Preliminary Results
25/10/2023 07:00
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RNS Number : 1722R ScS Group PLC 25 October 2023
For immediate release 25 October 2023
ScS Group plc
("ScS" the "Group" or the "Company")
Audited preliminary results for the 52 weeks ended 29 July 2023
RESILIENT RESULTS; ROBUST BALANCE SHEET MAINTAINED
ScS, one of the UK's largest retailers of upholstered furniture and floorings,
is pleased to announce its audited preliminary results for the 52 weeks ended
29 July 2023.
Financial summary:
Group Group FY23 Snug Group FY23 Group FY22
excl. Snug pre Snug
Gross sales* £343.5m £4.2m £339.3m £344.7m
Revenue £325.9m £4.2m £321.7m £331.6m
Gross profit £152.4m £2.8m £149.6m £156.3m
Gross margin* 44.4% 65.8% 44.1% 45.3%
Profit/(loss) before tax £6.0m (£2.8m) £8.8m £16.4m
Underlying profit before tax* £7.2m (£1.9m) £9.2m £13.8m
* This report includes alternative performance measures (APMs) which are
defined and reconciled to IFRS information, where applicable, within the
Financial Review.
The Group acquired the business and assets of Snug on 10 January 2023. Snug
made a loss before tax for the year of £2.8m, with an underlying loss before
tax* of £1.9m.
Financial highlights:
· Despite a challenging economic climate, delivered sales were only
0.4% below prior year
· Gross margin of 44.4%, 1.0% lower than prior year with increased
year on year costs for providing credit to customers partially offset by price
increases
· Underlying profit before tax* of £7.2m, including a £1.9m loss
before tax from the newly acquired Snug business
· Completion of share buyback programme, returning £7.0m to
shareholders
· Strong balance sheet with cash of £69.5m as at 29 July 2023
(FY22: £70.8m)
· Recommended final dividend of 10.0p per share, which, if
approved, would give a full year dividend of 14.5p per share (FY22: 13.5p), an
increase of 7.4%
Operational highlights:
· Strong ScS like-for-like order growth* in H2 of 5.9%, order
intake for the full year was in line with FY22
· Acquired Snug out of administration in January 2023,
re-established operations from an effective standing start
· Continued to gain market share, further cementing position as the
UK's second largest upholstered furniture retailer
· Further strategic progress:
• Acquired Snug, expanding the Group's offering and increasing
market share, subsequently opened one new standalone Snug store in Bristol and
nine Snug concessions in ScS stores
• Opened two new ScS stores in York and Swindon
• Refreshed and launched new branding and advertising for ScS
• Implemented our new format store design into eight further
locations
• Achieved Kitemark certification for domestic furniture from the
British Standards Institute
• Exceeded 440,000 reviews on Trustpilot, maintained the maximum
5-star 'Excellent'
Current trading and outlook:
· Trading has toughened over the first quarter, with ScS
like-for-like order intake growing 2.7% in August, 0.3% in September and
declining 4.4% in October. Order intake was in line with the prior year for
the 12 weeks to 21 October 2023
· Opened a new standalone Snug store in Westfield London and seven
further concessions in ScS stores
· Planned investment in a further 12 ScS stores to adopt our new
format design
· Resilient balance sheet, with forecasted cash of £57m as at 31
October 2023
Steve Carson, Chief Executive Officer of ScS, commented:
"We are pleased to announce a resilient set of results and to continue to take
market share in what is a challenging environment. We were also delighted to
see continued progress in year two of our strategy, including modernising our
product offering, investing in our store estate, refreshing and relaunching
our brand and advertising and to announce the acquisition of Snug.
We remain cognisant of the challenging economic environment facing our
customers which is expected to continue throughout FY24. We therefore believe
that continuing to focus on our value driven proposition is extremely
important so that everyone is able to create the home they love.
The Board is confident that the Group's strategy and strong balance sheet will
enable ongoing trading resilience and we continue to expect to grow market
share while investing in stores, in our digital proposition, and other
strategic growth opportunities."
Offer for the Company
On 24 October 2023, Cerezzola Limited, a wholly owned subsidiary of
Poltronesofà S.p.A., announced a recommended cash offer for the entire issued
and to be issued share capital of the Company of 270p. In addition,
shareholders who are on the register at the close of business on 17 November
2023 will be entitled to receive the final dividend of 10.0p (in respect of
the year ended 29 July 2023).
It is intended that the acquisition will be implemented by way of a
Court-sanctioned scheme of arrangement under Part 26 of the Companies Act.
Cerezzola Limited has indicated its intention (subject to the requisite
acceptance thresholds as referred to in the announcement of 24 October 2023)
to make applications to the London Stock Exchange for the cancellation of the
trading of the Company's shares on the Main Market as soon as practicable
following the completion of the offer. This process will take place following
the release of the Annual Report and is expected to complete in the first
quarter of 2024. Further details relating to the timetable of the offer will
be announced in due course.
