REG - boohoo.com plc - FY14 Preliminary Results and Q1 Trading Update <Origin Href="QuoteRef">BOOH.L</Origin> - Part 1
06/09/2014 02:14
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boohoo.com plc
12 June 2014
For Immediate Release
12 June 2014
boohoo.com plc - Results for the year to 28 February 2014 and trading update
for the three months to 31 May 2014
"The Global Fashion Leader for a Social Generation"
£'000 28 February 2014 28 February 2013 Change
Revenue 109,791 67,282 63%
Gross profit 64,912 36,663 77%
Gross margin 59.1% 54.5% 460bps
Operating profit 10,821 3,286 229%
Profit before tax 10,737 3,184 237%
Pro forma gross profit (1) 68,900 43,269 59%
Pro forma gross margin (1) 62.8% 64.3% (150bps)
Pro forma EBITDA (1) 16,007 8,602 86%
(1): Adjustment to reflect direct sourcing by boohoo.com plc, not via (now
discontinued) related party companies;
EBITDA is pre-exceptional costs of £0.4m
Highlights for the year to 28 February 2014
· Revenue up 63% (international revenue 35% of total)
· Gross margin 63% for the year
· Pro forma EBITDA of £16.0m, ahead of expectations
· 2.3m active customers(2), up 54% on prior year
· Significant infrastructure investment in the warehouse and IT
· Another year of international expansion with our first foreign language
website successfully launched in France
· 47% of traffic from mobile devices, compared to 29% in the prior year
· Extension of our range with successful launch of boohooMan
Highlights for the three months to 31 May 2014 (unaudited)
· Revenue of £30.7m up 24% (28% CER(3)) on top of 128% for Q1 FY 2014
· Acceleration of growth through the quarter and trading in line with
expectations for the full year
· UK revenue up 44%, Rest of Europe up 36% (41% CER), Rest of the World
down 20% (-7% CER) driven by Australia and currency headwinds
· Gross margins maintained at 63%
· Strong balance sheet with net cash of £53m
· Second foreign language website launched in Spanish, with further
currencies and languages planned
(2): Active customers defined as having shopped in the last year
(3): CER designates Constant Exchange Rate translation of foreign currency
revenue
Mahmud Kamani and Carol Kane, joint CEOs, commented:
"The past year has been an exciting one, and we are very proud of the growth
we have seen in both our UK and International markets.
The launch of new product categories, investment in our warehouse and IT
infrastructure, and of course the investment and development of our teams all
support our future growth. The Company is well positioned to benefit from its
transformation to becoming a PLC after its successful IPO.
The management team is focused on further growth and since the year end we
have accelerated that growth through an increase in marketing spend and
activity to increase conversion in line with our revenue plans for the full
year.
We continue to trade in line with expectations for the full year and
anticipate revenue growth to accelerate as comparatives become less demanding
and as we increase our marketing spend in line with our targets.
Looking ahead we are excited about our future growth prospects, delivering new
foreign language websites and introducing additional currency options, as well
as further improving our mobile website and customer experience."
Investor and Analyst Meeting
An analysts' presentation will be held at 8.30am today at the offices of
Buchanan, 107 Cheapside, London, EC2V 6DN.
For further information:
boohoo.com plcMahmud Kamani, Joint Chief ExecutiveCarol Kane, Joint Chief ExecutiveNeil Catto, Chief Financial OfficerBenjamin Robertson, Investor Relations c/o Buchanan Tel: +44 (0)20 7466 5000 ben.robertson@boohoo.comTel: +44 77 6851 1056
Buchanan - Financial PR adviserRichard OldworthHelen ChanGabriella Clinkard Tel: +44 (0)20 7466 5000boohoo@buchanan.uk.com
Zeus Capital - Nominated adviser and brokerNick CowlesAndrew JonesJohn Goold Tel: +44 (0)161 831 1512 Tel: +44 (0)20 7533 7727
About boohoo.com
"The Global Fashion Leader for a Social Generation"
boohoo.com is one of the UK's largest pure-play online, own brand fashion
retailers. The Company designs, sources, markets and sells own brand clothing,
shoes and accessories through the www.boohoo.comwebsite to a core market of
14-35 year old consumers in the UK and globally.
