Interim Results
21/03/2023 07:00
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RNS Number : 5837T ScS Group PLC 21 March 2023
For immediate release 21 March 2023
ScS Group plc
("ScS" or the "Group")
Interim results for the 26 weeks ended 28 January 2023
SCS PERFORMANCE IN LINE WITH EXPECTATIONS
ACQUISITION OF SNUG DIVERSIFIES GROUP AND POSITIONS IT TO FURTHER INCREASE
MARKET SHARE
ScS, one of the UK's largest retailers of sofas, flooring and furniture,
presents its interim results for the 26 weeks ended 28 January 2023 ("period"
or "H1 FY23").
Financial summary:
H1 FY23 H1 FY22** Variance
£m £m
Gross sales* 154.9 149.8 5.0
Revenue 147.9 144.2 3.7
Gross profit 67.8 67.6 0.3
Gross margin* 43.8% 45.1% (1.3%)
Loss before tax (6.3) (3.6) (2.7)
Underlying loss before tax* (4.7) (5.6) 0.9
Loss per share (14.6p) (7.6p) (7.0p)
Underlying loss per share* (10.8p) (11.8p) 1.0p
* This report includes alternative performance measures (APMs) which are
defined and reconciled to IFRS information, where applicable, within the
Financial Review.
**H1 FY22 gross sales and revenue have been restated to account for warranty
sales as an agent rather than principal under IFRS 15. This did not result in
any change to reported profit, earnings per share, cash flows or in the
consolidated statement of financial position.
On 10 January 2023, the business and assets of Snug were acquired out of
administration. Due to the close proximity of the acquisition to the period
end, Snug has not contributed to gross profit in the period. Total costs of
£0.8m have been recognised in the period, largely due to set up and
acquisition costs, all of which have been classified as adjusting items.
Financial highlights:
· Delivered sales increased 3.4% with improvements in the supply
chain reducing lead times
· Underlying loss before tax of £4.7m, £0.9m ahead of the prior
period and typical of H1 performance, which includes significant marketing
expenditure to support the winter sale and where profitability is
substantially H2 weighted
· Excluding stock sales, gross margin* was in line with the prior
period. Reported decline due to an increase in display stock sales as the
Group rolled out the decluttering programme
· Strong balance sheet with cash of £76.9m as at 28 January 2023
(H1 FY22: £87.9m)
· Confidence in outlook supports ongoing shareholder returns
o Interim dividend of 4.5p (H1 FY22: 4.5p)
o Completion of share buyback programme, returning £7m to shareholders
Operational highlights:
· Strong winter sale with the last 10 weeks of the period seeing
like-for-like* order intake growth of 2.6%
· Market share gains achieved during the period
· Continued strategic progress:
- Acquired the business and assets of Snug, expanding the Group's
offering and increasing market share
- Opened two new stores in York and Swindon
- Implemented our new concept design into two further stores
- Achieved Kitemark certification for domestic furniture from the
British Standards Institute
- Exceeded 400,000 reviews on Trustpilot, making ScS the 5th most
reviewed company in the UK
- Maintained the maximum 5-star 'Excellent' rating on Trustpilot,
with ScS being the only company in the UK's top 10 most reviewed to hold the
full 5-star rating
Current trading and outlook:
· Like-for-like* order intake momentum continued to improve after the
period end, with growth of 5.7% in the 7 weeks to 18 March 2023
· One year like-for-like order intake for the 33 weeks is down 2.8%
· Planned investment in a further eight stores to adopt our concept
design
· Resilient balance sheet, with cash of £83.2m as at 18 March 2023
and no debt
· ScS remains on track to deliver a full year profit before tax in
line with market expectations †
· Pleased with the Snug acquisition which we expect will be earnings
accretive in FY24. We intend in invest in the business throughout H2 and
expect Snug will report a second half loss before tax of £1.0m
† The Board believe that consensus market expectation for underlying profit
before tax for the full year is £7.7m. For the avoidance of doubt, this
excludes the impact of Snug in FY23, guidance of which is provided for the
first time today.
Steve Carson, Chief Executive Officer of ScS, commented:
"The Group made good strategic progress in the first six months of the
financial year and continued to take market share. We are pleased with the
strength of our winter sale performance and the subsequent increase in order
momentum over the last two months.
The macroeconomic environment continues to be challenging and we are mindful
of the pressures faced by many of our customers. Therefore, continuing to
focus on our value driven proposition is more important than ever so that
everyone is able to create the home they love.
The Board continues to believe that progress with the Group's strategy,
ongoing cost management and a robust balance sheet places it in a strong
financial and operational position. The outlook, therefore, is positive and
ScS remains on track to deliver full year profit before tax in line with
market expectations."
Enquiries:
ScS Group PLC c/o Buchanan +44 (0)20 7466 5000
Steve Carson, Chief Executive Officer
Chris Muir, Chief Financial Officer
Buchanan Tel: +44 (0)20 7466 5000
Richard Oldworth scs@buchanan.uk.com
Toto Berger
Verity Parker
Shore Capital Tel: +44 (0)207 408 4050
Patrick Castle
James Thomas
Iain Sexton
A presentation for analysts will be held this morning at Buchanan, 107
Cheapside, London, EC2V 6DN commencing at 9.30am today, Tuesday 21 March 2023.
ScS Group plc's Interim Results 2023 are available at www.scsplc.co.uk
(http://www.scsplc.co.uk) . An audio webcast of the presentation will also be
made available later in the day.
For further information, please contact Buchanan at scs@buchanan.uk.com
(mailto:scs@buchanan.uk.com) .
Notes to editors
ScS is one of the UK's largest retailers of sofas, flooring and furniture. We
trade as two separate brands- the core ScS brand and the newly acquired Snug
brand.
The ScS brand seeks to offer value and choice through a wide range of sofas,
flooring and furniture products. The product range is designed to appeal to a
broad customer base with a mid-market priced offering and is currently traded
from 100 stores. The brand specialises primarily in fabric and leather sofas
and chairs, selling a range of branded products which are not sold under
registered trademarks and a range of branded products which are sold under
registered trademarks owned by ScS (such as Endurance, Inspire and SiSi
Italia). It also offers a range of third party brands (which include La-Z-Boy,
Ideal Home and G Plan). The flooring business includes carpets, rugs, wood,
laminate and luxury vinyl tiling.
Snug is an innovative digital-first sofa and sofa-bed business specialising in
modular and re-configurable sofas, with quick delivery and excellent quality
and customer service. Although predominantly online, Snug also operates from
one store in Leeds and seven concessions throughout England.
Business review
The first six months of FY23 has been a period of further strategic progress
which has resulted in a resilient financial performance despite the
challenging economic climate. We are particularly pleased to report a
successful winter sale and excellent order intake momentum, and to have
expanded the Group through our acquisition of the business and assets of
Snugsofa.com ("Snug"). Furthermore, externally sourced data shows the Group
gained market share over the period.
Results
Like-for-like* order intake momentum improved significantly throughout the
period but particularly through the key winter sale, as the Group started the
period with tough comparatives. For the first 16 weeks of the period,
like-for-like* order intake was down by 9.1% due to the comparative period
benefitting from strong pent-up demand following the last national lockdown.
The subsequent 10 weeks to 28 January 2023 saw a return to order intake growth
of 2.6%, which included the key winter sale. Overall like-for-like* order
intake was 4.7% down for the first half of the financial year, largely
reflecting the challenging comparative, but this was partially mitigated by
improved underlying performance.