* This report includes alternative performance measures (APMs) which are
defined and reconciled to IFRS information, where applicable, within the
Financial Review.
Enquiries:
ScS Group PLC c/o Buchanan +44 (0)20 7466 5000
Steve Carson, Chief Executive Officer
Mark Fleetwood, Chief Financial Officer
Chris Muir, Executive Director
Buchanan Tel: +44 (0)20 7466 5000
Richard Oldworth scs@buchanan.uk.com (mailto:scs@buchanan.uk.com)
Toto Berger
Verity Parker
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
three stores in Leeds, Bristol and Westfield London, and 23 concessions
throughout the UK.
Chair's letter
Dear Shareholder,
This is my final review and I would like to start by thanking the talented
people I have had the pleasure and privilege to work with throughout my nine
years. I am extremely proud of what has been achieved during this time. I am
equally pleased that ScS has maintained its core identity, providing excellent
value and delivering first-class service to our customers, things I am certain
will be the foundations for future successes.
FY23 was a challenging year, impacted by the continued economic pressures
consumers and businesses face across the UK. Profits fell in the year, driven
by a reduction in our gross margin in our ScS business due to the increased
cost of providing credit to our customers. Whilst navigating the uncertain
external environment, the Group made notable strides implementing our
strategy. I was very pleased with the progress Steve and his team made in the
year and would like to thank them for their stewardship and determination, as
well as thanking all my colleagues for their continued commitment, application
of our RIGHT values and pursuit of our ultimate purpose, 'to help create the
home you love'.
Following the year end, on 24 October 2023, a wholly-owned subsidiary of
Poltronesofà S.p.A. announced a recommended cash offer for the Company of
270p per share. In addition, the Group's shareholders will also be entitled to
receive a final dividend in respect of the year ended 29 July 2023 of 10p per
share.
Purpose and strategy
I have been delighted with the progress made in the second year of our
refreshed strategy. I am confident that this will ensure ScS is in a position
to weather the current turbulent economic environment, continue to take market
share and prosper when the economy improves.
During the year the team delivered the Group's first acquisition in its long
history, acquiring Snug. The Board visited Snug's contemporary Leeds store and
met the team, including CEO Rob Bridgman, and heard about their exciting
plans. Snug's strong brand and differentiated digital-first offering
complements our existing proposition, further diversifies our customer base
and increases our market share. I look forward to watching the business grow
in the coming years.
Together with other members of the Board I have also visited a number of our
new format stores and was impressed with how the team has adapted the design
following the learnings gained from our initial locations. It has been
pleasing to see their strong performance and we plan to continue to invest in
modernising our stores as long as we continue to see the targeted returns.
I was excited to see the positive reaction to the refresh of our ScS brand and
modernised product range, making the customer proposition more welcoming and
appealing to a wider audience.
None of this progress would have been possible without a fully engaged team
and the results of the latest annual employee survey showed an increase in
colleague satisfaction by four points to 75, ahead of the UK benchmark. This
increase is reflected in our improved employee retention rates.
We continue to recognise the importance of embedding our purpose and strategy
in both an ethical and sustainable manner and have progressed towards our ESG
objectives. These efforts continue, with our ESG committee establishing a Net
Zero strategy.
Shareholder returns
We continue to maintain a strong balance sheet, with £69.5m of cash and no
debt at the year end, providing resilience in the current environment.
Combined with the strategic progress, the Board has confidence in the Group's
future.
In the year we completed our share buyback programme, returning a total of
£7.0m to our shareholders and in addition, completed the cash acquisition of
Snug. The Board actively reviews the allocation of capital, considering
potential external and internal investment opportunities and returns to
shareholders.
As we reflect on the robust performance for the year, the Board is pleased to
propose a final dividend of 10.0p subject to approval at the AGM. Upon
approval, this would mean a full year dividend of 14.5p.
Board changes
Last year we reported the appointment of three new Non-Executive Directors.
Carol Kavanagh, who joined the Board on 26 September 2022, Andy Kemp who
joined the Board on 1 February 2023 and John Walden who joined as Chair
Designate on 1 March 2023. Additionally, I was pleased to welcome Swarupa
Pathakji to the Board as Non-Executive Director on 2 May 2023.
Carol, Andy, John and Swarupa have all held a number of relevant senior
positions and have extensive listed company experience that will strengthen
the Board's capabilities whilst playing a crucial role in the advancement of
our strategy. They have all undertaken a comprehensive induction process and
are making valuable contributions to the Group.
