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Sector
Industrials
Size
Small Cap
Market Cap £72.7m
Enterprise Value £52.2m
Revenue £106.9m
Position in Universe 1144th / 1827

Park Group PLC - Final Results - Part 1

Tue 13th June, 2017 7:00am
RNS Number : 8739H
Park Group PLC
13 June 2017

NEWS RELEASE

PARK GROUP PLC

("Park", "Park Group" or "the Company")

13 June 2017

Preliminary Results for the Year Ended 31 March 2017

Summary

Park Group is the UK's leading provider of value-added prepaid gift, reward and savings products, to corporate and consumer markets. Sales are delivered through innovative leading edge digital channels, a direct sales force and a network of agents.

Financial highlights

4.6 per cent rise in operating profit to 10.9m (2016 - 10.4m)

4.2 per cent growth in profit before tax to 12.4m (2016 - 11.9m)

5.1 per cent advance in billings to 404.5m (2016 - 385.0m)

Proposed final dividend raised to 1.95p per share (2016 - 1.90p) making a total dividend for the year up 5.5 per cent to 2.90p per share (2016 - 2.75p per share)

Total cash balances peaked at 217m (2016 - 206m). Year end cash balance was 31.4m (2016 - 28.8m) with a further 83.0m (2016 - 75.2m) of monies held in trust

Operational highlights

Ongoing delivery against strategy - Maintained the growth of the first half and delivered another positive trading performance for the year as a whole

Focus on technology continues - Over 90 per cent of total orders now taken online, compared with just 10 per cent in 2008

Corporate business

Another strong performance with billings rising by 6.3 per cent to 187.7m (2016 - 176.7m)

'Evolve' digital reward platform (launched in June 2016) proving successful, with over 165 corporate clients using the web portal to date. Post period end, the platform's reach was expanded to service international customers (Love2shop Worldwide, launched May 2017).

Acquisition of Fisher Moy International (FMI) in October 2016 provided a good fit and integration of this business is progressing well

Consumer business

Billings within the consumer business increased by 4.0 per cent to 216.8m (2016 - 208.4m)

Number of customer accounts grew by 6.3 per cent to over 168,000 (2016 - 158,000) and customer numbers rose to 431,000 (2016 - 429,000) while the average customer order value improved 3.9 per cent to 508 (2016 - 489).

New mobile app for Christmas savings customers launched

Park is now a licensed issuer of Mastercard products - allows Park to issue products faster and with greater flexibility, whilst operating more efficiently

Orders for Christmas 2017 are again ahead of the previous year at this stage in the cycle

CEO Succession

Chris Houghton, Park's Chief Executive Officer, has indicated his intention to retire. A comprehensive process will be put in place to appoint a suitable successor.

Laura Carstensen, Chairman, commented: "The current year has started well as we have, again, maintained the progress of the previous period. The outlook for our corporate and consumer businesses is positive, with order books ahead of their position at the same time last year. We will continue to deliver against our strategy, focusing on excellent customer service and product innovation, to grow our customer bases and broaden the range of products and services we can offer to them."

For further information please contact:

Park Group plc

Arden Partners plc

Tavistock Communications

Chris Houghton

Martin Stewart

Steve Douglas

Benjamin Cryer

Andrew Dunn

Jeremy Carey

Sophie Praill

Tel: 0151 653 1700

Tel: 020 7614 5920

Tel: 020 7920 3150

Chairman's Statement

I am delighted to announce another good set of results from Park with pleasing performances from both the corporate and consumer businesses.

Park's corporate business has grown over a comparatively short period to be one of the UK's leading providers of multi-redemption gift cards, vouchers and digital reward propositions. This division supplies approximately 31,000 businesses with a range of products and services, often tailor-made. These are used to reward and motivate each client business' own employees and customers.

The consumer business provides customers with a reliable, effective and convenient way to budget for the festive season over a 45 week period. Today it offers its 431,000 customers a range of gifts and multi retailer gift cards and vouchers, which can be used at thousands of high street outlets and online, as well as more traditional products, thereby helping to deliver a more stress-free Christmas to hundreds of thousands of families.

Our objective is to be the pre-eminent provider of value-added prepaid gift, reward and savings products to both the corporate and consumer markets, meeting customers' needs with high quality service and the products they want. In pursuit of this objective, Park has transformed itself over recent years, as it has seized the opportunities presented by technology, to innovate in line with changing markets and customer demands. Today, over 90 per cent of new customer orders for Christmas 2017 have been taken online, compared with 80 per cent last year and just 10 per cent in 2008. By ceaselessly investing in innovation and keeping pace with the digital revolution, Park is now well placed to reap the rewards of the world-class digital platforms it has developed.

The Group's strategy has been to generate organic growth in its core businesses through innovation and excellent customer service, but alongside this strategy, Park also carefully examines potential best-fit acquisitions which can add capabilities to enhance its offering, or to open up new geographies or markets. This was demonstrated in October 2016, as Park successfully completed the cash purchase of Fisher Moy International, a specialist in employee and customer engagement products and programmes.

Financial performance

Park Group's profit before taxation rose by 4.2 per cent in the year to 31 March 2017, reaching 12.4m (2016 - 11.9m) while operating profit grew to 10.9m (2016 - 10.4m). Total billings increased by 5.1 per cent to 404.5m (2016 - 385.0m) while revenue was also ahead at 310.9m (2016 - 302.5m). Billings, as highlighted in previous reports, is a more appropriate measure of the level of activity of the Group than revenue.

Park is a cash generative business with a strong, debt free balance sheet. The amount of cash held by the Group increased, but returns from that cash were below last year's level as money market rates reduced. As a result, finance income was at a similar level to last year at 1.5m (2016 - 1.5m).

Dividend

The board is recommending raising the final dividend to 1.95p per share (2016 - 1.90p) making a total dividend for the year of 2.90p per share (2016 - 2.75p) up 5.5 per cent. Park has a progressive dividend policy with increases linked to cash generation and general business performance. It is noteworthy that the total dividend has more than doubled over the last seven years, reflecting the board's confidence in the business' performance and the position and success of Park's offering in each market. Shareholder approval will be sought at the Annual General Meeting (AGM) to be held on 21 September 2017 to pay the final dividend on 2 October 2017 to shareholders on the register on 25 August 2017. The ordinary shares will be marked ex-dividend on 24 August 2017 as a consequence.