Gross sales* for the period increased 3.4% to £154.9m compared to the prior
period. Gross profit increased by 0.4% to £67.8m and gross margin* was 43.8%
(45.1% in H1 FY22). The reduction in gross margin* was driven by higher levels
of stock sales as the Group sold off display stock as part of a decluttering
programme to improve the look and feel of our showrooms. Gross margin was in
line with the prior period when adjusted for stock sales.
The Group made an underlying loss before tax* of £4.7m for the period, a
£0.9m improvement on the prior period. This is in line with the Group's usual
profile, predominately due to the investment in marketing in the first half of
the financial year to support order intake over the key winter sale. The
benefit of this investment will be reflected in the second half of the year.
Snug acquisition
On 10 January 2023 the Group acquired, out of administration, the brand,
domain names, website, intellectual property and stock of Snug for £875,000.
Snug is an innovative digital-first sofa and sofa-bed business specialising in
modular and re-configurable sofas. It has a strong brand and differentiated
digital-first offering, which the Board believe will complement the Group's
existing proposition, further diversifying its customer base and increasing
market share. The acquisition represents further progression in ScS's
strategy, and is a great strategic and cultural fit which reinforces our
commitment to helping our customers create the home they love.
Since the acquisition, the business has worked hard to re-establish
relationships with suppliers, replenish stock and relaunch trading. Snug is
now fully operational, trading from the website and currently operates from
one store in Leeds and seven concessions throughout England. We plan to launch
Snug concessions into our ScS showrooms in the coming months, which will help
build the national presence and awareness of the brand. These concessions will
be trialled in our concept stores.
Strategy update
Outstanding team
Ensuring our colleagues feel valued remains a top priority for the Board. At
the start of the period, we invested £2.0m in our colleagues' take home pay,
both through an increase in their basic salaries and a £400 one-off cost of
living support payment.
As we strive to increase engagement and drive meaningful change, the results
of the latest annual employee survey were encouraging as the overall survey
score increased by three points to 74 which is ahead of the UK benchmark. This
increase in colleague satisfaction is also reflected in our retention rates,
which increased compared to the prior period.
In December 2022 the Group achieved the bronze 'Better Health at Work Award'
as we continued to focus on health and wellbeing. In attaining this award,
eleven colleagues were trained as health advocates, a number of health
campaigns were launched such as 'Raising cancer awareness & health habits'
and a 'Wellbeing hub' was created on our intranet.
We continued to review our overall reward offering and have:
· Overhauled our family friendly policies including enhanced
maternity and paternity pay;
· Introduced a 24 hour virtual general practitioner service for our
colleagues and members of their households;
· Offered access to low-cost health plans; and
· Improved our colleague discount policy and extended it to family
and friends.
As we aim to recruit excellent talent, we have launched a new careers website
and application tracking system to improve efficiencies in the hiring process.
In support of our colleagues participating in charitable endeavours we
launched a new volunteering policy in which all colleagues are given the
support of the business to volunteer for a cause of their choice.
We also welcomed 53 new colleagues into the Group as part of the acquisition
of Snug. They have been a significant part of building the brand and
developing the business.
Customer driven
Our mission is to be the UK's best value home retailer, delivering outstanding
value, quality and choice with a seamless customer experience. As we strive to
achieve this mission, improving product quality and streamlining the customer
journey are key focus areas.
In recognition of our product quality, we achieved Kitemark certification for
domestic furniture by the British Standards Institute. We are one of only
three furniture retailers in the UK to hold this stamp of approval. The BSI
Kitemark is a recognised symbol of outstanding quality, safety and trust
around the world. It provides consumers with reassurance that products have
been made with care and skill in an environment with rigorous factory process
controls. It also demonstrates that each product type has been independently
tested in accredited laboratories to withstand extremely demanding safety and
durability trials.
As part of our continued efforts to improve our customer experience we have
implemented a new end-to-end technology solution that delivers significant
improvements such as a virtual queue in which customers do not need to wait on
hold and can instead opt for one of the team to call them back. The system
allocates calls to a relevant handler based on their skills to optimise
efficiency and the system links into our social media platforms so that we
have increased visibility of customer queries. The implementation of this new
platform has led to reduced wait times and improved service levels.
We have also become a member of the Furniture & Home Improvement Ombudsman
which has enhanced the development and training of our customer experience
team and provides additional assurance for our customers through the
Ombudsman's alternative dispute resolution services.
Our commitment to improving product quality and the customer journey is
reflected by the 18% reduction in the number of times that customers contact
us regarding their order or delivered product.
A key part of enhancing the customer experience is obtaining and learning from
customer feedback. We became the fifth most reviewed company in the UK on
Trustpilot having received over 400,000 reviews. We also maintained the
maximum 5-star 'Excellent' rating, making us the only company in the UK's top
10 most reviewed to hold the full 5-star rating, with a Trustscore of 4.8. On
a local store level, over three quarters achieved the full 5-star rating, and
every store attained a minimum of 4.5 stars, which is a credit to our
dedicated retail teams.
We also conducted a number of customer research groups, receiving feedback on
a range of topics such as marketing and promotional style and store design
which has led us to onboarding a new creative agency and media partner. We
look forward to refreshing and modernising our marketing style and tone in the
second half of the year.
Inspiring ranges
As part of ongoing product development, we announced our partnership with
Ideal Home and have since launched three exclusive Ideal Home branded sofa
ranges, developed in conjunction with its team. In addition, we launched 34
new upholstery ranges in the period, bringing our customers varied styles,
fabrics and colours. Given this refreshed product offering, we have seen a
slight change in our customer demographic with a wider range of households
shopping with us as we broaden our appeal. We are also pleased to see our
furniture lead times return to historic levels through continued work with our
suppliers and have seen a significant decrease in customer cancellations when
compared to the prior period.
To improve our flooring offering we launched a new hard flooring proposition
across laminate, luxury vinyl tiling and engineered wood. We also focused our
flooring products through the introduction of 20 'star buy' ranges, increasing
colleague knowledge and confidence in a more streamlined offering and
delivering unbeatable value for money for our customers across a more
simplified product base. In addition, we made several improvements to our
customer journey by enhancing the service provided by our external fitters,
leading to a reduction in customer queries.
As we continue to further improve our dining ranges, and embed our ESG
strategy throughout the business, in October 2022 we launched our first
sustainable dining range made from FSC certified reclaimed pine. The
collection boasts both sustainable and eco-friendly credentials and is made
from re-used pallets.
Digitally optimised
Online sales have increased 16.7% compared to the prior period and now
represent 10.1% (H1 FY22: 8.9%) of total gross sales*. Supporting this, we
have increased digital engagement with our customers and, to improve the
customer journey, we have:
· Added 'question and answer' sections to the product pages on our
website;
· Created a 'visual bundling solution' that enables the customer to
add multiple items into one image to visualise how our products will look
together;
· Launched AI visualiser technology to some of our flooring ranges
to allow our customers to see how our products would look in their home; and
· Developed an online wishlist in which customers can save their
favorite products and share with our retail teams to create a more seamless
customer journey.
To drive our social media presence we have been trialling competitions and
increasing our collaborations with influencers. We have seen an increase in
engagement as a result of this, with engagement levels through Facebook being
at their highest levels yet. The team at Snug bring with them a wealth of
knowledge in this area, with a large social media following and excellent
track record in social commerce through the use of innovative and creative
ways to further customer engagement. We look forward to the digital team at
ScS working closely with the team at Snug and both brands taking advantage of
the resulting synergies.
As part of a digital marketing project, our retail colleagues within our
stores have been working hard to ensure that customers who may not be ready to
make a purchase remain informed about the product they are interested in by
taking their details, allowing for targeted and focused marketing. The digital
team has also been working with our retail teams to aid the declutter
programme within our stores by launching a clearance section on our website.
