equipment 517 459
--------------------------------------------- ------- ------------
Total right-of-use asset depreciation 23,311 23,133
--------------------------------------------- ------- ------------
Other lease rental commitments:
Non-cancellable operating lease rentals for leases excluded from
the IFRS-16 assessment are as follows:
Motor Vehicle Leases Concession Store Leases Total
GBP'000 GBP'000 GBP'000
-------------------------- --------------------- ------------------------ --------
Less Than One Year 247 326 573
Between One and Five Years 230 51 281
More Than Five Years - - -
Total Operating Lease Commitments 477 377 854
================================== ===================== ======================== ========
9. Inventories
Accounting policy
Inventories comprise stocks of finished goods for resale and are
valued on a weighted average cost basis and carried at the lower of
cost and net realisable value. "Cost" includes all direct
expenditure and other attributable costs incurred in bringing
inventories to their present location and condition.
The process of purchasing inventories may include the use of
cash flow hedges to manage foreign exchange risk. Where hedge
accounting applies, an adjustment is applied such that the cost of
stock reflects the hedged exchange rate.
Inventory summary
FY21 FY20
GBP000 GBP000
----------------------------------------------------------- ------- -------
Gross stock value 31,045 27,635
Less: stock provisions for shrinkage and obsolescence (4,391) (1,885)
Goods for resale net of provisions 26,654 25,750
Stock in transit 2,478 844
----------------------------------------------------------- ------- -------
Inventory 29,132 26,594
----------------------------------------------------------- ------- -------
The cost of inventories recognised as an expense during the
Period was GBP69.4m (FY20: GBP86.4m).
Stock provisions
The Group makes provisions in relation to stock quantities, due
to stock losses not yet reflected in the accounting records,
commonly referred to as shrinkage and, in relation to stock value,
where the net realisable value of an item is expected to be lower
than its cost, due to obsolescence.
Historically, the calculation of stock provisions has entailed
the use of estimates and judgements combined with mechanistic
calculations and extrapolations. Due to the effects of the COVID-19
pandemic, the element of judgement/estimation applied in the
calculation of the FY21 provisions was significantly increased.
Shrinkage provision
In a normal, non-COVID-19 impacted year, the Group would carry
out stock counts in its retail stores on a regular basis such that,
at the end of the financial year, all, or substantially all of the
stock in stores had been counted. Through this process, the Group
establishes that its accounting records are maintained to reflect
the actual quantities of stock in stores. This process also
provides the Group with an indication of the typical percentage of
stock loss, which is used to calculate, by extrapolation,
unrecognised shrinkage at the balance sheet date. Similar processes
operate in respect of the Group's distribution facilities.
The closure of the stores for extended periods during FY21
significantly interrupted this process and, as a result, it was not
possible to achieve the normal degree of coverage of the stock
file. Consequently, the stock records were not updated to reflect
the results of stock counts to the same extent as in prior years
and, therefore, the provision required for unrecognised shrinkage
materially increased, and its calculation entailed a higher degree
of estimation uncertainty.
To validate the percentage used in calculating the unrecognised
shrinkage provision, the Group carried out sample stock counts in
certain stores towards the end of the financial year. The
percentage derived from these counts was higher than the rates
observed historically. The shrinkage provision was GBP2.6m at the
Period end (FY20: GBP1.4m), representing 8.3% of gross stock (FY20:
5.1%). This represents management's best estimate of the likely
level of stock losses experienced, but the actual level of stock
loss will only be established once all products in all locations
have been counted. Using different methods of applying actual
results from the sample stock counts to different cohorts of stock,
resulted in a series of provision values which were within a range
of plus or minus 15 per cent. of the GBP2.6m shrinkage provision.
This represents the expected range of estimation uncertainty with
regard to the unrecognised shrinkage provision.
Obsolescence provision
Generally, the Group's inventory does not comprise a large
proportion of stock with a "shelf life". Stock lines which are slow
selling because they have been less successful than planned or,
which have sold successfully, and become fragmented as they reach
the natural end of their planned selling period, are usually
discounted and sold during "sale" events, for example the January
sale. This stock is referred to as terminal stock.