The original plan was that both Ron McMillan and I would step down from our
positions upon the conclusion of the AGM on 1 December 2023, both having
served nine years on the Board, the maximum term recommended under the UK
Corporate Governance Code. The current intention is that Ron and I will remain
as Non-Executive Directors on the Board for a short period post the AGM to
assist with the conclusion of the offer for the Company that was announced on
the 24 October 2023 and further updates with regards to this will be made as
appropriate.
With the notification from Chris Muir of his intention to step down as Chief
Financial Officer (CFO), and following a comprehensive recruitment process, I
was delighted to welcome Mark Fleetwood to the Group as Chris's successor on 4
September 2023. Chris has been a vital part of the success of ScS since his
appointment in 2016 and I'd like to thank him for his contribution. Chris will
remain as an Executive Director on the Board to assist with the conclusion of
the offer for the Company.
Summary
We enter the new financial year cautiously optimistic, acknowledging the
uncertain economic outlook and the pressures currently and prospectively
facing household incomes. However, with the combination of the resilient
business model we operate and the strategic progress we have made, alongside
targeted investments, we are confident that the Group has improved its
offering and is well positioned to compete for market share and to continue to
deliver for our stakeholders.
On behalf of the Board, I would like to thank our shareholders, suppliers and
customers for their continued support as well as our colleagues for their
loyalty and hard work. With our proven steadfast operational resilience,
continuing strategic progress and strong future prospects, I am confident in
handing over the Chair to John Walden. I do so certain in the knowledge that I
am leaving ScS and all of its stakeholders in good hands.
It only remains for me to say a very sincere thank you to everyone who has
supported me throughout my time with ScS, and to wish you all the very best
for the future.
Offer for the Company
Following the year end, on 24 October 2023, a wholly-owned subsidiary of
Poltronesofà S.p.A. announced a recommended cash offer for the Company of
270p per share. In addition, the Group's shareholders will also be entitled to
receive a final dividend in respect of the year ended 29 July 2023 of 10p per
share.
Established in Forli in 1995, Poltronesofà S.p.A. has become the leading sofa
retailer in Italy and one of the leading sofa retailers in Europe. It designs
and sells sofas and armchairs, as well as sofa beds and decorative accessories
and retails them through its 166 stores in Italy, 104 stores in France and 26
further stores across Europe (14 in Belgium, nine in Switzerland, two in
Cyprus and one in Malta). Poltronesofà S.p.A. is widely recognised for its
focus on a high-quality customer experience while offering
Italian-manufactured products at affordable prices. Poltronesofà's customers
appreciate the extensive optionality for customisation, with the wide range of
models and versions being customisable through Poltronesofà's extensive range
of upholsteries. This customer-centric offering is made available at a very
convenient price range.
It is intended that the acquisition will be implemented by way of a
Court-sanctioned scheme of arrangement under Part 26 of the Companies Act and
is expected to complete in the first quarter of 2024.
Yours sincerely,
Alan Smith
Chair
24 October 2023
Chief Executive's report
Overview
The year ended 29 July 2023 marks the conclusion of the second year of our
refreshed strategy, mission and purpose which has driven our priorities. Like
most companies, we have faced a challenging trading environment resulting from
the economic pressures households are facing throughout the UK. Our strong
foundations and core values alongside diligent responsive actions have enabled
us to maintain a resilient financial performance and gain market share.
I am proud to lead this special business which has always had a family feel,
and I would like to thank all of our teams for their ongoing dedication,
enthusiasm and contributions in a challenging year. Our colleagues continue to
demonstrate the Group's values and put the customers at the centre of
everything we do. This hard work and dedication continues to be recognised by
our customers, and I am delighted to see that come through in our 5-star
'Excellent' Trustpilot rating.
Results
Positive trading and effective cost management have helped us to navigate a
challenging macroeconomic environment to deliver profit ahead of market
expectations.
The ScS like-for-like order intake* momentum improved significantly throughout
the year. The first half saw a like-for-like order intake reduction of 4.7%,
largely due to the first 16 weeks of the year experiencing a 9.1% reduction
due to the comparative period benefitting from strong pent-up demand following
the last national lockdown. The 10 weeks to 28 January 2023 saw a return to
order intake growth of 2.6%, which included the key winter sale. The ScS
business refreshed its brand in February 2023 and like-for-like order growth
subsequently improved to 5.9% in H2, resulting in FY23 order intake being in
line with the prior year.
Whilst all market commentary indicates that big-ticket discretionary purchases
remain subdued it was pleasing to see that for the second year running, the
ScS business continued to gain market share, cementing its position as the
UK's second largest upholstered furniture retailer.
Gross delivered sales was £343.5m (2022: £344.7m), with the ScS business
seeing a £5.4m reduction due to a larger order book unwind in FY22. This was
partially offset by £4.2m of sales from Snug. Gross profit was £152.4m
(2022: £156.3m) with underlying profit before tax*of £7.2m (2022: £13.8m),
including a £1.9m loss before tax from Snug.