During the period we engaged the support of a third party specialist to work
with our teams as we look to invest in the future technology stack to support
the Group. We have completed the discovery phase of this project and look
forward to taking the next steps, with the ultimate aim of increasing
efficiency within our teams, allowing for improved data analysis and enhanced
system agility.
Engaging showrooms
During FY22 a key focus was launching our new concept store where we could
trial improvements to the look and feel of our showrooms, new technology and
ideas. In addition to the initial Coventry store we launched in July 2022, we
have refitted two further stores during the period in Gateshead and
Uddingston. Whilst there are opportunities to further improve the concept, it
is pleasing that all three concept stores have outperformed the rest of the
estate since re-opening. We continue to obtain valuable insight from the
concept stores, through performance and customer feedback, such as
understanding which layouts are most successful, where certain brands are best
displayed and how technology can support the customer journey. Following the
success of our initial concept stores, we have now planned investment in a
further eight stores before the end of the financial year.
As we continue to enhance the in-store experience, we have rolled out our
'declutter' programme, which commenced in FY22, across the entire store
network. This included reducing the amount and size of the point of sale
materials and being more selective around some of the ranges on display. This
programme contributed to an increase in display stock sales in the period.
We are pleased to have continued to expand our store estate by opening two new
stores in York and Swindon on Boxing Day, bringing our total UK store count to
100. We continue to consider further expansion through utilising customer
demographic data and a purpose built model which helps us to identify the
optimum store footprint, location and likely performance of potential new
stores.
Strengthen the core
To increase sales and further drive conversion we have invested in training
for our retail colleagues including:
· Delivery of 'art of selling' training to ensure that our colleagues
felt equipped and empowered ahead of the key winter sale. Over the period we
have seen an increase in our in-store furniture conversion KPI of 9%; and
· Training focused on the top selling flooring ranges to enhance
product knowledge and to help our colleagues to feel more confident when
advising customers on the most suitable products for them. We have seen an
increase in our in-store flooring conversion KPI of 12% over the period.
At the start of the period we created a divisional sales structure by
splitting our national sales reporting into two divisions, North and South.
This change allows colleagues to be more focused on regional and store
performance within their divisions ensuring we meet our growth targets and
profitability goals. We have also strengthened our regional management team.
During FY22 we enhanced the reporting visibility of our compensation and
allowances cost line. This increased insight and action taken has led to a 14%
reduction in this cost. We are continuously looking for ways to improve gross
margin and during the period we have reviewed our pricing strategy and
finalised a retender of our finance house partners. We have also reviewed our
supplier mix and onboarded several new suppliers to increase our optionality
in relation to product sourcing.
The Group has maintained a strong cash position and worked hard to ensure we
achieve good returns on those deposits. Interest received for the period is
£0.6m higher than the prior period.
As we seek to adopt more data driven approaches to aid decision making we have
utilised footfall data to refine our colleague levels and opening hours across
our store network. We have also sought to reduce product damage and have
installed a new vehicle-to-ground lift at one of our distribution centres. We
will monitor the impact on both colleagues and product damage as we consider
further potential rollout to other sites.
We recently committed to support Shelter, a registered charity that campaigns
for tenant rights across the UK, as a commercial sponsor as part of our social
agenda within our ESG strategy. Over the period we helped Shelter to generate
over £20,000 in sales through their stores by providing stock which was no
longer required by the business. This has not only helped to further Shelter's
fantastic work but it has also allowed our business to be more environmentally
friendly and reduce the waste that is generated by our operations.
Board changes
The Board welcomed a number of new appointments during the period:
· Carol Kavanagh was appointed on 26 September 2022 as a
Non-Executive Director. Carol has been working closely with the Chair of the
Remuneration Committee, Angela Luger, who she will succeed later this month.
Angela will continue in her role as a Non-Executive Director and in November
2023 will assume the role of Senior Independent Director;
· Andy Kemp was appointed on 1 February 2023 as a Non-Executive
Director. Andy will liaise with Ron McMillan over the coming months as he
prepares to take on the role of Audit Committee Chair when Ron steps down from
the Board on 1 December 2023 having completed nine years as a Board member;
and
· John Walden was appointed on 1 March 2023 as Chair Designate and
will work closely with Alan Smith over the coming months as he prepares to
take on the role of Chair when Alan steps down on 1 December 2023 having
completed nine years as a Board member.
On 2 December 2022 Chris Muir notified the Board of his intention to step down
as Chief Financial Officer. The process to identify a successor is underway.
Chris has a 12 month notice period and will remain with the business while a
successor is identified and to facilitate a smooth handover. A further
announcement in this respect will be made in due course.
Dividend and share buyback programme
The Group continues to maintain a strong balance sheet and the Board actively
reviews the allocation of capital, considering potential external and internal
investment opportunities and returns to shareholders. The period has seen the
Group generate strong cash flows and the strategic progress provides further
confidence in the Group's future. As a consequence, the Board is pleased to
announce an interim dividend of 4.5p per ordinary share (H1 FY22: 4.5p). The
dividend will be payable on 11 May 2023 to shareholders on the register on 21
April 2023. The ex-dividend date is 20 April 2023.
In March 2022 the Group announced a share buyback programme which was
completed in February 2023 returning £7.0m to our shareholders.
Looking forward
The Group made good strategic progress in the first six months of the
financial year and continued to take market share. We are pleased with the
strength of our winter sale performance and the subsequent increase in order
momentum over the last two months.
The macroeconomic environment continues to be challenging and we are mindful
of the pressures faced by many of our customers. Therefore, continuing to
focus on our value driven proposition is more important than ever so that
everyone is able to create the home they love.
The Board continues to believe that progress with the Group's strategy,
ongoing cost management and a robust balance sheet places it in a strong
financial and operational position. The outlook, therefore, is positive and
ScS remains on track to deliver full year profit before tax in line with
market expectations**.
** The Board believe that consensus market expectation for underlying profit
before tax for the full year is £7.7m. For the avoidance of doubt, this
excludes the impact of Snug in FY23, guidance of which is provided for the
first time today.
FINANCIAL REVIEW
26 weeks ended Restated**
28 January 2023 26 weeks ended Variance
29 January 2022 H1 FY23
H1 FY23 H1 FY22 to H1 FY22
£m £m £m
Gross sales* 154.9 149.8 5.0
Revenue 147.9 144.2 3.7
Gross profit 67.8 67.6 0.3
Distribution costs (10.1) (9.6) (0.5)
Administration expenses (61.0) (61.7) 0.7
Underlying operating loss* (3.3) (3.7) 0.4
Adjusting items (1.6) 1.9 (3.6)
Operating loss for the period (4.9) (1.8) (3.2)
Net finance costs (1.4) (1.9) 0.5
Loss before tax for the period (6.3) (3.6) (2.7)
Income tax credit 1.1 0.8 0.4
Loss after tax for the period (5.2) (2.9) (2.3)
Underlying loss before tax* (4.7) (5.6) 0.9
* This report includes alternative performance measures (APMs) which are
defined and reconciled to IFRS information, where applicable, on pages 14 to
15.
** The prior period gross sales and revenue have been restated to account
for warranty sales as an agent rather than principal under IFRS 15, see note
18. This did not result in any change to reported profit, earnings per share,
cash flows or in the consolidated statement of financial position.
On 10 January 2023, the business and assets of Snug were acquired out of
administration. Due to the close proximity of the acquisition to the period
end, Snug has not contributed to gross profit in the period. Total costs of
£0.8m have been recognised in the period, largely due to set up and
acquisition costs all of which have been classified as adjusting items.