The closures of the stores due to the COVID-19 pandemic also
interrupted the orderly process of selling through terminal stock,
particularly the UK-wide lockdown implemented between January and
April 2021, which coincided with the period when the January sale
would normally have taken place. As a result, at the balance sheet
date, the Group carried a higher than normal level of terminal
stock. Accordingly, an increase has been made in the provision for
obsolescence, to GBP1.8m, to reflect the higher absolute level of
terminal stock, and the fact that it may be necessary to apply deep
discounts to sell certain lines. The making of this provision has
entailed a greater than normal degree of judgement, due to
uncertainty regarding the actual level of discounting that may be
required to achieve an orderly realisation of the stock. Analysis
has been carried out to determine the effect on the obsolescence
provision of making different selling price assumptions in relation
to cohorts of stock of differing ages and types. The conclusion
drawn from this analysis was that using a reasonable range of
estimates for the eventual price at which the subject stock is
sold, the GBP1.8m obsolescence provision may be over stated by
approximately GBP0.3m.
Due to the higher than normal level of provisions, combined with
the raised level of uncertainty relating to estimates such as the
ultimate selling price of terminal stock, the calculation of the
stock provisions is considered a key source of estimation
uncertainty for the FY21 financial statements.
10. Borrowings
Accounting policy
Interest-bearing bank loans and overdrafts, loan notes and other
loans are recognised in the balance sheet at amortised cost.
Finance charges associated with arranging non-equity funding are
recognised in the income statement over the life of the facility.
All other borrowing costs are recognised in the income statement in
accordance with the effective interest rate method. A summary of
the Group's objectives, policies, procedures and strategies with
regard to financial instruments and capital management can be found
in Note 25 (Financial Instruments) of the FY21 Annual Report and
Accounts. At 2 May 2021 all borrowings were denominated in sterling
(2020: sterling).
FY21 FY20
GBP000 GBP000
----------------------------- ------- -------
Non-current liabilities
Lease liabilities 104,362 110,200
Unamortised debt issue costs - (11)
----------------------------- ------- -------
Non-current liabilities 104,362 110,189
----------------------------- ------- -------
Current liabilities
Bank overdraft - 3,605
Secured bank loans 7,500 10,000
Lease liabilities 31,552 22,002
Unamortised debt issue costs (405) (62)
----------------------------- ------- -------
Current liabilities 38,647 35,545
----------------------------- ------- -------
Reconciliation of borrowings to cashflows arising from financing
activities
FY20
(Restated
- Note
FY21 8)
GBP000 GBP000
---------------------------------------------------- -------- ----------
Borrowings at start of year (excluding overdraft1) 142,129 633
Additional lease liabilities recognised on adoption
of IFRS 16 - (Restated -Note 8) - 117,836
---------------------------------------------------- -------- ----------
Restated borrowings at start of year (excluding
overdrafts(1) ) 142,129 118,469
---------------------------------------------------- -------- ----------
Changes from financing cashflows
Payment of lease liabilities (capital) - (Restated
-Note 8) (14,327) (23,351)
Payment of lease liabilities (interest) (4,869) (4,041)
Proceeds from loans and borrowings 7,500 10,000
Repayment of bank borrowings (10,000) -
Payment of RCF fees (619) -
---------------------------------------------------- -------- ----------
Total changes from financing cashflows - (Restated
-Note 8) (22,315) (16,392)
---------------------------------------------------- -------- ----------
Other changes
Lease liability additions 18,593 36,729
Disposal of lease liabilities (464) (870)
The effect of changes in foreign exchange rates (59) 89
Interest expense 5,125 4,104
---------------------------------------------------- -------- ----------
Total other changes 23,195 40,052
---------------------------------------------------- -------- ----------
Borrowings at end of year (excluding overdrafts(1)
) 143,009 142,129
---------------------------------------------------- -------- ----------
1 The bank overdraft has been excluded in this reconciliation as
it is included within the net cash and cash equivalents balance
reconciled within the consolidated cash flow statement.