Corporate and social responsibility

Park is committed to the support and development of its local communities in Birkenhead and the Wirral and is proud to be a founder patron of the Wirral Youth Zone, which opened in April 2017 and is known locally as 'The Hive.' The Hive offers a wide range of activities for young people aged between eight and 19 years (25 for those with a disability) including: dance, sport, fitness, music, media, life skills and enterprise. In addition, the Hive has been approached with offers of work and personal development opportunities within Park. We offer apprenticeships to our local communities, remain a regular contributor to local charities and are a long-term supporter of All Together Now, a free newspaper for people with disabilities, from across the North West of England and North Wales.

During the year we have also implemented an employee intensive driver awareness course, which has garnered awards from Wirral Borough Council in 'Best Business' and 'Best Individual' categories, and implemented a cycle to work scheme to boost our employees' health and reduce our carbon footprint. During the period we have also taken steps to raise awareness of mental health issues and have implemented specialist training within our workforce.

Chief Executive Officer succession

After more than thirty years of service, leading the business through a successful evolution of its customer offering, Chris Houghton, our Chief Executive Officer, has indicated his intention to retire. A comprehensive process will begin immediately to appoint his successor and Chris has indicated that he will remain in the role until a suitable successor has been identified, appointed and is in place. Whilst there is no retirement date to report as yet, I can confirm that he will remain as Chief Executive Officer for at least a year from today. This timeframe allows the Company to instigate a well-planned and orderly handover period.

People

Park's success depends on its people. They are motivated by a desire to be best in class, delivering excellence to customers and value to our shareholders, while building a business that holds integrity, respect, innovation and service excellence as its core values. Their commitment and dedication is greatly appreciated and I would like to thank them on behalf of the Park board.

Outlook

The current year has started well as we have, again, maintained the progress of the previous period. The outlook for our corporate and consumer businesses is positive, with order books ahead of their position at the same time last year.

We will continue to deliver against our strategy, focusing on excellent customer service and product innovation, to grow our customer bases and broaden the range of products and services we can offer to them.

Park has developed world-class, successful platforms which are digital, adaptive, scalable and growing in popularity. This gives us confidence in our ability to deliver another strong performance in the current year.

Laura Carstensen

Chairman

13 June 2017

Chief Executive's Review

Introduction

This has been another year of progress across Park's wide range of specialist products and services. The Company has maintained its growth record and delivered further steady increases in the key metrics of billings, profit and cash generation. Park's businesses, serving both the consumer and corporate sectors, have continued to expand their customer bases while maintaining extremely high levels of service and introducing innovative new products.

Continuing focus on technology

Park's progress has been characterised by the successful manner in which the Group has embraced new technologies to enable it to develop and deliver state-of-the-art digital products and services to its customers. Our consumer savings business now serves its hundreds of thousands of customers principally through the internet and mobile telephony.

Many customers no longer want to speak to a sales assistant or call centre, but prefer to self-serve and manage the enquiry and order management process themselves, at a time of day or night which suits them. Although the degree of voice contact with customers is diminishing, Park continues to gauge their interest and concerns through focus groups and many other feedback mechanisms. These are essential elements of our marketing process and ensure that customer preferences and reactions are collated and well understood. A highly effective medium for communicating with users and assessing concerns, Park's 'Ask Wanda' virtual assistant, holds some 500 answers to possible customer questions covering a wide range of topics. Our customer communications have now been expanded to include 'Live Chat' which enables enquirers to receive responses, not just from us but also other customers, in real time.

Customer interaction with Park has changed dramatically over the past decade. Previously, a consumer customer would perhaps see one of our television advertisements and respond by telephoning to request a brochure. This may have led to a sale or possibly just a request for further information. Today, with the advances in digital connectivity, many prospective customers respond immediately to our television advertising by logging on to Park's websites, selecting products and placing orders, while also perhaps setting up a direct debit for future payments and confirming delivery arrangements. The complete selection and order process can now be completed within minutes using a digital device from anywhere in the world.

Social media continues to be a significant and growing component of our communication with customers and visitors to our web sites. Facebook remains the most popular channel and we now have over 100,000 followers compared with 72,000 12 months ago. Facebook provides an effective communication tool while also providing excellent market research as we monitor, review and respond to user comment and reaction. In addition, it gives us early warning of any issues that require attention, should they arise in user discussions. During the year, approximately 5m of orders were generated by Park's Facebook page alone and we will continue to develop social media channels to build on this success.

The corporate business provides customised incentive and reward schemes to its thousands of customers using advanced digital technologies. The programmes provided allow users to manage their rewards via mobile devices, giving them easy access and real time updates on their spending and cash balances.

Park's annual capital expenditure on IT runs at approximately 600,000 with a total spend, including technical support, in the region of 3.6m. This is a significant investment and commitment for a business of our size. The Company has had its ISO27001 accreditation renewed; meaning that we meet this international standard describing best practice for an information security management system.

One of the most significant advances in Park's history was the introduction in 2010 of the flexecash prepaid card. This innovative product represented a major step forward for the business and moved it into areas which previously had not been accessible. Since launch, flexecash cards have had over 527m of value loaded, with 98 brands accepting the card through 13,000 UK outlets. The card is available alongside the Love2shop voucher, which is supported by 168 brands at 20,000 outlets. In Ireland, 48 brands with a total of 566 stores accept the voucher.

Technology does not stand still and Park has utilised the latest advances to move the flexecash concept even further forward, through the development of e-codes, which provide a digital representation of a flexecash card. These 14 character digital codes deliver a totally encrypted and unique path to provide customers with the means to make instant purchases from our website. We believe that digital products, such as e-codes, account for only some five per cent of the business to business (B2B) incentive and reward market at the moment. The growth potential is therefore very exciting and Park has the technology, systems and products to capitalise on this opportunity.