Gross sales* and revenue
Improvements in the supply chain, and consequently a reduction in lead times,
saw gross sales* increase by £5.0m (3.4%) to £154.9m when compared to H1
FY22. The movement on gross sales* is further analysed as follows:
· An increase in furniture sales in ScS stores of 3.3% to £125.1m
(H1 FY22: £121.0m);
· A decrease in flooring sales in ScS stores of 7.8% to £14.2m (H1
FY22: £15.4m); and
· An increase in online sales of 16.7% to £15.6m (H1 FY22:
£13.4m).
The decrease in flooring sales is due to the prior period benefitting from a
large opening order book. Encouragingly flooring like-for-like* order intake
has grown 5.2% in the period.
Revenue, which represents gross sales* less charges relating to interest free
credit sales (see note 5 - Segmental information), increased by 2.6% from H1
FY22 to £147.9m. Revenue for the period has been adversely impacted by an
increase in the cost of supplying interest free finance as rates continue to
rise. As a proportion of gross sales* the cost of interest free credit has
increased by 0.7% to 4.5%.
Gross profit
Gross margin* was 43.8% (H1 FY22: 45.1%). The decrease of 130 basis points was
largely due to an increase in lower margin display stock sales as the Group
sold off increased levels of stock as part of the roll out of our decluttering
programme. Excluding stock sales and associated costs, gross margin* was in
line with the prior period.
The increased volume year on year resulted in an increase in gross profit of
£0.3m (0.4%).
Distribution costs
Distribution costs comprise the total cost of the in-house distribution
function and includes employment costs, vehicle running costs, property and
utility costs for the nine distribution centres, as well as costs of
third-party delivery services contracted to support peak delivery periods.
Distribution costs increased £0.5m in the period to £10.1m (H1 FY22:
£9.6m). As a percentage of gross sales* for the period, distribution costs
were 6.5% (H1 FY22: 6.4%). The increase in costs was driven by the
inflationary cost pressures on salaries, fuel, utilities and other property
related costs.
Administrative expenses
Administrative expenses comprise:
· Store operating costs, principally employment costs and
property-related costs (depreciation, rates, utilities and store repairs);
· Marketing expenditure; and
· General administrative expenditure, which includes the employment
costs for the Directors, senior management and all head office based support
functions and other central costs.
Administration costs for the period totalled £61.0m, compared to £61.7m in
the prior period. Administration costs were 39.4% of gross sales*, down from
41.2% in the prior period.
· £0.3m decrease in marketing investment, following a rephasing of
media spend;
· £1.0m reduction in performance related pay due to a decrease in
bonuses accrued for senior management as a result of the performance levels
achieved;
· £1.5m increase in other payroll costs due to the impact of
inflationary wage costs;
· £0.8m reduction in property costs, largely due to a decrease in
depreciation charges on the right of use asset as a result of rent savings;
and
· £0.1m reduction in other costs.
Flexible costs
The nature of the Group's business model, where almost all sales are made to
order, results in the majority of costs being proportional to sales. This
provides the Group with the ability to flex its cost base as revenue changes,
protecting the business should there be wider economic pressures. As shown
below, the proportion of cost variability remained relatively consistent year
on year.
Total underlying costs before tax for the period were £159.6m compared to H1
FY22 of £155.4m.
Of this total, 73.0% (H1 FY22: 72.4%), or £116.5m (H1 FY22: £112.5m), are
variable or discretionary, and are made up of:
· £87.0m cost of goods sold, including finance and warranty costs
(H1 FY22: £82.2m);
· £10.1m distribution costs (H1 FY22: £9.6m);
· £14.7m marketing costs (H1 FY22: £15.0m); and
· £4.7m performance related payroll costs (H1 FY22: £5.7m).
Semi-variable costs totalled £22.8m, or 14.3% of total costs, for the period
(H1 FY22: £21.4m; 13.8%) and are predominantly other non-performance related
payroll costs. Depreciation, interest, rates, heating and lighting make up the
remaining £20.2m (12.7%) of total costs (H1 FY22: £21.4m; 13.8%).
Underlying operating loss*
Due to the seasonal nature of the business, the Group's result for the first
half of the year is impacted by higher advertising spend to support the autumn
and winter sales. The second half of the year benefits from the delivery of
those orders and significantly less advertising spend. The Group's underlying
operating loss* was £3.3m for the first half of the financial year, compared
to £3.7m for H1 FY22.
Adjusting items
In the current period the Group has adopted an adjusting items APM to
categorise certain costs or incomes that are material in size or
unusual/non-recurring in nature to exclude from statutory measures to reflect
management's view of the underlying performance of the Group to aid the reader
of the accounts.
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
£'000 £'000 £'000
Impairment charge associated with stores (2,030) - -
Snug acquisition and pre-trading costs (849) - -
Business interruption insurance claim 1,250 - -
Business rates relief - 1,924 2,570
(1,629) 1,924 2,570
Adjusting items comprise:
· £2.0m charge in relation to the impairment of the Group's
property plant and equipment and right of use assets as a consequence of the
current view on longer term store performance in a potentially weakened
economic environment;
· Snug pre-trading costs of £0.8m, including acquisition costs
such as legal and professional fees;
· Receipt of a £1.3m business interruption insurance payment relating
to loss of profit as a result of the initial lockdown period during the
COVID-19 pandemic; and
· During the prior period, the Group benefitted from £1.9m of
retail business rates relief provided in response to the COVID-19 outbreak. No
further benefit was received in the period ended 28 January 2023.
For further information see note 6.
Net finance cost
The net finance cost has decreased by £0.5m to £1.4m compared to H1 FY22 as
a result of increased interest income on the Group's significant cash balance.
Taxation
The tax credit for the period is lower (H1 FY22: higher) than if the standard
rate of corporation tax had been applied primarily due to non-deductible
expenses.
Underlying loss before tax*
The Group's underlying loss before tax* was £4.7m for the first half of the
financial year, compared to £5.6m for H1 FY22.
Acquisition of Snug
Since the period end Snug has commenced trading and we are encouraged by the
recent order levels. Investment is required to grow the business and it is
therefore expected that Snug will generate an underlying loss before tax of
£1.0m in FY23, and then go on to be earnings accretive in FY24.
Cash and cash equivalents
The Group operates a negative working capital business model whereby:
· For cash/card sales, customers pay deposits at the point of order
and settle outstanding balances before delivery;
· For consumer credit sales, the loan provider pays ScS within two
working days of delivery; and
· The majority of product suppliers are paid at the end of the month
following the month of delivery into the distribution centres.
Cash increased £6.1m in the period to £76.9m (H1 FY22: £87.9m). A summary
of the Group's cash flows is shown below:
26 weeks ended 26 weeks ended
28 January 2023 29 January 2022
£m £m
Cash generated from operating activities 29.0 24.5
Payment of capital and interest elements of leases (11.5) (15.9)
Net capital expenditure (3.6) (1.9)
Net taxation and interest payments (0.1) (2.3)
Free cash flow 13.8 4.4
Acquisition of business combination (0.9) -
Dividends (3.2) (2.8)
Purchase of own shares (3.6) (1.4)
Net cash generated 6.1 0.2
The Group continued to be cash generative in the period with a net cash inflow
from operating activities of £29.0m.
Cash generated from operating activities is £4.5m higher than H2 FY22 due to
an increase in working capital inflow, largely as a result of the timing of
VAT payments, partially offset by a reduction in customer deposits as lead
times reduce.