Net debt reconciliation
FY21 FY20
GBP000 GBP000
--------------------------------------------- ------- -------
Net debt (excluding unamortised debt costs)
RCF 7,500 10,000
Bank overdraft - 3,605
Cash and cash equivalents (8,315) (6,546)
--------------------------------------------- ------- -------
Net bank (cash) / debt (815) 7,059
Non-IFRS 16 lease liabilities 766 952
--------------------------------------------- ------- -------
Non-IFRS 16 net (cash)/debt (49) 8,011
--------------------------------------------- ------- -------
IFRS 16 lease liabilities 135,148 131,250
--------------------------------------------- ------- -------
Net debt including IFRS 16 lease liabilities 135,099 139,261
--------------------------------------------- ------- -------
11. Related party transactions
Identity of related parties with which the Group has
transacted
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions
between the Group and its associates are disclosed below.
Transactions with key management personnel
The compensation of key management personnel (including the
Directors) is as follows:
FY21 FY20
GBP000 GBP000
----------------------------------------------------- ------- -------
Key management remuneration - including social
security costs 1,965 2,001
Pension contributions 124 84
Long-term incentive plan - including social security
costs 29 80
----------------------------------------------------- ------- -------
Total transactions with key management personnel 2,118 2,165
----------------------------------------------------- ------- -------
Further details on the compensation of key management personnel
who are directors are provided in the Group's Director's
Remuneration Report in the FY21 Annual Report and Accounts.
Principal risks and uncertainties
The Board and the senior management team are collectively
responsible for managing The Group's exposure to risks and
uncertainties including determination of the Group's risk appetite.
Where a conflict exists between risk management objectives and
strategic ambitions, the Board seeks to achieve a balance which
facilitates the long-term success of the Group.
The Board has assessed the principal risks facing the Group and
emerging risks, 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 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 The health and wellbeing of colleagues, customers and wider Reduced risk level
risks to the Group posed by communities is the Board's overriding since date of previous
the COVID-19 pandemic are as follows: priority. report.
* Potential for further impact on economic conditions, Events are closely monitored by the Board which evaluates the The Group has
in particular, once Government support schemes are potential impacts and designs successfully managed
withdrawn. appropriate response strategies. through what appears
The Group maintains a prudent approach to costs, however a to have been the
number of additional temporary period most intensely
* The possibility of further Government restrictions on measures were also taken to reduce costs and/or conserve affected by the
trading could affect the ability to trade and may cash, including; pandemic.
affect the ability of the third party logistics * Use of Government support schemes. Whilst uncertainty
provider and parcel delivery provider to service remains as to the
online fulfilment. ongoing impacts, with
* Reducing rent payments whilst stores were closed, a vaccination
wherever possible, through cooperation with programme reportedly
* Supply chain disruption, including disruption to landlords; progressing well, and
stock availability and potential cost inflation. a booster programme
planned for the
* Careful management of stock intake; autumn, the Board's
* Liquidity risk: the risks listed above could perception is
adversely impact liquidity. that the risk level is
* Suspended non-essential capital investment, including lower than previously.
new store rollout programme (with the exception of a
* The two dose vaccination programme is set to complete small number of stores which were legally committed);
in September 2021, as such the health of colleagues
remains a risk particularly during H1.
* Minimised discretionary operational expenditure;
The Group has worked with its third party logistics partner
to increase capacity safely, which
worked well during peak trading in November & December 2020.
The Group has implemented changes to stores, the distribution
centre and store support centre
(including hygiene and social distancing measures and
enabling the majority of head office
colleagues to be able to work remotely where practical to do
so).
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Finance Insufficient liquidity available and/or insufficient headroom Covenant headroom monitored and forecast covenants calculated Reduced risk level.
in banking facilities. Potential on a monthly basis and reported
for breach of banking covenants if financial performance is to Board.
significantly worse than planned. Bank facilities renewed August 2020, with increased covenant
Availability of credit insurance to suppliers may be reduced or headroom and expiry date extended
removed resulting in an increased to September 2022.
cash requirement. Strategic emphasis now more on costs and efficiency than
previous store roll out plan, reducing
risk.
Constructive dialogue maintained with suppliers, regarding
payment terms.
The Group's cash position at the end of FY21 is stronger than
at the end of FY20, and its
internal profit and cash forecasts have improved since the end
of FY20.