boohoo.com is focused on selling the latest on-trend fashions across a range
of aspirational, but value orientated, boohoo branded products. Founded in
2006, boohoo.com has grown rapidly, developing a brand identity and an
international online proposition for consumers, and now has over 2.3 million
active customers.
www.boohoo.com
www.boohoo.com/usa
www.boohoo.com/canada
www.boohoo.com/aus
www.boohoo.com/newz
fr.boohoo.com
es.boohoo.com
boohoo.com plc ("the Company")
The Global Fashion Leader for a Social Generation
Preliminary Results for the year ended 28 February 2014
Business Review
We have achieved record revenue of £110m, up 63% for the year ended February
2014. Our largest market is the UK, where revenue for the year grew by 60%.
Revenue in the rest of Europe grew by 78% and rest of the world by 65%. In
total our international markets counted for 35% of revenues. A slowdown in
marketing expenditure in the last quarter of the year enabled us to accelerate
investment in IT and warehouse infrastructure to support future growth. Pro
forma EBITDA for the year was ahead of expectations at £16.0m.
Fashion
We carry a range of around 9,000 styles for the traditional seasons of
spring/summer and autumn/winter. Dresses represented over 30% of the product
range. The main range dresses are priced between £12 and £25 and are developed
to be both high fashion and low cost. Style Steals are a basics range with an
entry price point of £3. The Boutique Collection is a higher price point
offering to a slightly older age group with more disposable income and has
generated significant PR interest. This range grew its sales by 170% during
the year.
Our range of swimwear performed well, with sales increasing by 454% over the
previous year. Knitwear was also highly successful and grew by 118%. Fashion
playsuits, in particular, were also very popular and sales rose by 157%.
boohooMan was introduced in autumn 2013 and comprises a mix of high fashion
and style steals. Marketing activity commenced in February 2014 on TV and
billboards to build momentum for the new ranges that are expected to perform
well after a promising start. Menswear grew by 117% over the previous year.
Our plus size range, boohoo plus, introduced earlier in 2014 was very well
received and we will be expanding the product offering to satisfy demand from
this segment. We have plans to offer a petite range later this year.
Marketing
Marketing activity is performed through a variety of media including: TV
advertising; billboards; catalogues; social media and via the websites.
Hundreds of products are added to the website each week through our on-site
photography and art studio and displayed by gallery photos and catwalk videos.
The speed and agility of the Group enables it to be first on the market with
the latest, on-trend styles and fashion.
This summer has seen us roll out our biggest ever marketing campaign
"#experienceeverything". Split into a series of three different creatives,
the messaging is being pushed out through TV advertising across our key
markets. The creative is also being utilised in above the line advertising on
the underground, digital display, banners and video, blogger outreach, direct
mail and on the very first day of launch the campaign was trending on
twitter.
This autumn/winter we are working with international blogger Nadia Aboulhosn
on the launch of an exclusive plus size collection, building on the successful
launch earlier this year.
Historically we have seen a strong correlation between marketing spend and
sales. Marketing expenditure for the year to February 2014 was 14.0% of
revenue, after a significant reduction in the last quarter to 12.4% to allow
for investment in infrastructure to cater for rapidly increasing demand.
Growth rates for the last quarter of the year were somewhat lower than we
would have achieved with a higher marketing spend.
Customer experience
We continue to work on increasing the personalisation of the website to
include products, promotions and menus tailored to the individual's
preferences and buying history. Customers receive a pro-active offer of
support and promotional incentives when they do not complete orders and
feedback is requested to help us maintain the highest levels of customer
service.
Additional delivery options are being developed including Sunday delivery, a
10pm cut-off for next day delivery, express service to Europe and other
countries, improved transit times for foreign deliveries and more returns
options for customers, including alternative collection and return points. We
also plan to add text messaging to enable delivery point and time to be
amended by the customer during transit.
Technology
New foreign language websites have been launched on our in-house developed
platform. This will enable us to launch additional foreign language websites
based on the same template with appropriate localisation and translation.
A new payment gateway incorporating additional payment options will be
available shortly, adding additional Scandinavian currency payments and
payment by Sofort and Ideal cards in Europe.
boohoo.com continues to be able to price differently in any country or
currency.