A further important development has been the online acceptance of flexecash. New retailers who accept our cards online currently include Argos.co.uk and Virgin Experiences.

Aside from the benefits our technological innovations are bringing to our corporate and consumer customers and the increasing levels of business this generates, a further advantage of Park's transition into a modern, digital business, has been in allowing us to operate much more efficiently and keep tighter control of costs. The cost to us of opening a new account is now close to half that of 2011, while the cost of servicing a retained account has fallen some 70 per cent during the same time frame.

Park utilises the cutting edge of modern technology to maintain a successful heritage which has always been based on understanding our customers and delivering outstanding service to them. We remain committed to keeping pace with technology as it evolves and will continue to look for ways to better serve our customers.

Strategy

Park's growth and success is based on its delivery against a consistent strategy, which has remained broadly unchanged over recent years:

to enhance our retailer proposition;

to grow our multichannel offering;

to expand the customer base; and,

to develop and exploit our infrastructure.

Our overall strategic priority is to generate organic growth from expanding our customer base via product enhancement and new product development, as well as entering new markets that fit our core proposition of being a leading value-added prepaid savings, gifts and reward product provider. We will also carefully consider acquisition opportunities as they arise, provided they meet our strict market and financial objectives.

The acquisition of Fisher Moy International (FMI) in October 2016 met our strategic objectives, providing a good fit with our corporate business and integration of this business is progressing well. FMI is a strategic brand engagement consultancy with over 30 years' experience. It works with a number of blue-chip clients including Close Brothers, Huawei, Inchcape, Logitech and LV. Specialising in the creation of events, roadshows and conferences, as well as targeted incentive and reward schemes, FMI helps businesses to communicate more closely with customers and employees. The acquisition will give Park the opportunity to engage with a wide range of public companies to offer our extensive range of incentive and reward products, as well as offering a physical presence in the South of England. Also, FMI's status as part of Park, a publicly quoted business with a long and successful track record, should also add the prestige, comfort and transparency necessary for FMI to target increasingly larger corporate clients.

Corporate business

The corporate business, under the brand Love2shop Business Services, is the UK's largest provider of multi-redemption gift cards, vouchers and digital reward propositions, principally to the incentive and reward markets. Love2shop Business Services offers an innovative and sophisticated range of reward solutions and on-line programme management systems that are used to motivate, retain, reward and recognise employees and customers. The UK Gift Card & Voucher Association, an independent trade body, estimates that the market for its members' products has achieved double digit growth over the past five years, and is now estimated to be worth over 5.6bn per year, with the B2B element of the market estimated to represent 54 per cent of the total.

Park's reward and incentivisation products, unlike its competitors, are processed on its own flexecash processing network, which is linked to many of the UKs best-known retailers. This gives tremendous flexibility and we have developed a comprehensive suite of cards and digital codes, which vary depending upon clients' individual requirements - be that branding, remote value activation, the ability to exchange value for on-line spending, options to redeem value for holidays, or cards that allow users to add their own funds at a discount, amongst many other alternatives. This in-house innovation, capability and associated flexibility has enabled us to grow significantly over the last few years.

Our corporate business serves over 31,000 organisations, supplying programmes and products to reward and incentivise staff and customers alike. Park treats each corporate customer as a unique entity, understanding that all businesses and end recipients are different. A product which works well for one customer does not necessarily work for another. We therefore always aim to provide as much reward choice and flexibility as possible and can match bespoke programmes to specific client requirements.

During the year

The corporate business delivered another strong performance with encouraging advances in billings and profit. Billings increased by 6.3 per cent to 187.7m (2016 - 176.7m) and operating profit rose by 20.6 per cent to 7.2m (2016 - 6.0m).

One of Love2shop Business Services' KPIs is client retention. During the year under review, client retention improved from 83 per cent last year to an impressive 86 per cent. The majority of corporate customers have been with Park for many years, others may be new to the business and perhaps only require a particular scheme for a single occasion. Major new clients joining Park during the year included Akzo Nobel, EDF, Office For National Statistics, Royal & Sun Alliance and Scottish Power.

The acquisition of FMI in October provides an exciting opportunity for our corporate operations. FMI has already led to some early stage new opportunities for Park and we look forward to fully integrating the business and driving the enlarged Group forward.

Product development

Product development within the corporate business concentrates on devising new, sophisticated applications to meet increasing customer demand. Our 'Evolve' platform was launched in June 2016 and has been very well received, with over 165 clients using the web portal to date. 'Evolve' is a digital reward medium that provides instant and branded digital reward codes to customers and employees alike. It provides an easy, quick, totally branded and cost effective reward solution to businesses that are looking to reward their employees or customers, who might be on the move or in remote locations. The recipient is offered an expansive range of reward options to choose from, including retailer e-codes, physical cards, holidays and merchandise. A number of major organisations including Travis Perkins and Vodafone are already on board, with many more in the pipeline. 'Evolve' represents mainly new business, although there are some customers who have chosen to migrate from physical cards and vouchers to this digital platform.

A further milestone for 'Evolve' was achieved in May 2017, after the year end, as we expanded its capabilities and began to offer our rewards products to a global audience, via the establishment of 'Love2shop Worldwide.' This will allow Park to provide its reward, recognition, benefits and wellbeing services to the worldwide employee and customer engagement markets. Phase one of the launch will allow digital reward codes to be exchanged by intended recipients for a vast array of country-specific rewards. These include vouchers, gift cards, physical gifts, holidays, experiences, e-codes, music downloads, e-books and much more. This new international service will be offered immediately to Park's existing UK corporate clients who have employees and customers overseas, before meeting wider market demand and actively promoting the service in new territories during phase two of the rollout.

'Everyday Benefits', our employee voluntary benefit product, continues to expand its offering. The launch of an enhanced 'Everyday Benefits' package has been successful with an encouraging level of sales. The range has been extended to include named gift cards, dining out, days out and cinema ticket offers, amongst a broad range of other benefit options.