The FY21 lockdown restrictions created the risk of a potential
LTM EBITDA covenant breach
later in the 2021 calendar year. However, the Group's
forecasts showed adequate cash headroom
throughout, and the Groups bank has since adjusted the
covenant to provide more headroom.
The relationship with the bank is open and constructive and it
is anticipated that when a
renewal or extension of the bank facilities is discussed early
in 2022, the outcome will be
positive.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Market The Group generates most of its revenue from the sale of books, Ongoing focus on development of product offer helps Same risk level
toys, art and craft and stationery differentiate The Works, bringing unique,
products. Although it has a track record of understanding quality, products to market at great prices.
customers' needs within these categories, Experienced trading team monitors emerging trends and has a
the market is highly competitive, with increasing competition track record of responding to
from "hard discounters" and changing consumer tastes.
customers' tastes and shopping habits can change quickly. Competitors' propositions closely monitored, with key
Failure to effectively predict and respond to changes could developments discussed at weekly trading
affect the Group's sales and financial meetings and at Board level on a regular basis.
performance. Customer feedback is monitored and reported against regularly.
Most of the Group's sales are derived from physical shops. The Sales data and various online feedback channels are used to
challenges facing the high drive purchasing and marketing
street have increased during the pandemic and there is a risk decisions.
that customers may not return Sales patterns indicate that the Group's retail estate
to the high street which could adversely affect sales if the continues to be relevant to customers,
Group is unable to offset this for example, evidenced by the strong sales experienced upon
by gaining a greater share of the available business. reopening the stores after the
most recent lockdown. In the event that individual stores
cease to be viable, the flexible
lease terms which the Group maintains allow it to adapt the
store portfolio, to suit the evolution
of customer shopping habits.
Meanwhile, investment in the online capability continues, to
ensure that this channel complements
the retail proposition, and vice versa, as customers
increasingly engage with both channels
whilst shopping.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Economic environment The Group's business is sensitive to general economic and The Board considers that the Group's proposition as an Same risk level.
consumer spending conditions. A alternative to full price specialist Although restrictions
deterioration in economic conditions or a reduction in retailers, offering quality good value products, positions it on trading have now
consumer confidence could impact upon well for customers looking to been lifted, and the
customer spending and have an adverse effect on the Group's trade-down in times of economic uncertainty. Government has stated
revenue and profitability. Sales trends are monitored daily and reviewed at weekly trading its ambition
This risk is currently heightened due to COVID-19. meetings attended by senior not to impose further
management, with mitigating actions agreed to drive sales restrictions in the
and/or reduce costs as appropriate. future, the longer
The senior management team has significant relevant experience. term effects of the
COVID-19
pandemic on the
economy are unknown
and it therefore
continues to represent
a potential economic
risk. Risks connected
to Brexit appear to
have reduced following
the announcement of a
trade
agreement.
---------------------- -------------------------------------------------------------- ------------------------------------------------------------------ -----------------------
Brand and reputation 'TheWorks.co.uk' is the Group's key brand asset. Protecting and The values which guide how the Group seeks to conduct itself are Same risk level
enhancing the Group's brand well communicated to colleagues
and reputation is vital to its success. and the senior management team leads by example.
Failure to protect the brand, in particular regarding product Intellectual property guidance and education is provided to
quality and safety, could result design and sourcing teams.
in the Group's reputation, sales and future prospects being Customer and market research focuses on understanding brand
adversely affected. perception.
Customer product reviews are monitored using the Group's partner
provider ("feefo"), with
appropriate 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.
An Ethics Committee has been set up during FY21 to ensure that
the business operates on sound
moral principles, whilst remaining true to its mission, values
and behaviours. It will ensure
that Environmental, Social and Governance responsibilities are
monitored, as well as driving
its 'Giving Something Back' agenda
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Supply chain The Group uses third parties, including many in Asia, for the An experienced buying team is responsible for the sourcing of Similar overall risk
supply of products. This creates products, who maintain strong level.
a number of potential areas of risk, including the potential relationships with key suppliers.
for supplier failures and the The supplier base is continually reviewed. Supply options are
risks of manufacturing and importing of goods from overseas and diversified and/or changed where
potential disruption at various needed, providing flexibility and reducing reliance on
stages of the supply chain. individual suppliers.