The payment of capital and interest elements of leases has decreased by £4.4m
due to the prior period including the repayment of rent deferrals previously
negotiated with landlords when stores were temporarily closed due to the
Government's imposed lockdown response to COVID-19.
Cash outflow in relation to the purchase of own shares has increased by £2.3m
in the period as a result of £3.5m of share buybacks, offset by a £1.2m
reduction in the number of shares bought for the purposes of satisfying
management incentive awards.
Capital allocation
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern whilst retaining financial flexibility
to both invest in the business where economic returns are attractive and
provide returns to shareholders. We aim to allocate capital, subject to strict
returns criteria, to meet the strategic needs of the business. Our target is
gross capital expenditure of under 4.0% of total sales per annum, on average.
During the period we invested in developing two further concept stores as part
of the 'Engaging showrooms' pillar of our strategy, and opened two new stores.
Return to shareholders
The Board is confident the Group can build on the strong strategic progress
experienced in the first half of the year. As a consequence, the Board is
pleased to announce an interim dividend of 4.5p per ordinary share (H1 FY22:
4.5p). Full year profit expectations and the strength of the balance sheet
gives the Board confidence to maintain the dividend at the same level.
The 4.5p dividend reflects an anticipated one third and two thirds split
between the interim and final dividend respectively. This dividend will be
payable on 11 May 2023 to shareholders on the register on 21 April 2023. The
ex-dividend date is 20 April 2023.
In March 2022 the Group announced a share buyback programme which was
completed in February 2023 returning £7.0m to our shareholders.
Principal risks and uncertainties
The principal risks and uncertainties which the Group faces are unchanged from
those detailed on pages 50 to 58 of the Annual Report for 2022, which is dated
10 October 2022 and is available from the ScS Group plc website:
www.scsplc.co.uk (http://www.scsplc.co.uk) .
A summary of the principal risks is set out below:
· Changes in consumer confidence
· Changes in interest rates, currency rates and availability of
consumer credit could lead to cost pressure and changes in customer spending
· Competition with other retailers and failing to respond to key
changes in the competitive environment
· Regulatory and compliance risk
· Supply chain and sourcing risk
· Disruption to the Group's IT systems
· Challenges in retaining and developing our colleagues
· Protecting our brand and reputation
· External factors adversely affecting footfall in our stores over
key trading periods
Steve Carson
Chief Executive Officer
20 March 2023
Alternative Performance Measures ("APMs")
In the reporting of financial information, the Board has adopted various
alternative performance measures (APMs). APMs should be considered in addition
to IFRS measurements. The Board believe that these APMs assist in providing
useful information on the underlying performance and position of the Group and
enhance the comparability of information between reporting periods by
adjusting for non-underlying items which affect IFRS measures and are used
internally by the Board to measure the Group's performance.
Consequently, APMs are used by the Board and management for performance
analysis, planning, reporting and incentive setting purposes and have remained
consistent with prior period. The measures are also used in discussions with
the investment analyst community. The key APMs used by the Group are
summarised in the table below.
APM Definition Reconciliation
Like-for like order growth 'Like-for-like' order growth comprises total orders (inclusive of VAT) in a N/A
financial period compared to total orders achieved in a prior period excluding
new or closed stores to ensure comparability.
Gross sales Gross sales represents turnover on the sale of goods and commission on Restated*
warranties before deduction of interest-free credit.
HY23 HY22
£'000 £'000
Revenue 147,861 144,167
Add back: costs of interest free credit 6,991 5,656
Gross sales (note 5) 154,852 149,823
Gross margin Gross profit as a percentage of gross sales. Restated*
HY23 HY22
£'000 £'000
Revenue 147,861 144,167
Add back: costs of interest free credit 6,991 5,656
Gross sales (note 5) 154,852 149,823
Gross profit 67,845 67,592
Gross margin 43.8% 45.1%
Adjusting items Certain costs or incomes that are material in size or unusual/non-recurring in
nature are excluded from statutory measures to reflect management's view of
the underlying performance of the Group.
HY23 HY22
£'000 £'000
Adjusting items (note 6) (1,629) 1,924
Underlying operating (loss)/profit Underlying operating (loss)/profit is based on operating (loss)/profit before
the effect of adjusting items in the period.
HY23 HY22
£'000 £'000
Statutory operating loss (4,926) (1,760)
Adjusting items 1,629 (1,924)
Underlying operating loss (3,297) (3,684)
Gross margin
Gross profit as a percentage of gross sales.
Restated*
HY23 HY22
£'000 £'000
Revenue 147,861 144,167
Add back: costs of interest free credit 6,991 5,656
Gross sales (note 5) 154,852 149,823
Gross profit 67,845 67,592
Gross margin 43.8% 45.1%
Adjusting items
Certain costs or incomes that are material in size or unusual/non-recurring in
nature are excluded from statutory measures to reflect management's view of
the underlying performance of the Group.
HY23 HY22
£'000 £'000
Adjusting items (note 6) (1,629) 1,924
Underlying operating (loss)/profit
Underlying operating (loss)/profit is based on operating (loss)/profit before
the effect of adjusting items in the period.
HY23 HY22
£'000 £'000
Statutory operating loss (4,926) (1,760)
Adjusting items 1,629 (1,924)
Underlying operating loss (3,297) (3,684)
*The prior period gross sales, revenue and cost of sales figures have been
restated to account for warranty sales as an agent rather than principal under
IFRS 15 (note 18).
Underlying (loss)/profit before tax Underlying (loss)/profit before tax is based on (loss)/profit before tax
before the effect of adjusting items in the period.
HY23 HY22
£'000 £'000
Statutory loss before tax (6,337) (3,635)
Adjusting items 1,629 (1,924)
Underlying loss before tax (4,708) (5,559)
Underlying basic (loss)/earnings per share (EPS) Underlying basic EPS is based on earnings per share before the effect of
adjusting items in the period.
HY23 HY22
£'000 £'000
Loss for the period (5,202) (2,881)
Adjusting items net of tax 1,351 (1,558)
Underlying loss after tax (3,851) (4,439)
Number of shares (000's) 35,528 37,748
Underlying LPS (10.8p) (11.8p)
Underlying basic (loss)/earnings per share (EPS)
Underlying basic EPS is based on earnings per share before the effect of
adjusting items in the period.
HY23 HY22
£'000 £'000
Loss for the period (5,202) (2,881)
Adjusting items net of tax 1,351 (1,558)
Underlying loss after tax (3,851) (4,439)
Number of shares (000's) 35,528 37,748
Underlying LPS (10.8p) (11.8p)
STATEMENT OF DIRECTORS RESPONSIBILITIES
The directors confirm that these condensed interim financial statements have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
· An indication of important events that have occurred during the first
26 weeks and their impact on the condensed set of financial statements, and a
description of the principal risks and uncertainties for the remaining 26
weeks of the financial year; and
· Material related-party transactions in the first 26 weeks and any
material changes in the related-party transactions described in the last
annual report.
The directors of ScS Group plc who were in office during the period and up to
the date of this report, unless otherwise stated, were:
Alan Smith
Non-Executive Chairman
John Walden Non-Executive
Chair Designate (appointed 1 March 2023)
Ron McMillan Non-Executive
Director
Angela Luger Non-Executive
Director
Carol Kavanagh Non-Executive Director
(appointed 26 September 2022)
Andy Kemp Non-Executive
Director (appointed 1 February 2023)
Stephen Carson Chief Executive Officer
Chris Muir Chief
Financial Officer
A list of current directors is maintained on the ScS Group plc website:
www.scsplc.co.uk (http://www.scsplc.co.uk) .