Love2shop Holidays, Park's full service travel agency provides another avenue of redemption for the Love2shop brand. The business has continued to grow during the year with bookings and revenue increasing by over 10 per cent. The operation is now able to provide its service online, which will further boost its appeal.

Consumer business

Park has been helping families prepare and budget for Christmas for decades, allowing them to save in a secure, controlled and structured way, free of last minute financial concerns. This long-established process of regular payments, allows customers to plan and prepare for their Christmas expenditure over many months and they appreciate the way the programme smooths their spending and overcomes any uncertainty or short term financial worry. Our consumer business therefore has an excellent record of delivering growth, even in uncertain times.

Customers purchase gift cards, vouchers, hampers or other gift products through a 45-week installment plan, with everything delivered in time for Christmas. While the structure of the process has changed little over the years, the range of products and the ways in which customers interact with Park have developed beyond all recognition.

Each Christmas marketing campaign includes a carefully targeted television advertising and wider marketing programme, which commences more than a year in advance of the festive season and peaks in the first calendar quarter. The campaign is carefully structured to deliver optimum value and a significant element of Park's promotional effort is now through the digital channels of text and email, which are highly effective, inexpensive and offer much more targeted channels of communication. This digital focus, combined with television advertising and a reduction in the use of less effective, more traditional media, has proved most successful and has delivered good growth in customer numbers.

The ever increasing use of digital technology is providing customers with a fast, efficient and user friendly interface with Park, while also positioning the business at the leading edge of internet usage.

During the year

The consumer business grew in the year under review, reflecting the quality of its existing product ranges and the successful introduction of new products. Billings within the consumer business increased by 4.0 per cent to 216.8m (2016 - 208.4m) while operating profit reduced 5.3 per cent to 6.5m (2016 - 6.8m) reflecting changes in product mix, continued investment in our product range and services, as well as increased voucher print costs. The number of customer accounts increased by 6.3 per cent to over 168,000 (2016 - 158,000) and customer numbers increased to 431,000 (2016 - 429,000) while the average customer order value improved 3.9 per cent to 508 (2016 - 489).

The increasing consumer use of the internet and handheld devices, coupled with our focus on the development of technology and digital channels, continues to revolutionise ordering behaviour. Over the past year, approximately 49 per cent of completed orders were placed via the Company's websites, an increase of over two per cent above the level of the previous year.

In the year to 31 March 2017 close to 80 per cent of new customer orders for Christmas 2016 were placed online with 20 per cent by phone or post. This compares with 2008 when only 10 per cent came via the internet with the balance placed manually. In 2008 Park received approximately 260,000 customer interactions via the internet and all were through desktop computers. In 2017 the number of interactions has grown to 3.3m and the desktop share has fallen to 17 per cent. Mobile telephony is now the most popular means of communication with Park, comprising 69 per cent of orders, with 14 per cent attributable to tablet users.

Our Irish business continued to make progress and introduced the Love2shop Mastercard during the year which was well received, with orders in the territory rising by 8.7 per cent.

Total orders for Christmas 2017 are again ahead of last year at this stage in the cycle.

Product development

In January we launched a mobile application (app) for Christmas savings customers, reflecting their preference for this means of communication. The app has been very well received during its test marketing phase and is already generating new business. The app is a platform for the long term and we believe it will deliver sustainable growth.

Park's relationship with Mastercard continues to strengthen. Park's 'Your Choice' card (formerly the 'Anywhere' card) is a Mastercard which allows users to make purchases from any retailer, including online retailers, that accepts Mastercard, not just those that accept the Love2shop brand. Because the card offers the freedom to shop at an expanded number of outlets, customers are prepared to pay a small premium for a preloaded 'Your Choice' card.

In January 2017, Park became a licensed issuer of Mastercard products. This was an important strategic development as it now allows Park to be fully responsible for end-to-end settlement with Mastercard, without the need to involve external programme managers or issuing banks, giving us the ability to react rapidly and flexibly in servicing customer requirements, as well as operating more efficiently ourselves. The first product to be offered was a digital card issued to customers for online use at a select number of retail outlets, including John Lewis, Argos and Debenhams. Our intention is to expand the offering later this year to include physical cards, for use at any retailer accepting Mastercards, both online and in-store.

Summary

This has been another year of progress as our strategy continues to bear fruit and drive consistent growth across the Group. The purchase of FMI reflects our interest in making the right acquisition when the opportunity arises and this acquisition is already generating additional opportunities for us. Product development, innovation and customer service remain at the heart of Park Group's operations and are arguably more important today than at any time in our 50 year history.

Our corporate and consumer businesses have delivered another year of growth and both operations are well positioned to make further advances in the current year. The speed of technical advance in our marketplace is rapid and our information technology teams are at the forefront of innovation, ensuring that customers can interact with Park using the latest internet and digital developments.

Park looks forward with confidence as we continue to develop exciting new products and platforms, enabling us to expand into new markets and we are in a strong position to capitalise on future opportunities as they arise.

Chris Houghton

Chief Executive Officer

13 June 2017

Financial Review

Profit from operations

The group's operations are divided into two operating segments:

consumer, which represents the group's sales to consumers, utilising its Christmas savings offering; and

corporate, comprising the group's sales to businesses, offering primarily sales of the Love2shop voucher, flexecash cards and other retailer vouchers to businesses for use as staff and customer rewards/incentives, marketing aids and prizes and all online sales.

All other segments comprise central costs and property costs.

Billings have increased when compared to the prior year by 5.1 per cent to 404.5m, with revenue increasing on the same basis by 2.8 per cent to 310.9m. The increase in revenue is smaller than the increase in billings year on year, due to the higher proportion of billings arising from flexecash cards. Revenue earned from the sale of flexecash cards is recognised differently from all other customer billings, as explained below.

Revenue and margin from sales of Love2shop vouchers and flexecash cards are generated from both operating segments. Operating profit is detailed below:


2017

'000

2016

'000

Change

'000

Consumer

6,460

6,823

(363)

Corporate

7,231

5,997

1,234

All other segments

(2,810)

(2,420)

(390)

Operating profit

10,881

10,400

481

Operating profit for the year ended 31 March 2017 has increased by 0.5m to 10.9m.