This disruption risk may be heightened due to COVID-19. Tighter controls have been introduced throughout the import
Recently, the main supply chain impact process, supported by a recently
has been an increase in ocean freight rates and reduced introduced new freight forwarder, using improved systems.
availability of shipping containers. The Group conducts business fairly, ethically and with respect
The industry has suffered as a result of uneven demand and to human rights and is committed
supply patterns occurring globally to the prevention of slavery, forced labour or servitude,
due to the pandemic. child labour and human-trafficking,
Brexit uncertainty remains to some extent, as import and export in the business and supply chain. An Ethical Trading Code of
processes will alter, but Conduct and a Human Rights Policy
the recent agreement of a deal should reduce the risk level. are in operation, which suppliers are required to adhere to.
Suppliers may fail to act or operate in an ethically
appropriate manner. A recently established Environmental, Social and Governance
("ESG") steering group will monitor
the Group's ESG responsibilities and compliance.
Suppliers must sign the Group's Terms and Conditions of
Purchase which state the supplier
has read, understood and agrees to conform to the Ethical
Trading Code of Conduct.
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. Independent
product testing is also carried out as part of a product
surveillance test programme.
During H2 FY21 there was disruption in the ocean freight
industry which caused unprecedented
increases in the cost of shipping a standard container from
Asia to the U.K., and also delays.
The impact to the Group during FY21 was less critical than
might otherwise have been the case,
due to the requirement for stock being lessened because of the
COVID-19 trading restrictions
in place at the time.
The situation reached a state of relative stability during the
earlier part of 2021 but, most
recently, it has worsened again, with increased rates being
expected during summer 2021 in
particular. The Group has been able to mitigate some of the
risk through contractual agreements
with its main freight forwarder, but remains partially exposed
to the risk of higher spot
rates or delays.
Alternative measures have been put in place, including the
securing of additional capacity
on specially chartered sailings, which are expected to ensure
that the flow of stock is not
materially affected during the critical pre-peak months of
July, August and September. Thereafter,
the shipping volumes decrease significantly and, therefore,
the associated risks also decline.
Provision for higher freight costs has been included in the
Group's internal financial forecast
for FY22, and it is not expected that these recent
developments will have a material impact
on the forecast.
The Group will keep under review whether, should higher
freight costs become a longer term
issue, some, or all, of the additional costs should be
reflected in higher selling prices
and/or alternative sourcing arrangements where practicable.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Loss of key personnel The Group's strategy and long-term success is dependent on the Succession plans continue to be developed and are discussed at Same risk level
quality of the Board and senior Nomination Committee meetings.
management team. Objectives and development programmes are currently being put
There is a risk that a lack of effective succession planning in place to support future leaders.
for the senior management team Well managed search and recruitment processes, with a
and development of key colleagues, could harm future prospects. compelling proposition for potential
recruits: we continue to be successful in attracting and
recruiting high calibre executives
to the Operational Board
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. In
the current year, restricted
share awards were put in place for the Operational board along
with an LTIP for the CEO.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Business continuity Significant disruption to key parts of the operation, in A disaster recovery plan and strategy is in place. Same risk level
particular, internal IT systems, Disaster recovery dry run exercises are undertaken
the store support centre or a distribution centre, could periodically.
severely impact The Group's ability The Group maintains appropriate business interruption
to supply stores or fulfil online sales resulting in insurance cover.
significant financial or reputational An emergency generator at the store support centre insulates
damage. it from the effect of power cuts.
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. This team
has recently been strengthened.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Regulation and The Group is exposed to a growing number of legal and The Group's CFO and Company Secretary oversee regulatory Same risk level
compliance regulatory compliance requirements including: compliance with support from external
the Bribery Act, the Modern Slavery Act, tax evasion and Senior advisers.
Accounting Officer rules, Senior management team members are aware of the key compliance
GDPR, Gender Pay Gap reporting, National Living and Minimum requirements within their business
Wage, Environmental and Listing units and liaise with the CFO and external advisers to
Rules. identify and manage issues.
Failure to comply with these regulations could lead to The Group has a number of policies and procedures governing
financial claims, penalties, awards behaviours in all key areas, some
of damages, fines or reputational damage which, in some cases, addressing mandatory requirements (e.g. anti-bribery and
could be material and could corruption, adherence to national
significantly impact the financial performance of the business. living wage requirements) and others adopted voluntarily.