Growth in mobile continues with mobile traffic representing 47% of total
visitors for the year, compared to 30% in the prior year. We are currently
developing an updated mobile look and feel which will be live shortly. A more
responsive mobile website is planned for later in the year on both in house
and third party hosted platforms.
International expansion
International sales grew strongly in the year and represented 35% of total
revenue. The launch of our first foreign language website in France in
November 2013 has led to increased traffic, conversion and sales. Revenue
growth since launch of the French language website has been 90%. A Spanish
foreign language website went live in May 2014 and other foreign language
websites are planned for later in the year with dedicated marketing campaigns.
We are also adding more currencies and payment methods to grow revenues in
other European countries.
The Australian market has faced significant currency headwinds through the
year to February 2014 with growth slowing from a very strong performance in
the first half last year.
The US market grew strongly during the year, trebling in size and remains a
potential market for much greater investment in the future. A local office in
New York is planned and during a recent visit, management have identified
office space and are beginning to build a local team to help execute on the
significant growth opportunities in that market.
Further international expansion is planned this coming year through adding
currencies for Scandinavia as well as launching additional local language
websites in a number of other European markets.
Warehouse
Investment in the warehouse was accelerated to ensure our ability to deliver
on future growth is not capacity constrained. The construction of mezzanine
floors within the existing warehouse has increased capacity to support gross
annual sales of £350m. An extension to the existing site has received
planning permission and is scheduled for completion by the end of the current
financial year resulting in capacity to support £500m of gross sales. The
110,000 square foot extension has multiple floors and will add 670,000 square
feet of storage space, enough to store 8 million units, more than four times
the present capacity.
A new warehouse management system is in the advanced stages of implementation
following a £1.5m investment programme. The system will improve efficiency
through optimisation of the pickers' routes using Wi-Fi arm mounted units,
improving order management and stock control.
The warehouse management team has been strengthened with the addition of three
senior management appointments and a number of technical specialists in
finance and stock control.
People
We have an excellent opportunity as a public company to hire first rate talent
to help build boohoo.com for the long term. Over the last year key hires have
been made including an IT director, logistics director, buying director, head
of garment technology, head of financial planning and head of financial
reporting.
As part of the IPO, we now have an even more experienced board providing
insightful input into building boohoo.com for the future.
Trading operations
Revenue
Year ended 28 February 2014 2013 Growth
(restated)(1)
£000 £000 %
UK 70,992 44,326 60%
Rest of Europe 13,058 7,349 78%
Rest of World 25,741 15,607 65%
109,791 67,282 63%
(1) The geographic split of revenue in 2013 has been restated in respect of
certain European countries that were in rest of world and for a more accurate
regional allocation of returns provisions. Further detail is given in appendix
1.
Revenue growth was broad-based across all territories, with UK growing by 60%,
rest of Europe by 78% and rest of world by 65%. Following the introduction of
the French language website in November 2013, revenue in France continues to
grow strongly. The USA market also grew strongly, with turnover trebling over
last year, and remains a key market for much greater opportunities in the
future. In Australia, sales grew strongly, although growth slowed towards the
end of the year due largely due to currency headwinds.
KPIs
Year ended 28 February 2014 2013 Growth
%
Active customers(1) 2.3 million 1.5 million 54%
Number of orders 4.2 million 2.5 million 71%
Conversion rate (2) 6.9% 6.0% 15%
Average order value (3) £37.48 £39.02 -4%
Number of items per basket 2.38 2.18 9%
(1) Defined as having shopped in the last year
(2) Defined as the percentage of monthly unique visitors to the site
making a purchase
(3) Calculated as gross sales including sales tax divided by the number
of orders
We have continued to grow our business strongly, attracting new customers and
retaining existing ones through our quality product offerings and focus on
customer service. Conversion rates have increased during the year to 6.9%.
Average order value has decreased marginally whilst the number of items per
basket has increased.