In the consumer business, customer billings have increased by 4.0 per cent to 216.8m. Revenue has also increased by 2.5 per cent to 174.2m. The increase in billings of 8.4m primarily reflects the higher level of customer prepayment orders fulfilled for Christmas 2016 at 214.3m (Christmas 2015 - 205.4m), offset by a reduction in income from warehousing and repackaging activities of 0.5m. Billings in respect of flexecash cards totalled 43.6m (2016 - 38.9m). Operating profit at 6.5m has decreased by 0.4m from that achieved in the prior year. This is due to a change in the product mix for prepayment customers to lower margin products which offset the gains made in the overall billings growth accompanied with the loss of income from warehousing and repackaging activities.

In the corporate business, customer billings have increased by 11.1m (6.3 per cent) in the year to 187.7m. Revenue has increased by 3.1 per cent to 136.7m. Growth in billings in the incentive sector was again strong, up 9.7m (8.7 per cent) in the year with online sales up 1.6m (6.6 per cent) at 25.5m. The improvement in operating profit of 1.2m to 7.2m reflects the growth in billings and a small improvement in margin arising from a change in the product mix. Billings in respect of flexecash cards totalled 62.0m (2016 - 51.7m).

The increased costs in other segments of 0.4m over the amount for the prior year arises from Mastercard issuer start up costs 0.2m and increased salary costs of 0.2m.

Finance income

Finance income declined slightly to 1.47m from 1.52m. Average total cash held by the group, including cash held in trust during the year increased by 11 per cent to 155m (2016 - 140m), however the yield achieved on this higher cash balance was adversely affected by a further decline in interest rates.

Taxation

The effective tax rate for the year was 19.9 per cent (2016 - 18.3 per cent) of profit before tax. The lower rate in the prior year was due to the release of an overprovision made in respect of earlier years.

Earnings per share

Basic earnings per share (EPS) increased to 5.38p from 5.28p.

Dividends

The board has recommended a final dividend of 1.95p per share. An interim dividend of 0.95p per share was paid on 6 April 2017. Subject to approval of the final dividend at the AGM, the total dividend for 2017 will be 2.90p per share representing an increase of 5.5 per cent over the prior year.

Cash flows

Cash flows from operating activities, at 9.9m, were 2.3m lower than the prior year. The prior year cash flows benefited from an improved working capital inflow from inventory, receivables and payables, offset by timing differences on the movement of monies from cash held in trust. In addition, the growth of cash held in the E money Trust of 4.9m (2016 - 4.2m) was also higher.

At the end of March 2017 34.2m (2016 - 32.7m) of cash and cash equivalents was held by the group. This was 1.5m higher than the prior year. The prior year balance was depressed by 2.0m, as monies held within the Park Prepayments Trustee Company Limited in respect of the Christmas 2016 season was not received by the group until 1 April 2016.

An amount of 0.2m (2016 - 0.5m) was held as deposits with a maturity period of greater than three months but less than 12 months. In addition, 59.0m (2016 - 56.1m) was held by the Park Prepayments Trustee Company Limited. The trust holds payments received in respect of orders for delivery the following Christmas. The conditions for the release of this money to the group are detailed in the trust deed, which is available at www.getpark.co.uk. In addition, at 31 March 2017, the group held 24.0m (2016 - 19.1m) of cash in the Park Card Services Limited E money Trust (PCSET) to support the e-money float in accordance with regulatory requirements.

The total amount of cash and deposits net of any overdraft position held by the group combined with the monies held in trust has increased in the year to 114.6m from 104.5m as at 31 March 2016. These total balances peaked at just under 217m in the year, representing an increase of over 11m from last year. This was due to the higher level of cash receipts into the Park Prepayments Protection Trust (PPPT) in respect of the consumer business and the growth in the corporate business.

Provisions

At the year end, provisions had increased to 46.2m from 44.8m. This was mainly due to an increase in the amounts provided in respect of flexecash cards of 2.1m offset by a decrease in the provision for unspent vouchers of 0.7m. The value of unspent vouchers included in the provision, arises primarily from sales in the corporate business.

Accounting policies

Revenue recognition

Revenue from cards is recorded differently to revenue from paper vouchers and comprises the fees earned based on customer billings, recognised when the value loaded on the card has been redeemed. Where cards are sold to businesses for onward gifting to consumers with no right of redemption, revenue also includes an estimate of projected balances remaining on the card at expiry. The total amount included in this year's income statement as revenue from flexecash cards is 12.8m (2016 - 8.8m).

Pensions

The group continues to operate two defined benefit pension schemes, where pensions at retirement are based on service and final salary. These schemes are now closed to future accrual of benefit arising from service with the group. These schemes have a net pension surplus of 0.9m based on the valuation under IAS19 performed at 31 March 2017 (2016 - deficit of 0.3m).

The group has recognised an income of 1,000 (2016 - cost of 146,000) in the income statement. In addition the group has recognised re-measurements in the statement of comprehensive income (SOCI) of a gain of 0.5m (2016 - gain of 0.4m) net of tax.

In the year ended 31 March 2017, contributions by the group to the schemes totalled 0.7m (2016 - 0.7m). The latest actuarial valuations performed as at 31 March 2013 indicated that one scheme had a technical provisions deficit (reflecting the liabilities to pay pension benefits in relation to past service as they fall due) of 3.8m and one had a surplus on the same basis of 0.6m. The triannual actuarial valuation as at 31 March 2016 is due to finalised shortly. Future group contributions to the scheme that is in deficit are expected to be 0.7m per annum.

Martin Stewart

Group Finance Director

13 June 2017

Risk factors

Financial risks

Risk area

Potential impact

Mitigation

Group funding

The group, like many other companies, depends on its ability to continue to service its debts as they fall due and to have access to finance where this is necessary.

The group manages its capital to safeguard its ability to operate as a going concern. Whilst the group has net current liabilities, it has access to funds for working capital from the PPPT for a defined period in the year, although the group has not used this facility in either of the last two years. This enables it to operate without bank borrowings.