By order of the Board
Richard Butts
Company Secretary
20 March 2023
Independent review report to ScS Group plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed ScS Group plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Interim results of ScS
Group plc for the 26 week period ended 28 January 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
• The condensed consolidated statement of financial position as at 28
January 2023;
• The condensed consolidated statement of comprehensive income for the
period then ended;
• The condensed consolidated cash flow statement for the period then ended;
• The condensed consolidated statement of changes in equity for the period
then ended; and
• The explanatory notes to the interim financial statements.
The interim financial statements included in the Interim results of ScS Group
plc have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Interim results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Interim results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the Interim results, including the
interim financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Newcastle upon Tyne
20 March 2023
ScS Group plc
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Note Unaudited Restated* Audited
26 weeks ended Unaudited 52 weeks ended 30 July 2022
28 January 2023 26 weeks ended
29 January 2022
£'000 £'000 £'000
Gross sales 5 154,852 149,823 344,710
Revenue 5 147,861 144,167 331,569
Cost of sales (80,016) (76,575) (175,305)
Gross profit 67,845 67,592 156,264
Distribution costs (10,112) (9,567) (21,304)
Administrative expenses (62,659) (59,785) (114,761)
Operating (loss)/profit (4,926) (1,760) 20,199
Analysed as:
Underlying operating (loss)/profit*- non-GAAP measure (3,297) (3,684) 17,629
Adjusting items included within administrative expenses 6 (1,629) 1,924 2,570
Operating (loss)/profit (4,926) (1,760) 20,199
Finance costs 7 (2,012) (1,881) (3,856)
Finance income 8 601 6 15
Net finance costs (1,411) (1,875) (3,841)
(Loss)/profit before taxation (6,337) (3,635) 16,358
Income tax credit/(charge) 12 1,135 754 (2,774)
(Loss)/profit for the period (5,202) (2,881) 13,584
(Loss)/profit is attributable to:
Owners of the parent (5,202) (2,881) 13,584
Basic (loss)/earnings per share (pence) 13 (14.6p) (7.6p) 36.2p
Diluted (loss)/earnings per share (pence) 13 (14.6p) (7.6p) 35.0p
Reconciliation of (loss)/profit before tax and adjusting items:
(Loss)/profit before taxation (6,337) (3,635) 16,358
Adjusting items 6 1,629 (1,924) (2,570)
Underlying (loss)/profit* for the period- non-GAAP measure (4,708) (5,559) 13,788
There is no variance between the diluted and basic earnings per share in the
current period.
There are no other sources of comprehensive income.
*The prior period gross sales, revenue and cost of sales figures have been
restated to account for warranty sales as an agent rather than principal under
IFRS 15 (note 18). There are no changes to gross profit, or any subsequent
financial statement line items.
ScS Group plc
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note Unaudited Unaudited Audited
as at as at as at
28 January 2023 29 January 2022 30 July 2022
£'000 £'000 £'000
Non-current assets
Intangible assets 2,820 2,181 2,494
Goodwill 17 500 - -
Property, plant and equipment 18,060 17,377 18,076
Right of use asset 91,615 101,274 96,996
Deferred tax asset 1,674 1,913 1,845
Total non-current assets 114,669 122,745 119,411
Current assets
Inventories 18,519 17,641 19,791
Trade and other receivables 7,169 5,736 6,011
Tax receivable 1,547 1,751 -
Cash and cash equivalents 76,869 87,889 70,819
Total current assets 104,104 113,017 96,621
Total assets 218,773 235,762 216,032
Current liabilities
Current income tax liabilities - - 309
Trade and other payables 14 75,709 85,149 57,328
Provisions - 679 303
Lease liabilities 19,670 20,019 19,721
Total current liabilities 95,379 105,847 77,661
Non-current liabilities
Provisions 1,270 996 1,192
Lease liabilities 84,005 91,234 87,012
Total non-current liabilities 85,275 92,230 88,204
Total liabilities 180,654 198,077 165,865
Capital and reserves attributable to the owners of the parent
Share capital 35 38 37
Share premium 16 16 16
Capital redemption reserve 18 15 16
Merger reserve 25,511 25,511 25,511
Treasury shares 16 (703) (721) (681)
Retained earnings 13,242 12,826 25,268
Equity attributable to the owners of the parent 38,119 37,685 50,167
Total equity 38,119 37,685 50,167
Total equity and liabilities 218,773 235,762 216,032
ScS Group plc
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent
Share Capital Merger reserve Retained
capital
earnings
Share redemption Treasury shares Total equity
premium
reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 August 2021 38 16 15 25,511 (549) 19,479 44,510
Loss for the period - - - - - (2,881) (2,881)
Share-based payment charge - - - - - 175 175
Purchase of treasury shares - - - - (1,360) - (1,360)
Issue of treasury shares to employees - - - - 1,188 (1,188) -
Dividend paid - - - - - (2,759) (2,759)
Balance at 29 January 2022 38 16 15 25,511 (721) 12,826 37,685
Balance at 30 January 2022 38 16 15 25,511 (721) 12,826 37,685
Profit and total comprehensive income - - - - - 16,465 16,465
Share-based payment charge - - - - - (22) (22)
Repurchase of own shares - - - - - (2,201) (2,201)
Cancellation of repurchased shares (1) - 1 - - - -
Purchase of treasury shares - - - - (116) - (116)
Issue of treasury shares to employees - - - - 156 (116) 40
Dividend paid - - - - - (1,684) (1,684)
Balance at 30 July 2022 37 16 16 25,511 (681) 25,268 50,167
Balance at 31 July 2022 37 16 16 25,511 (681) 25,268 50,167
Loss for the period - - - - - (5,202) (5,202)
Repurchase of own shares - - - - - (2,997) (2,997)
Transfer out of treasury shares - - - - 116 (116) -
Cancellation of repurchased shares (2) - 2 - - - -
Purchase of treasury shares (note 16) - - - - (648) - (648)
Issue of treasury shares to employees (note 16) - - - - 510 (510) -
Dividend paid (note 15) - - - - - (3,201) (3,201)
Balance at 28 January 2023 35 16 18 25,511 (703) 13,242 38,119
ScS Group plc
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
Cash flows from operating activities £'000 £'000 £'000
(Loss)/profit before taxation (6,337) (3,635) 16,358
Adjustments for:
Depreciation of property plant and equipment 2,010 2,132 4,162
Depreciation of right-of-use assets 10,333 10,872 21,523
Amortisation of intangible assets 542 377 882
Impairment on non-current assets 2,030 - -
Share-based payment charge - 175 153
Finance costs 2,012 1,881 3,856
Finance income (601) (6) (15)
9,989 11,796 46,919
Changes in working capital:
Decrease/(increase) in inventories 1,398 (313) (2,463)
(Increase) in trade and other receivables (1,158) (789) (1,064)
Increase/(decrease) in trade and other payables 18,721 13,800 (14,908)
Cash generated from operating activities 28,950 24,494 28,484
Income taxes paid (550) (2,057) (3,457)
Net cash flow generated from operating activities 28,400 22,437 25,027
Cash flows from investing activities
Acquisition of business combination (875) - -
Purchase of property, plant and equipment (2,740) (1,539) (3,741)
Payments to acquire intangible assets (832) (368) (1,004)
Interest received 601 6 15
Net cash outflow from investing activities (3,846) (1,901) (4,730)
Cash flows from financing activities
Dividends paid (note 15) (3,201) (2,759) (4,443)
Purchase of own shares (note 16) (3,645) (1,360) (3,677)
Sale of treasury shares - - 40
Interest paid (156) (242) (418)
Interest paid on lease liabilities (1,856) (1,639) (3,438)
Payment of capital element of leases (9,646) (14,297) (25,192)
Net cash flow used in financing activities (18,504) (20,297) (37,128)
Net increase/(decrease) in cash and cash equivalents 6,050 239 (16,831)
Cash and cash equivalents at beginning of period 70,819 87,650 87,650
Cash and cash equivalents at end of period 76,869 87,889 70,819
Notes to the unaudited condensed consolidated financial statements
1. General information
ScS Group plc (the "Company") is incorporated and domiciled in the UK (Company
registration number 03263435). The address of the registered office is 45-49
Villiers Street, Sunderland, SR1 1HA. The principal activity of the Company
and its subsidiaries (the "Group") is the provision of upholstered furniture
and flooring, trading under the names ScS and Snug.