Consolidated statement of comprehensive income
Year ended 28 February Actual Pro forma
2014 2013 Growth 2014 2013 Growth
£000 £000 £000 £000
Revenue 109,791 67,282 63% 109,791 67,282 63%
Cost of sales (44,879) (30,619) 47% (40,891) (24,013) 70%
Gross profit 64,912 36,663 77% 68,900 43,269 59%
Gross margin 59.1% 54.5% 62.8% 64.3%
Distribution costs (24,290) (13,613) (24,290) (13,678)
Administrative expenses (30,289) (19,764) (30,445) (21,557)
Other income 488 - 488 -
Operating profit 10,821 3,286 229% 14,653 8,034 82%
Finance expenses (84) (102) (84) (102)
Profit before tax 10,737 3,184 237% 14,569 7,932 84%
EBITDA 12,175 3,854 216% 16,007 8,602 86%
Calculation of EBITDA
Operating profit 10,821 3,286 14,653 8,034
Depr'n and amort'n 979 568 979 568
Exceptional items(1) 375 - 375 -
EBITDA 12,175 3,854 216% 16,007 8,602 86%
(1) Consist of capital reorganisation fees included in administrative
expenses
Reported gross profit margin rose from 54.5% to 59.1% due to the increasing
proportion of inventories sourced by boohoo.com direct from suppliers.
Distribution costs and administrative expenses have increased as the business
has expanded and we have continued to invest in improved and more efficient
systems and in talented people. Cost control remains uppermost in our
management philosophy and is tightly managed throughout the business.
The exceptional items of £375,000 in 2014, included in administrative
expenses, related to capital reorganisation fees incurred prior to the
flotation of the Company in March 2014.
EBITDA increased by 216% from £3.9m to £12.2m on an actuals basis and from
£8.6m to £16.0m on a pro forma basis.
Statement of financial position
Year ended 28 February 2014 2013
£000 £000
Assets
Non-current assets
Intangible assets 3,052 626
Property, plant and equipment 6,199 4,967
Deferred tax 33 33
Non-current assets 9,284 5,626
Working capital (1,147) (5,033)
Net financial assets 101 -
Net cash 2,669 1,867
Current tax liability (1,147) (647)
Net assets 9,760 1,813
Net assets have increased by £7.9m to £9.8m, driven by strong profits. Working
capital has increased by £3.9m and the group has a strong net cash (cash less
bank borrowings and other loans) position up £0.8m at £2.7m at the year end.
After the reporting date the Company received net proceeds of £46m from its
Initial Public Offering.
Statement of cash flows
2014 2013
£000 £000
Profit for the year 8,427 2,570
Depreciation charges and amortisation 979 568
Tax expense 2,310 614
Finance expenses 84 102
Increase in inventories (2,955) (3,442)
(Increase)/decrease in trade and other receivables (3,179) 16
Increase in trade and other payables 2,147 5,280
Capital expenditure (4,637) (4,647)
Free cash flow 3,176 1,061
Interest paid (84) (102)
Tax paid (1,810) -
Non-cash changes and exchange differences 20 -
Proceeds from new loans 199 2,667
Redemption of preference shares (100) -
Dividends paid (400) -
Repayment of borrowings (197) (579)
Net cash flow 804 3,047
Cash and cash equivalents at beginning of year 4,607 1,560
Cash and cash equivalents at end of year 5,411 4,607
Free cash flow was £3.2m compared to £1.1m in 2013. Working capital
requirements have increased due to the growth of business activity and the
change to direct sourcing: inventories have increased due to the requirement
to hold more products to serve our growing customer base; receivables have
increased in line with revenue growth and due to a £0.5m deposit guarantee for
global credit card payments and £1.1m increase in related party receivables
and increase in other receivables of £1.4m. Capital expenditure was £4.6m as
we have continued to invest in our warehouse and IT systems to support
projected growth in trade. At the year end, and before the net injection of
£46m following the flotation on 14 March 2014, the cash balances were £5.4m
compared to £4.6m in 2013.
First Quarter to 31 May 2014
The quarter to May 2014, delivered record revenues of £30.7m up 24% (28% CER)
on top of comparative quarterly growth of 128% for Q1 FY 2014. The
comparisons with last year ease throughout the year given the 100% growth in
H1 FY 2014 compared to 41% in H2 FY 2014.
During the first quarter we increased our marketing spend into the spring
season and Easter to 17.7% of revenue. The impact of this planned increase in
marketing spend led to acceleration in growth through the quarter with May's
revenue growth being double that seen in March.