In addition the group has a high level of visibility of future revenue streams from its consumer business. The funding requirements of the business are continually reforecast to ensure that sufficient liquidity exists to support its operations and future plans.

Treasury risks

The group has significant funds on deposit and as such is exposed to interest rate risk, counterparty risk and exchange rate movements following the commencement of operations in Ireland.

The group treasury policy ensures that funds are only placed with and spread between high quality counterparties and where appropriate any exchange rate exposure is managed to minimise any potential impact.

Banking system

Disruption to the banking system would adversely impact on the group's ability to collect payments from customers and could adversely affect the group's cash position.

The group seeks wherever possible to offer the widest possible range of payment options to customers to reduce the potential impact of failure of a single payment route.

Pension funding

The group may be required to increase its contributions to cover any funding shortfalls.

The group's pension schemes are closed to future benefit accrual related to service. Funding rates are in accordance with the agreements reached with the trustees after consultation with the scheme actuary.

Financial services and other market regulation

The business model may be compromised bychanges in existing regulation or by the introduction of new regulation. Possible newregulation could include a requirement toring fence funds for vouchers sold to consumers. This could adversely affect thegroup's cash position.

The group has a regulatory team that monitors and enforces compliance with existing regulations and keeps the group up to date with impending regulation. The group shares the objectives of Government in treating customers fairly and in the protection of customer prepayments. The group operates a number of trusts to safeguard funds held on behalf of customers. In the event of new regulation being introduced that requires additional cash to be segregated, the group has access to other potential sources of funds, if required.

Credit risks

Failure of one or more customers and the riskof default by credit customers due to reduced economic activity.

Customers are given an appropriate level ofcredit based on their trading history andfinancial status, a prudent approach isadopted towards credit control.

Credit insurance is used in the majority ofcases where customers do not pay inadvance.

Operational risks

Risk area

Potential impact

Mitigation

Business continuity and IT systems

Failure to provide adequate service levels to customers, retail partners or other suppliers, resulting in a failure to maintain services that generate revenue.

There is a risk that an attack on our infrastructure by an individual or group could be successful and impact the availability of critical systems.

The group plans and tests its business continuity procedures in preparation for catastrophic events and for the existence of counterfeit vouchers or cards.

Our focus is on the elimination of any single point of failure in our IT systems. Our critical infrastructure has been designed to prevent unauthorised access and reduce the likelihood and impact of a successful attack.

The group maintains three separate data centres in relation to its core infrastructure to ensure that service is maintained in the event of a disaster at its primary data centre. Developed software is extensively tested prior to implementation. We also manage the risk of malicious attacks on our infrastructure by continuously monitoring our systems.

Loss of key management

The group depends on its directors and key personnel. The loss of the services of any directors or other key employees could damage the group's business, financial condition and results.

Existing key appointments are rewarded with competitive remuneration packages including long term incentives linked to the group's performance and shareholder return.

Relationships with high street and onlineretailers

The group is dependent upon the success of its Love2shop voucher and flexecash card. These products only operate provided the participating retailers continue to accept them as payment for goods or services provided. The failure of one or more participating retailers could make these products less attractive to customers.

The group has a dedicated team of managers whose role it is to ensure that the group's products have a full range of retailers. They also work closely with all retailers to promote their businesses to Park's customers who utilise Park's vouchers and cards to drive forward incremental sales to their retail outlets. Contracts which provide minimum notice periods for withdrawal are in place with all retailers and are designed to mitigate any potential impact on Park's business.

Failure of the distribution network

The failure of the distribution network during the Christmas period, for example a Post Office strike, road network disruption or fuel shortages could adversely impact the results and reputation of Park's brands.

Wherever possible the group seeks to utilise a wide range of geographically spread carriers to mitigate the failure of a single operator.

Brand perception and reputation

Adverse market perception in relation to the group's products or services, for example, following the collapse of a competitor. This could result in a downturn in demand for its products and services.

Ongoing investment in television advertising. Operation of a process of continual review of all marketing material and websites to promote transparency to customers.

Extensive testing and rigorous internal controls exist for all group systems to maintain continuity of online customer service.

Promotional activity

The success of the group's annual promotional campaign is essential to ensure the continued recruitment of customers. Failure to recruit would result in loss of revenue to the group. Promotional activity must also be
cost effective.

Detailed management processes that are designed to optimise the cost of recruiting are in place. The effectiveness of each individual television advert is assessed separately and future plans amended where appropriate.

Competition

Loss of margins or market share arising from increased activity from competitors.

The group has a broad base of customers and no single customer represents more than 3 per cent of total customer billings.

Significant resources are dedicated to developing and maintaining strong relationships with customers and to developing new and innovative products which meet their precise needs.

Park Group plc

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR TO 31 MARCH 2017



2017


2016



'000


'000






Billings


404,512


385,031






Revenue


310,927


302,545

Cost of sales


(280,758)


(274,060)

Gross profit


30,169


28,485

Distribution costs


(2,940)


(2,909)

Administrative expenses


(16,348)


(15,176)

Operating profit


10,881


10,400






Finance income


1,472


1,523

Finance costs


(2)


(66)

Profit before taxation


12,351


11,857

Taxation


(2,452)


(2,169)

Profit for the year attributable to equity holders of the parent


9,899


9,688
















Earnings per share (see note 7)




: basic


5.38p

5.28p

: diluted


5.29p

5.18p




Park Group plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR TO 31 MARCH 2017


2017


2016


'000


'000





Profit for the year

9,899


9,688

Other comprehensive income




Items that will not be reclassified to profit or loss:

Remeasurement of defined benefit pension schemes

572


533

Deferred tax on defined benefit pension schemes

(97)


(96)


475


437

Items that may be reclassified subsequently to profit or loss:




Foreign exchange translation differences

(28)


(21)





Other comprehensive income for the year net of tax

447


416





Total comprehensive income for the year attributable to equity holders of the parent