The 2022 audited financial statements for the Group have been filed with
Companies House.
2. Basis of preparation
This interim report for the 26 weeks ended 28 January 2023 has been prepared
on the basis of the policies set out in the 2022 annual financial statements,
with the addition of the policies as a result of the business combination in
the period noted below, and in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority. The Group has also adopted a new APM, adjusting items,
which is defined on page 14.
The condensed consolidated financial statements need to be read in conjunction
with the Annual Report 2022 dated 10 October 2022 (the "Annual Report 2022"),
which has been prepared in accordance with UK-adopted international accounting
standards and the requirements of the Companies Act 2006
The report of the auditors for the financial statements for the 52 weeks ended
30 July 2022, included in the Annual Report 2022, was unqualified, did not
contain an emphasis of matter paragraph and did not include a statement under
Section 498 of the Companies Act 2006.
The Group's interim condensed consolidated financial information is not
audited and does not constitute statutory financial statements as defined in
Section 434 of the Companies Act 2006. These condensed interim financial
statements were approved for issue on 20 March 2023.
3. Going concern
The interim financial statements have been prepared on a going concern basis.
At the time of approving the interim financial statements, the Board is
required to formally assess that the business has adequate resources to
continue in operational existence for the next 12 months and as such can
continue to adopt the 'going concern' basis of accounting.
Liquidity
The most significant factor in considering whether current resources are
adequate is to consider the Group's liquidity. At 28 January 2023, the Group's
cash balance totalled £76.9m and £25.6m was owed as trade payables for goods
delivered. The Group has no drawn down debt, and further liquidity is
available through the £12.0m revolving credit facility (RCF) granted on 6
October 2022. This facility is committed for a term of 36 months and would be
renegotiated well in advance of this maturity date. The RCF is subject to
certain covenants in respect of fixed charge cover, liquidity and leverage.
Cash flows
As part of the Group's ongoing review of going concern, the directors have
reviewed the results for the 6 months to 28 January 2023 and have modelled
cash flow forecasts for a period of at least 12 months from the date of
approval of the interim financial information. Directors have utilised
internal forecasts to produce the base case modelling which reflects the
challenging economic environment whilst also recognising the impact of our
strategic progress.
A sensitised 'severe but plausible' downside was also calculated which
modelled significant reductions in sales and margin, together with the
assumption that our suppliers have the credit insurance they use to support
their payment terms with the Group withdrawn, seeing our suppliers request
earlier payment dates to alleviate their working capital challenges. Directors
concluded the company will have sufficient funds through its existing cash
balances to meet its liabilities as and when they fall due.
For the reasons set out in detail above, the Board believe it remains
appropriate to prepare the Group interim financial statements on a going
concern basis.
4. Accounting policies
This interim report for the 26 weeks ended 28 January 2023 have been prepared
on the basis of the policies set out in the 2022 Consolidated Financial
Statements, with the addition of the policies as a result of the business
combination in the period noted below, and in accordance with UK adopted IAS
34 and the Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority.
Intangible assets
Goodwill
Goodwill arising on consolidation represents the excess of the consideration
paid over the fair value of the identifiable assets (including intangible
assets) of the acquired entity at the date of the acquisition. Goodwill is
recognised as an asset and assessed for impairment annually or as triggering
events occur. Any impairment in value is recognised within the income
statement.
Acquired intangible assets
Acquired intangible assets include trademarks or brands. These assets are
capitalised on acquisition at cost and amortised on a straight-line basis over
their estimated useful lives. Acquired intangible assets are tested for
impairment as triggering events occur. Any impairment in value is recognised
within the income statement.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The
consideration transferred for the acquisition of a subsidiary comprises the:
• Fair values of the assets transferred;
• Liabilities incurred to the former owners of the acquired
business;
• Equity interests issued by the Group;
• Fair value of any asset or liability resulting from a contingent
consideration arrangement; and
• Fair value of any pre-existing equity interest in the
subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions, measured
initially at their fair values at the acquisition date. The Group recognises
any non-controlling interest in the acquired entity on an
acquisition-by-acquisition basis either at fair value or at the
non-controlling interest's proportionate share of the acquired entity's net
identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the:
• Consideration transferred;
• Amount of any non-controlling interest in the acquired entity;
and
• Acquisition-date fair value of any previous equity interest in the
acquired entity over the fair value of the net identifiable assets acquired is
recorded as goodwill.
5. Segmental information
The directors have determined the operating segments based on the operating
reports reviewed by the senior management team (the executive directors and
the other directors of the trading subsidiary, A. Share & Sons Limited)
that are used to assess both performance and strategic decisions. The
directors have identified that the senior management team is the chief
operating decision maker in accordance with the requirements of IFRS 8
'Segmental reporting'.
The directors consider the business to be one main type of business generating
revenue; the retail of furniture and flooring. All segment revenue, profit
before taxation, assets and liabilities are attributable to the principal
activity of the Group and other related services. All revenues are generated
in the United Kingdom, and recognised at the point in time the goods and any
associated warranty contracts have been delivered to the customer. Warranty
services, once sold, are subsequently provided by third parties. There have
been no changes to the director's determination of segments since those
disclosed in the Annual Report 2022.
Analysis of gross sales is as follows:
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
(restated)
£'000 £'000 £'000
Sale of goods 153,800 147,198 340,580
Associated warranties 1,052 2,625 4,130
Gross Sales 154,852 149,823 344,710
Less: costs of interest free credit (6,991) (5,656) (13,141)
Revenue 147,861 144,167 331,569
Of which
In-store furniture 119,924 116,654 269,781
In-store flooring 13,707 14,948 31,704
Online 14,230 12,565 30,084
Revenue 147,861 144,167 331,569
6. Adjusting items
In order to provide a clearer understanding of underlying profitability,
adjusting items which relate to certain costs or incomes that are material in
size or unusual/non-recurring in nature are excluded from statutory measures.
Adjusting items in the period comprised the following:
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
£'000 £'000 £'000
Impairment charge associated with stores (2,030) - -
Snug acquisition and pre-trading costs (849) - -
Business interruption insurance claim 1,250 - -
Business rates relief - 1,924 2,570
(1,629) 1,924 2,570
Impairment charge associated with stores
As a consequence of the current view of future projections for the business an
impairment charge of £2,030,000 has been recognised on the assets associated
with a number of our stores. This has been split between the right-of-use
asset (£1,634,000) and tangible assets (£396,000), apportioned based on net
book value.
Snug acquisition and pre-trading costs
Adjusting items include £849,000 of costs relating to the acquisition costs
(including legal and professional fees) and pre trading expenses.
Business interruption insurance claim
The Group received a business interruption insurance payment of £1,250,000 in
relation to loss of profit as a result of the initial lockdown period during
the COVID-19 pandemic.