The UK market has performed very strongly delivering first quarter revenue
growth of 44% and Europe up 36% (41% CER). France, which drove a 107%
increase in visitors, grew strongly with the first quarter revenues up 48%
compared to the previous quarter, demonstrating the successful impact of the
local language website.
Rest of world revenue declined by 20% (7% CER) driven by Australia. This
decline was against an increase of 626% (596% CER) for Q1 FY 2014. The
Australian market has however been highly profitable and with gross margins in
excess of 70%, the focus had been on protecting profitability. Following
recent internal review and two visits to Australia by the joint CEOs, the
pricing strategy has been amended in order to reflect the weaker Australian
dollar. We continue to manage Australia for profitability and have recently
appointed a country manager.
Outlook
We continue to trade in line with expectations for the full year and
anticipate revenue growth to accelerate as comparatives become less demanding
and as we increase our marketing spend in line with our targets.
We are excited about our future growth prospects including: introduction of
new product ranges, delivering new foreign language websites and new currency
options as well as further improving our mobile website and customer
experience.
Mahmud Kamani Carol Kane Neil Catto
Joint Chief Executive Joint Chief Executive Chief Financial Officer
Note about these financial statements
boohoo.com plc is not required to produce annual accounts until the year ended
28 February 2015. The group accounts contained in this announcement for the
year ended 28 February 2014 are non-statutory accounts that have been compiled
for comparative purposes without material adjustment from the audited results
for the year ended 28 February 2014 of the Company's subsidiaries, boohoo.com
UK Limited (formerly Wasabi Frog Limited), Boo Who Limited and ABK Limited,
acquired on 14 March 2014 and presented on the basis that these entities had
always been part of the new group of which boohoo.com plc is now the ultimate
parent.
Related party transactions
The related party transactions are detailed in Note 19 in the financial
statements and show the transactions between related parties that occurred in
the year to February 2014. With the exception of the rental of the office from
Kamani Commercial Property Limited and marketing services provided by The
White Cube Creative Limited, transactions between boohoo.com UK Limited and
related parties became minimal from November 2013 onwards.
Consolidated statement of comprehensive income
for the year ended 28 February 2014
Note 2014 2013
£000 £000
Revenue 2 109,791 67,282
Cost of sales (44,879) (30,619)
Gross profit 64,912 36,663
Distribution costs (24,290) (13,613)
Administrative expenses (30,289) (19,764)
Other income 3 488 -
Profit before tax 10,821 3,286
Finance costs 4 (84) (102)
Profit before tax 10,737 3,184
Taxation 9 (2,310) (614)
Profit for the year 8,427 2,570
Other comprehensive income for the year, net of income tax
Net fair value gains on cash flow hedges 20 -
Total comprehensive income for the year 8,447 2,570
All activities relate to continuing operations.
The notes form part of these financial statements.
Consolidated statement of financial position
at 28 February 2014
Note 2014 2013
£000 £000
Assets
Non-current assets
Intangible assets 10 3,052 626
Property, plant and equipment 11 6,199 4,967
Deferred tax 13 33 33
9,284 5,626
Current assets
Inventories 14 9,795 6,840
Trade and other receivables 15 3,927 873
Financial assets 20 125 -
Cash and cash equivalents 5,411 4,607
Total current assets 19,258 12,320
Total assets 28,542 17,946
Current liabilities
Trade and other payables 16 (14,869) (12,746)
Interest bearing loans and borrowings 17 (384) (219)
Financial liabilities 20 (24) -
Current tax liability (1,147) (647)
Total current liabilities (16,424) (13,612)
Liabilities
Non-current liabilities
Interest bearing loans and borrowings 17 (2,358) (2,521)
Total liabilities (18,782) (16,133)
Net assets 9,760 1,813
Equity
Share capital 18 - -
Share premium 18 - -
Capital redemption reserve 100 -
Capital reserve on consolidation 17 117
Hedging reserves 20 -
Retained earnings 9,623 1,696
Total equity 9,760 1,813
The notes form part of these financial statements.