10,346


10,104













Park Group plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2017



As at


As at



31.03.17


31.03.16



'000


'000

Assets





Non-current assets





Goodwill


2,202


1,320

Other intangible assets


2,682


3,036

Property, plant and equipment


7,688


8,003

Retirement benefit asset


1,827


1,390



14,399


13,749

Current assets





Inventories


2,632


2,182

Trade and other receivables


9,096


8,729

Other financial assets


200


500

Monies held in trust


83,018


75,219

Cash and cash equivalents


34,236


32,735



129,182


119,365






Total assets


143,581


133,114

Liabilities





Current liabilities





Trade and other payables


(82,602)


(79,022)

Tax payable


(1,272)


(1,019)

Provisions


(46,164)


(44,767)



(130,038)


(124,808)

Non-current liabilities





Deferred tax liability


(194)


(181)

Retirement benefit obligation


(924)


(1,700)



(1,118)


(1,881)






Total liabilities


(131,156)


(126,689)










Net assets


12,425


6,425

Equity attributable to equity holders of the parent










Share capital


3,687


3,674

Share premium


6,137


6,132

Retained earnings


2,912


(3,070)

Other reserves


(311)


(311)






Total equity


12,425


6,425

Park Group plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


Share

capital

Share

Premium

Other

reserves

Retained

earnings

Total

equity


'000

'000

'000

'000

'000







Balance at 1 April 2016

3,674

6,132

(311)

(3,070)

6,425













Total comprehensive income for the year






Profit

-

-

-

9,899

9,899







Other comprehensive income






Remeasurement of defined benefit pension schemes

-

-

-

572

572

Tax on defined benefit pension schemes

-

-

-

(97)

(97)

Foreign exchange translation adjustments

-

-

-

(28)

(28)

Total other comprehensive income

-

-

-

447

447

Total comprehensive income for the year

-

-

-

10,346

10,346







Transactions with owners, recorded directly in equity






Equity settled share-based payment transactions including tax

-

-

-

701

701

Exercise of share options

-

5

-

-

5

LTIP shares awarded

13

-

-

(13)

-

Dividends

-

-

-

(5,052)

(5,052)

Total contributions by and distribution to owners

13

5

-

(4,364)

(4,346)







Balance at 31 March 2017

3,687

6,137

(311)

2,912

12,425













Balance at 1 April 2015

3,650

6,132

(311)

(9,638)

(167)







Total comprehensive income for the year






Profit

-

-

-

9,688

9,688







Other comprehensive income






Remeasurement of defined benefit pension schemes

-

-

-

533

533

Tax on defined benefit pension schemes

-

-

-

(96)

(96)

Foreign exchange translation adjustments

-

-

-

(21)

(21)

Total other comprehensive income

-

-

-

416

416

Total comprehensive income for the year

-

-

-

10,104

10,104







Transactions with owners, recorded directly in equity






Equity settled share-based payment transactions

-

-

-

868

868

LTIP shares awarded

24

-

-

(24)

-

Dividends

-

-

-

(4,380)

(4,380)

Total contributions by and distribution to owners

24

-

-

(3,536)

(3,512)







Balance at 31 March 2016

3,674

6,132

(311)

(3,070)

6,425

Other reserves relate to the acquisition of a minority interest in a subsidiary.

Park Group plc

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR TO 31 MARCH 2017



2017


2016



'000


'000

Cash flows from operating activities





Cash generated from operations


9,903


12,184

Interest received


1,540


1,405

Interest paid


(1)


(66)

Tax paid


(2,258)

(2,490)

Net cash generated from operating activities


9,184


11,033

Cash flows from investing activities





Proceeds from sale of property, plant and equipment


1


-

Sale of investment property and assets held for sale


-


43

Proceeds from sale of investments


-


9

Purchase of intangible assets


(370)


(599)

Purchase of property, plant and equipment


(347)


(527)

Purchase of investments in subsidiaries


(876)


-






Net cash used in investing activities


(1,592)


(1,074)






Cash flows from financing activities





Proceeds from exercise of share options


5


-

Dividends paid to shareholders


(5,052)


(4,380)

Net cash used in financing activities


(5,047)


(4,380)

Net increase in cash and cash equivalents


2,545


5,579






Cash and cash equivalents at beginning of period


28,817


23,238






Cash and cash equivalents at end of period


31,362


28,817






Cash and cash equivalents comprise:





Cash


34,236


32,735

Bank overdrafts


(2,874)


(3,918)



31,362


28,817

NOTES TO THE PRELIMINARY RESULTS

(1) Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS's) as adopted by the European Union (EU) including International Financial Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Park Group plc is incorporated and domiciled in the United Kingdom. The financial statements have been prepared under the historical cost convention, as modified by the accounting for financial instruments at fair value where required by IAS 39 Financial Instruments: Recognition and Measurement. The Group and Company financial statements are presented in sterling and all values are rounded to the nearest thousand ('000) except where otherwise stated.

The accounting policies have been applied consistently to all periods presented in these financial statements and by all Group entities.

(2) Going concern

The Group's business activities, together with factors likely to affect its future development, performance and position, are set out in the Chief Executives Review. The financial position of the Group, its cash flows, liquidity and solvency position and financial risks are described in the Financial Review.

The Group's forecasts and projections, taking into account reasonably possible changes in trading performance and customer behaviour, show that the Group has sufficient financial resources to fund the business for the foreseeable future despite the Group's net current liabilities. Funds are available for working capital purposes as permitted under the terms of the PPPT. The Group's working capital requirements are dependent upon a continuing level of prepaid sales to corporate customers and, at certain times during the year, amounts drawn from the PPPT to meet its working capital requirements. The Group's positive cash flow from its ongoing customer base, together with the capability to drawdown funds from the PPPT at certain times of the year, enables it to operate without reliance on any external funding. The Group continues to trade profitably and early indications for growth in the current year are positive. Accordingly, the directors continue to adopt the going concern basis in preparing the consolidated financial statements.