A whistle-blowing policy and procedure is in place, allowing
colleagues to confidentially
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 and cyber The Group is reliant on the efficiency, reliability and Recovery of key business systems is captured as part of the Unchanged, having been
security resilience of key IT systems. Failure Business Continuity Plan with raised last year, due
to develop and maintain these systems, or any prolonged system enhanced working from home capabilities deployed in response to perception of
performance problems or cyber-attack, to COVID-19. external environment.
could affect the Group's ability to trade and/or could lead to Support contracts, with appropriate SLAs, are in place for all
significant fines and reputational third-party systems with in-house
damage. systems supported by an experienced development team.
Operational practices for maintaining security have been
reviewed with revised and more 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 inflation Increases in costs could adversely impact the Group's ability Budgets and forecasts used by the Group include the expected Potentially slightly
to deliver profit growth. impact of the national living lowered risk level due
This risk is currently heightened due to: wage and other known cost inflation (e.g. in energy prices) to recent securing of
* COVID-19 pandemic increased costs to maintain social and, therefore, the Board's strategic Brexit agreement but
distancing, absenteeism and mitigate health and planning takes these into account. potential
safety risks may continue, along with potential Cost control remains a central focus for the business. Cost inflation risk due to
impacts on imports and supply chain costs (see also mitigation strategies are in place wider macro-economic
supply chain risk described above). to offset, where possible, increases in national minimum and conditions. Assessment
living wages (e.g. productivity is that overall risk
improvements resulting from reducing/simplifying in-store level
* The increases in the national living and minimum processes). is unchanged.
wages given most of the Group's colleagues are paid The Group plans to make greater use of direct sourcing to
the national minimum or living wage. improve the margin on key products
purchased.
An FX hedging policy is in place to smooth the short term
effects of exposure to foreign exchange
rate fluctuations.
The flexible nature of the Group's property leases,
approximately three years on average to
the next exit point, ensures the Group is able to benefit from
the reductions in rental costs
through the rolling renegotiation of its leases.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Stock management Ineffective controls over the management of stock could impact Stock levels are set as part of an annual budget process with Same risk level
on financial performance, whilst stock reviewed on a weekly basis
lack of sufficient product availability could affect sales. against these budgeted levels.
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 expansion At the end of FY20, new store rollout was de-emphasised as a A store location modelling tool supports the new store Reduced risk level
pillar of the strategy. The ability assessment and sign-off process. The
to identify a set number of suitably profitable new store model has been updated during FY21.
locations is therefore less critical UK retail vacancy rates continue to run at high levels,
than in previous years. providing opportunities which will
be pursued selectively.
Each new store opening is approved by the CEO and CFO and will
be subject to particularly
close scrutiny in light of tighter capex constraints.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
Seasonality of sales The Group historically makes all of its profit in the second An ongoing focus of the business is to reduce seasonality by Risk level remains
half of the financial year, with growing the year-round appeal inherently high but
the peak Christmas trading period contributing substantially of the proposition. risk mitigations in
all of this profit. Weekly trading meetings ensure that action is taken to relation to the
Interruptions to supply, adverse weather or a significant maximise sales based on current and COVID-19 impact
downturn in consumer confidence expected trading conditions. in November and
around this peak trading period could have a significant impact The Group invested in increased capacity in its online December 2020 were
on the profitability of the fulfilment operation for the peak season successful.
Group. of FY21 (November). This was successful in avoiding
disruptions to service similar to those
experienced in the previous two years, despite very high
online demand due to most of the
Group's stores being closed due to lockdown restrictions.
---------------------- --- --------------------------------------------------------------- ---------------------------------------------------------------- -----------------------
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FR ZBLBLFDLLBBE
(END) Dow Jones Newswires
July 20, 2021 02:00 ET (06:00 GMT)
Grafico Azioni Theworks.co.uk (LSE:WRKS)
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Da Mar 2024 a Apr 2024
Grafico Azioni Theworks.co.uk (LSE:WRKS)
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Da Apr 2023 a Apr 2024