Consolidated Statement of Changes in Equity
Reconstruction reserve Capital redemption reserve Hedging reserves Retained earnings/accumulated losses Total equity
£000 £000 £000 £000 £000
Balance as at 1 March 2012 117 - - (874) (757)
Total comprehensive income for the year
Profit for the year - - - 2,570 2,570
Total comprehensive income for the year - - - 2,570 2,570
Balance at 28 February 2013 117 - - 1,696 1,813
Total comprehensive income for the year
Profit for the year - - - 8,427 8,427
Fair value gains on cash flow hedges - - 20 - 20
Total comprehensive income for the year - - 20 8,427 8,447
Transactions with owners
Redemption of preference shares (100) 100 - (100) (100)
Dividends paid - - - (400) (400)
Balance at 28 February 2014 17 100 20 9,623 9,760
The notes form part of these financial statements.
Consolidated cash flow statement
for the year ended 28 February 2014
Note 2014 2013
£000 £000
Cash flows from operating activities
Profit for the year 8,427 2,570
Adjustments for:
Depreciation charges and amortisation 979 568
Gain on sale of property, plant and equipment (60) -
Transfer from hedging reserves 20 -
Finance costs 84 102
Tax expense 2,310 614
Profit before tax before changes in working
capital and provisions 11,760 3,854
Increase in inventories (2,955) (3,442)
(Increase)/decrease in trade and other receivables (3,179) 16
Increase in trade and other payables 2,147 5,280
Cash generated from operations 7,773 5,708
Interest paid (84) (102)
Tax paid (1,810) -
Net cash inflow from operating activities 5,879 5,606
Cash flows from investing activities
Acquisition of intangible assets 10 (2,762) (357)
Acquisition of tangible property, plant and equipment 11 (1,875) (691)
Acquisition of Burnley warehouse 11 - (3,599)
Proceeds from sale of property, plant and equipment 60 -
Net cash used in investing activities (4,577) (4,647)
Cash flows from financing activities
Proceeds from new loan 199 2,667
Redemption of preference shares (100) -
Dividends paid (400) -
Repayment of borrowings (197) (579)
Net cash (used in)/generated from financing activities (498) 2,088
Increase in cash and cash equivalents 804 3,047
Cash and cash equivalents at beginning of year 4,607 1,560
Cash and cash equivalents at end of year 5,411 4,607
The notes form part of these financial statements.
Notes
(forming part of the financial statements)
1 Accounting policies
boohoo.com plc is a company incorporated and domiciled in Jersey.
The group financial statements consolidate those of its subsidiaries that
became its subsidiaries after the year end, ABK Limited, boohoo.com UK Limited
(formerly Wasabi Frog Limited) and Boo Who Limited ("Subsidiaries"). All
intercompany transactions between group companies are eliminated.
The group financial statements, which are not statutory financial statements,
have been extracted from financial statements of the Subsidiaries prepared and
approved by the directors in accordance with International Financial Reporting
Standards as adopted by the EU ("Adopted IFRSs"), IFRIC Interpretations and
the Companies Act 2006 applicable to companies reporting under IFRS. Since the
Company did not acquire the group until after the balance sheet date, these
financial statements include the results of the Subsidiaries as if they were
always part of the group and are for comparative purposes. boohoo.com plc
acquired the group on 14 March 2014 simultaneous with its flotation and
admission to the AIM listing of the London Stock Exchange. The proceeds from
that flotation are not therefore included in these financial statements.
The directors have considered the accounting policy that should be applied in
respect of the consolidation of the group formed upon acquisition of the group
on admission. They have concluded that the transaction described above
represented a combination of entities under common control and in accordance
with IAS 8 "Accounting policies, changes in accounting estimates and errors"
have considered FRS6 "acquisitions and mergers" under UK GAAP, which the
directors believe reflects the economic substance of the transaction. Under
this standard, assets and liabilities are recorded at book value, not fair
value, intangible assets and contingent liabilities are recognised only to the
extent that they were recognised by the legal acquirer, no goodwill is
recognised, any expenses of the combination are written off immediately to the
income statement and comparative amounts, if applicable, are restated as if
the combination had taken place at the beginning of the earliest accounting
period presented. Therefore, although the group reconstruction did not take
place until 14 March 2014, there consolidated financial statements are
presented as if the group structure had always been in place, using merger
accounting principles.
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
Measurement convention
The consolidated financial statements have been prepared on a going concern
basis and under the historical cost convention, as modified by financial
assets and financial liabilities (including derivative instruments) at fair
value through profit or loss.