(3) Changes to International Financial Reporting Standards

Interpretations and standards which became effective during the year

The following accounting standards and interpretations, that are relevant to the Group, became effective during the period:




IAS 16 & IAS 38

Clarification of Acceptable Methods of Depreciation and Amortisation (amendment)

1 Jan 2016

IAS 27

Equity Method in Separate Financial Statements (amendment)

1 Jan 2016

IAS 1

Disclosure Initiative (amendment)

1 Jan 2016

IFRS 10, IFRS 12

& IAS 28

Investment Entities: Applying the Consolidation Exception (amendment)

1 Jan 2016

Adoption of these amendments and interpretations to standards has not had a material impact upon the group's financial performance or position.

Interpretations and standards which have been issued and are not yet effective

The following standards have been adopted by the EU but are not yet effective for the year ended 31 March 2017 and have not been applied in preparing the financial statements. Those standards that have relevance to the Group are mentioned below:



Effective from:

IAS 7

Disclosure Initiative (amendment)

1 Jan 2017

IAS 12

Recognition of Deferred Tax Assets for Unrealised Losses (amendment)

1 Jan 2018

IFRS 2

Classification and measurement of share based payment transactions

1 Jan 2018

IFRS 9

Financial Instruments

1 Jan 2018

IFRS 16

Leases

1 Jan 2019

The directors anticipate that the adoption of these standards and interpretations in future periods will not have a material impact on the financial statements when the relevant standards and interpretations come into effect.

IFRS 15 Revenue from Contracts with Customers was adopted by the EU in September 2016. The board of directors is still considering the impact of this standard on the Group's financial statements including the timing of revenue recognition, income in respect of vouchers and balances on cards which will never be spent and whether revenue should be recognised on a gross or net basis in respect of certain revenue streams.

(4)Accounting policies

The financial information in this preliminary announcement has been prepared in accordance with the accounting policies described in the annual report and accounts for the year ended 31 March 2016. The annual report and accounts for the year ended 31 March 2016 can be found on our website at www.parkgroup.co.uk.

(5)Segmental analysis

All other segments are those items relating to the corporate activities of the Group which it is felt cannot be reasonably allocated to either business segment.

The amount included within the other segments/elimination column reflects vouchers sold by the corporate segment to the consumer segment. They have been included in other segments/elimination so as to show the total revenue for both segments.

At the beginning of the period under review, the business and assets of MaximB2B Limited were transferred to our corporate business. Segmental figures for billings, revenue and profit have been adjusted in the prior year to reflect the fact that this business is now solely within the corporate segment.


Consumer

Corporate

All other

segments/

elimination

2017

Total

Consumer

Corporate

All other

segments/

elimination

Restated

2016

Total


'000

'000

'000

'000

'000

'000

'000

'000

Billings









External billings

216,771

187,741

-

404,512

211,522

173,509

-

385,031

Inter-segment billings

-

148,066

(148,066)

-

-

143,152

(143,152)

-

Total billings as reported at 31 March 2016





211,522

316,661

(143,152)

385,031

Reclassification of MaximB2B





(3,170)

3,170

-

-

Total billings

216,771

335,807

(148,066)

404,512

208,352

319,831

(143,152)

385,031










Revenue









External revenue

174,184

136,743

-

310,927

173,045

129,500

-

302,545

Inter-segment revenue

-

148,066

(148,066)

-

-

143,152

(143,152)

-

Total revenue as reported at 31 March 2016





173,045

272,652

(143,152)

302,545

Reclassification of MaximB2B





(3,170)

3,170

-

-

Total revenue

174,184

284,809

(148,066)

310,927

169,875

275,822

(143,152)

302,545










Inter-segment sales are entered into under normal arm's length commercial terms and conditions.

Result









Segment operating profit/(loss) as reported at 31 March 2016





6,823

6,013

(2,436)

10,400

Reclassification of MaximB2B





-

(16)

16

-

Segment operating profit/(loss)

6,460

7,231

(2,810)

10,881

6,823

5,997

(2,420)

10,400










Finance income




1,472




1,523

Finance costs




(2)




(66)

Profit before taxation




12,351




11,857

Taxation




(2,452)




(2,169)

Profit




9,899




9,688

(6)Taxation


2017

'000



2016

'000

Charge for the year - current and deferred


2,452



2,169

Comments on the effective tax rate can be found in the Financial Review.

(7)Earnings per share

The calculation of basic and diluted EPS is based on the profit on ordinary activities after taxation of 9,899,000 (2016 - 9,688,000) and on the weighted average number of shares, calculated as follows:


2017



2016

Basic EPS - weighted average number of shares

183,905,844



183,658,227

Diluting effect of employee share options

3,331,939



3,544,265

Diluted EPS - weighted average number of shares

187,237,783



187,202,492

(8)Reconciliation of net profit to net cash inflow from operating activities



2017


2016



'000


'000

Net profit


9,899


9,688






Adjustments for:





Tax


2,452


2,169

Interest income


(1,472)


(1,523)

Interest expense


2


66

Research and development tax credit


-


(46)

Depreciation and amortisation


1,405


1,382

Impairment of other intangibles


-


13

Profit on sale of investments


-


(1)

Profit on sale of assets held for sale


-


(4)

Decrease in other financial assets


300


-

(Increase)/decrease in inventories


(448)


1,004

Decrease in trade and other receivables


12


2,599

Increase in trade and other payables


4,153


4,634

Increase in provisions


1,397


1,581

Increase in monies held in trust


(7,797)


(9,491)

Decrease in retirement benefit obligation


(641)


(497)

Translation adjustment


(28)


(21)

Share-based payments


669


631

Net cash inflow from operating activities


9,903


12,184

(9)Responsibility Statement

To the best of each director's knowledge:

the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

the management report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

(10)The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 March 2017 or 2016 but is derived from those accounts.

Statutory accounts for 2016 have been delivered to the registrar of companies. The auditor, Ernst & Young LLP, has reported on the 2016 accounts; the report (i) was unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The statutory accounts for 2017 will be delivered to the registrar of companies following the AGM. The auditors have reported on these accounts; their report is unqualified and does not include a statement under either section 498(2) or (3) of the Companies Act 2006.

The annual report will be posted to shareholders on or before 28 July 2017 and will be available from that date on the Group's website: www.parkgroup.co.uk.


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