Business rates relief
During the prior period, the Group benefitted from £1,924,000 of retail
business rates relief provided in response to the COVID-19 outbreak. No
further benefit was received in the period ending 28 January 2023.
7. Finance costs
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
£'000 £'000 £'000
Bank facility non-utilisation fees 124 209 413
Bank facility renewal fees 19 - -
Other finance costs 13 33 5
Interest on lease liability 1,856 1,639 3,438
2,012 1,881 3,856
8. Finance income
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
£'000 £'000 £'000
Bank interest received 601 6 15
9. Estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these condensed interim financial statements, the more important
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the historical financial information in the Annual Report 2022.
10. Financial risk management
The Groups activities expose it to a variety of financial risks which include
funding and liquidity risk, credit risk, interest rate risk and other price
risk. The condensed interim financial statements do not include all financial
risk management information and disclosures required in the annual financial
statements and they should be read in conjunction with the Annual Report 2022.
There has been no change to the risk management procedures or the accounting
policies from those included in the Annual Report 2022.
11. Seasonality of operations
Due to the seasonal nature of the business, the Group's result for the first
half of the year is impacted by higher advertising spend to support the autumn
and winter sales. The second half of the year benefits from the delivery of
those orders and significantly less advertising spend. In the 26 weeks ended
29 January 2022, 43.5% of revenues accumulated in the first half of the year
and an operating loss of £1.8m was generated. In the second half of the 52
weeks ended 30 July 2022, 56.5% of total revenue was earned and an operating
profit of £22.0m was generated.
12. Taxation
The tax credit for the 26 weeks ended 28 January 2023 is based on an estimated
average annual effective tax rate of 17.9% (26 weeks ended 29 January 2022:
tax credit 20.7%). The tax credit is lower than if the standard rate of
corporation tax had been applied primarily as a result of non-deductible
expenses in relation to depreciation. We expect the tax rate for the full year
to be higher than the statutory rate.
The UK corporation tax standard rate for the period was 21% (2022: 19%) taking
into account the scheduled rise to 25% from 1 April 2023.
13. (Loss)/earnings per share
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
pence pence Pence
a) Basic (loss)/earnings per share attributable to the ordinary equity holders
of the company
Basic (loss)/earnings per share from underlying operations (10.8p) (11.8p) 30.7p
From adjusting items (3.8p) 4.1p 5.5p
Total basic (loss)/earnings per share (14.6p) (7.6p) 36.2p
b) Diluted (loss)/earnings per share attributable to the ordinary equity
holders of the company
Diluted (loss)/earnings per share from underlying operations (10.8p) (11.8p) 29.6p
From adjusting items (3.8p) 4.1p 5.4p
Total diluted (loss)/earnings per share (14.6p) (7.6p) 35.0p
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
£'000 £'000 £'000
c) Reconciliations of earnings used in calculating earnings per share
(Loss)/profit from operations (5,202) (2,881) 13,584
- Adjusting items net of tax 1,351 (1,558) (2,082)
(Loss)/profit from underlying operations (3,851) (4,439) 11,502
26 weeks ended 26 weeks ended 52 weeks ended
28 January 2023 29 January 2022 30 July 2022
Number Number Number
d) Weighted average number of shares used as the denominator
Weighted average number of shares in issue for the purposes of basic earnings 35,528,366 37,748,026 37,498,925
per share
Effect of dilutive potential ordinary shares:
- share options - - 1,354,896
Weighted average number of ordinary shares for the purpose of diluted earnings 35,528,366 37,748,026 38,853,821
per share
A total of 924,329 potential ordinary shares have not been included within the
calculation of diluted earnings per share for the 26 weeks ended 28 January
2023 as the loss made in the period results in the shares having no dilutive
impact.
14. Trade and other payables current
As at As at As at
28 January 2023 29 January 2022 30 July 2022
£'000 £'000 £'000
Trade payables 25,589 22,900 18,374
Payments received on account 31,956 45,552 25,540
Other tax and social security payable 7,253 4,637 2,236
Accruals 10,911 12,060 11,178
75,709 85,149 57,328
The fair value of financial liabilities approximates their carrying value due
to short maturities. Financial liabilities are denominated in pounds sterling.
15. Dividend
A final dividend for the year ended 30 July 2022 of 9.0p resulted in a payment
of £3,198,000 which was made on 9 December 2022. It has been recognised in
shareholders' equity in the period to 28 January 2023.
During the period dividend equivalents were paid on the vesting of the 2022
LTIP totalling £3,000.
The Board has declared an interim dividend of 4.5p (2022: 4.5p) per share.
This dividend will be payable on 11 May 2023 to shareholders on the register
on 21 April 2023. The ex-dividend date is 20 April 2023. The interim dividend,
amounting to £1,522,000 has not been recognised as a liability in this
interim financial information. It will be recognised in shareholders' equity
in the year to 29 July 2023.
16. Treasury shares and share buyback
The Group's Employee Benefit Trust held 327,663 shares at the start of the
year.
74,932 shares which were purchased into treasury in the prior year have
subsequently been transferred to retained earnings in the period, at an
average price of 154.56 pence per ordinary share, and cancelled as part of the
share buyback programme.
During the period, the Group's Employee Benefit Trust purchased a further
349,749 ordinary shares of 0.1 pence each in the Group at an average price of
185.29 pence per ordinary share, and 228,008 ordinary shares were used to
satisfy management incentive awards.
As at 28 January 2023 the Group holds 374,472 of its own ordinary shares of
0.1 pence each in the Group at an average purchase price of 187.81 pence.
As part of the Group's share buyback programme, during the period the Group
acquired 1,919,574 ordinary shares at an average share price of 156.14 pence
per ordinary share for a total consideration including associated fees of
£2,997,000. Following this purchase, the ordinary shares purchased by the
Group were cancelled, and the Group's issued share capital at 28 January 2023
subsequently consisted of 34,757,208 ordinary shares, each with one voting
right.
17. Business combination
On 10 January 2023, the Group announced it had acquired the brand, domain
names, website, intellectual property and stock of Snugsofa.com ("Snug") from
the administrators of Snug Shack Limited for consideration of £875,000.
The acquisition of Snug represents further progression in Group's strategy.
Snug's strong brand and differentiated digital-first offering will complement
the Group's existing proposition, further diversifying its customer base and
increase market share.
The purchase has been accounted for as a business combination. Details of the
purchase consideration, the net assets acquired and goodwill are as follows:
£'000
Purchase consideration
Cash paid 875
Total purchase consideration 875
The assets recognised as a result of the acquisition are as follows:
Fair value
£'000
Intangible assets 250
Inventories 125
Total identifiable assets 375
Add: goodwill 500
875
The goodwill is attributable to Snug's strong brand, innovative digital
capabilities and synergies expected to arise after the Group's acquisition of
the new subsidiary. It has been allocated to the furniture retail segment.
Pre-trading and acquisition related costs
Pre-trading and acquisition related costs of £849,000 are included in
administrative expenses in profit or loss.
Revenue and profit contribution
Snug contributed revenues of £nil and a net loss of £849,000 to the Group
for the period ended 28 January 2023.
18. Prior period restatement
Accounting for the sale of warranty products
In line with the restatement made within the Group's Annual Report and
Accounts for the year ended 30 July 2022, the Group has restated its results
to 29 January 2022. This adjustment restated gross sales and sales, it did not
result in any changes to reported profit, earnings per share, cash flows or in
the consolidated statement of financial position.
The change in accounting policy has resulted in a prior period restatement,
with gross sales, revenue and costs of sales being reduced by £1,703,000 in
the consolidated statement of comprehensive income for the period ended 29
January 2022.
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