Going concern
The financial statements have been approved on the assumption that the group
remains a going concern. The following paragraph summarises the issues and
basis on which the directors have reached their conclusion.
The directors have reviewed the group's cash flow forecasts for a period
exceeding 12 months from the date of authorisation of these financial
statements. Following this review, the directors have formed a judgement that,
at the time of approval of the financial statements, the group has sufficient
resources to continue operating for the foreseeable future including the
funding of necessary capital expenditure. For the reasons noted above, the
directors continue to prepare the financial statements on a going concern
basis.
Basis of consolidation
Subsidiaries are entities controlled by the group. Control exists when the
group has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. In assessing control, the
group takes into consideration potential voting rights that are currently
exercisable. The acquisition date is the date on which control is transferred
to the acquirer. Subsidiary undertakings acquired during the year are
accounted for using the acquisition method of accounting. The financial
statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control
ceases.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. Where parts of an item of property, plant and equipment
have different useful lives they are accounted for as separate property, plant
and equipment. Asset acquisitions are funded from cash rather than from
borrowings.
Cost includes expenditures that are directly attributable to the acquisition
of the asset. The cost of each item of property, plant and equipment is
written off evenly over its estimated remaining useful life. Depreciation is
charged to the statement of comprehensive income on a straight line basis over
the estimated useful lives of each part of an item of property, plant and
equipment, as follows: Buildings -2%; motor vehicles and computer equipment -
33% on cost; and short leasehold and fixtures and fittings - 33% or 20%. The
assets' residual values and useful lives are reviewed and adjusted, if
appropriate, at each reporting date.
Classification of financial instruments issued by the group
Financial instruments issued by the group are treated as equity (i.e. forming
part of shareholders' funds) only to the extent that they meet the following
two conditions:
a) they include no contractual obligations upon the group to deliver cash
or other financial assets or to exchange financial assets or financial
liabilities with another party under conditions that are potentially
unfavourable to the Group; and
b) where the instrument will or may be settled in the group's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the group's own equity instruments or is a
derivative that will be settled by the group's exchanging a fixed amount of
cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified takes
the legal form of the Company's own shares, the amounts presented in these
financial statements for share capital and share premium exclude amounts in
relation to those shares.
Finance payments associated with financial liabilities are dealt with as part
of finance costs. Finance payments associated with financial instruments that
are classified in equity are dividends and are recorded directly in equity.
Financial risk management
The group seeks to mitigate partially against increased interest rates whilst
maintaining a degree of flexibility to benefit from decreased rates of
interest by holding a mix of short and longer term loans sourced both
externally and from related parties.
Financial instruments
Financial instruments are recognised at fair value and subsequently held at
amortised cost. For those recognised at fair value the gain or loss on
re-measurement to fair value is recognised immediately in the statement of
comprehensive income.
Trade and other receivables
Trade and other receivables are recorded initially at fair value. Subsequent
to this they are measured at amortised cost less any impairment losses.
Trade and other payables
Trade and other payables are recorded initially at fair value. Subsequent to
this they are measured at amortised cost.
Accounting policies (continued)
Derivative financial instruments and cash flow hedges
The group holds derivative financial instruments to hedge its foreign currency
exposures. These derivatives, classified as cash flow hedges, are initially
recognised at fair value and then re-measured at fair value at the end of each
reporting date. Hedging instruments are documented at inception and
effectiveness is tested throughout their duration. Changes in the value of
cash flow hedges are recognised in other comprehensive income and any
ineffective portion is immediately recognised in the statement of
comprehensive income. If the firm commitment or forecast transaction that is
the subject of a cash flow hedge results in the recognition of a non-financial
asset or liability, then at the time the asset is recognised, the associated
gains or losses on the derivative that had been previously recognised on other
comprehensive income are included in the initial measurement of the asset or
liability. For hedges that do not result in the recognition of an asset or
liability, amounts deferred in other comprehensive income are recognised in
the statement of comprehensive income in the same period in which the hedged
item affects net profit.
Taxation
Tax on the profit for the year comprises current and deferred tax. Tax is
recognised in the statement of comprehensive income except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the reporting date, and
any adjustments to tax payable in respect of previous years.
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or substantively
enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Cash and cash equivalents
Cash and cash equivalents, for the purpose of the cash flow statement and the
statement of financial position, comprises cash in hand.
Impairment
Non financial assets
The carrying amounts of the group's non-financial assets other than
inventories and deferred tax assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such
indication exists, the assets recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or
its cash generating unit exceeds its recoverable amount. A cash generating
unit is the smallest identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from the other assets or
group of assets. Impairment losses are recognised in the statement of
comprehensive income.
The recoverable amount of an asset or cash generating unit is the greater of
their fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the
time, value for money and the risks specific to the asset. For an asset that
does not generate largely independent cash inflows, the recoverable amount is
determined for the cash generating unit to which the asset belongs.
Financial assets
An impairment loss is recognised whenever the carrying amount of an asset
exceeds its recoverable amount. Impairment losses are recognised in the
statement of comprehensive income.
The recoverable amount of the group's receivables carried at amortised cost is
calculated as the present value of estimated future cash flows, discounted at
the original effective interest rate (i.e. the effective interest rate
computed at initial recognition of these financial assets). Receivables with a
short duration are not discounted.
Accounting policies (continued)
Revenue
Revenue and profit before tax are attributable to the one principal activity
of the business and represents net invoiced sales of goods, excluding value
added tax. Revenue from the sale of goods is recognised when the group has
transferred the goods to the buyer.
Intangible Assets
Intangible assets are valued at cost less accumulated amortisation. The group
purchased various domain names and the registered trademark which have been
included in Patents and licences. These are expected to have an estimated
useful life of 10 years and have been amortised over this period. Computer
software purchased in the year has been amortised over its estimated life of 3
or 4 years. Amortisation is included in administrative expenses in the
statement of comprehensive income.
Inventories
Inventories are valued at the lower of cost and net realisable value, after
making due allowance for obsolete and slow moving items. Inventories are
valued on a first in first out basis.
Leasing commitments
Rentals paid under operating leases are charged to the statement of
comprehensive income on a straight line basis over the period of the lease.
Finance costs
Interest payable is recognised in the statement of comprehensive income as it
accrues in respect of the effective interest rate method.
Pension costs
The group contributes to a Group Personal Pension scheme for certain employees
under a defined contribution scheme. The costs of these contributions are
charged to statement of comprehensive income on an accruals basis as they
become payable under the scheme rules.
Significant estimates and judgements
The preparation of financial statements in conformity with IFRS as adopted by
the EU requires management to make judgements, estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities. The estimates and assumptions are based on
historical experience and various other factors believed to be reasonable
under the circumstances. Actual results could differ from these estimates and
any subsequent changes are accounted for when such information becomes
available. The judgements, estimates and assumptions that are the most
subjective or complex are discussed below:
Refund accruals
Accruals for sales refunds are estimated based on recent historical returns
and management's best estimates and are allocated to the period in which the
revenue is recorded. Actual returns could differ from these estimates.
Inventory valuation
Inventory is carried at the lower of cost or net realisable value. The
estimation of net realisable value may be different from the future actual
value realised.
1 Accounting policies (continued)
IFRSs issues not yet applied
The following new standards, amendments to standards and interpretations
issued by the International Accounting Standards Board became effective during
the year, but have no material effect on the group's Financial Statements:
- Improvements to IFRS 2011
The International Accounting Standards Board ('IASB') and International
Financial Reporting Interpretations Committee ('IFRIC') have also issued the
following standards and interpretations which have been endorsed by the EU at
28 February 2014 with an effective date of implementation after the date of
these Financial Statements:
International Accounting Standards (IAS/IFRSs)
Effective date (periods beginning on or after
IFRS10 (revised) Consolidated Financial Statements 1 January 2014
IFRS11 (revised) Joint Arrangements 1 January 2014
IFRS12 (revised) Disclosure of Interests in Other Entities 1 January 2014
IAS27 (revised) Separate Financial Statements (2011) 1 January 2014
Amendments to IAS32 Offsetting Financial Assets and Financial Liabilities 1 January 2014
The directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the financial statements in the
period of initial application.
2 Revenue
Sales revenue by geographical market
2014 2013(restated)1
£000 £000
UKRest of EuropeRest of world 70,99213,05825,741 44,3267,34915,607
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