Gross margin for the year was 44.4% (2022: 45.3%). This was impacted by an
increase in the cost of providing credit to customers and the level of display
stock sales as we completed the store 'declutter' programme to improve the
look and feel of our stores. The cost of credit and level of display stock
sales were partially offset by price rises in the year.
Strategic progress
The second year of our refreshed strategy has seen solid progress across a
number of areas and would not have been possible without the commitment and
support of our colleagues across the Group. The actions we have taken are
designed to increase our competitiveness in the marketplace and to position
the business to gain market share, doing so in a measured way to ensure the
Group remains resilient.
The prior year saw the Group implement a new design concept at our existing
Coventry store. Two further stores were invested in at the start of FY23,
followed by a period of reflection to measure and refine these initial design
concepts. The three concept stores have outperformed the rest of the estate,
seeing increased sales, employee satisfaction and a reduction in employee
turnover. Taking learnings from the first three stores we then invested in a
further six stores in final quarter of the year. Our intention is to invest in
at least a further 12 stores in FY24, with the possibility of increasing this
if returns are as expected.
Following a period of detailed research, the Group modernised the ScS brand
and marketing approach. Our updated marketing tone, style and logo showcase
our products in a warm, welcoming manner which we believe is more aligned with
our customers and the market, and dovetails well with our new store look and
new product ranges. This was a big decision given the positioning and tone of
the existing branding and marketing style and we were pleased to see the sales
response and market share gain since launch at the start of H2.
To improve our product offering, we have elevated and modernised the ranges on
offer in our stores, thus attracting a wider customer demographic as we
broaden our appeal. This comes on the back of collaborations, including Ideal
Home, with whom we have launched eight exclusive Ideal Home branded sofa
ranges, and our new collection with Paloma Faith. We have also expanded our
hard floor proposition across laminate, luxury vinyl tiling and engineered
wood. As well as improving the range we offer, in recognition of our product
quality, we achieved Kitemark certification for domestic furniture by the
British Standards Institute. We are one of only a handful of furniture
retailers in the UK to hold this stamp of approval.
I remain delighted with our acquisition of Snug in January 2023. Snug is an
exciting and young business with great potential. It has a strong and
recognisable brand, a differentiated product and targets a market that
complements our proposition. In that regard, it presents us with a great
opportunity to further increase market share. We therefore view it as a
fantastic strategic and cultural fit, which reinforces our commitment to
helping our customers create the home they love. Snug's order growth was
initially slower than we had hoped, but I am encouraged to see current run
rates that are in line with our expectations.
Snug's focus since acquisition has been on re-establishing operations from an
effective standing start, including rebuilding supplier relationships,
restoring stock levels, re-launching the brand and online presence, and
building order momentum. Snug's strategy for the future closely aligns with
the wider Group, focused on the aims of improving brand awareness and
continuing to grow sales. Alongside a focus on improving the online experience
for customers, Snug will also increase its offline presence, both with new
standalone stores where the opportunity presents itself, together with ScS's
new modernised store rollout each incorporating a Snug concession.
Environmental, social and governance (ESG)
Since developing our ESG strategy last year, we have made progress against the
targets and objectives set. I am particularly pleased with some of the
differences we have been able to make as part of our work in this area. We
have worked hard to implement a number of wellbeing initiatives throughout the
year and it was particularly gratifying to receive the 'Bronze Better Health
at Work' award along with the 'Best Newcomer' award resulting from all of
these fantastic initiatives.
Our ESG steering group has also been working with external consultants on the
development of a roadmap towards achieving our Net Zero strategy.
Board changes
Alan Smith, Ron McMillan and Chris Muir will leave the business in the coming
year. All three have been supportive and provided wise counsel during my time
in the business and I wish them well in their future endeavours. Mark
Fleetwood joined the Group in September 2023 as CFO and I am very much looking
forward to working with him.
Current trading and outlook
We remain cognisant of the challenging economic environment facing our
customers which is expected to continue throughout FY24. We therefore believe
that continuing to focus on our value driven proposition is extremely
important so that everyone is able to create the home they love.
The Board is confident that the Group's strategy and strong balance sheet will
enable ongoing trading resilience and we continue to expect to grow market
share while investing in stores, in our digital proposition, and other
strategic growth opportunities.
Steve Carson
Chief Executive Officer
24 October 2023
* This report includes alternative performance measures (APMs) which are
defined and reconciled to IFRS information, where applicable, within the
Financial review.
FINANCIAL REVIEW
Group
Group Snug Group 52 weeks ended
52 weeks ended 29 weeks ended excl. Snug 30 July 2022
29 July 2023 29 July 2023 52 weeks ended
29 July 2023
£m £m £m £m
Gross sales* 343.5 4.2 339.3 344.7
Revenue 325.9 4.1 321.7 331.6
Gross profit 152.4 2.8 149.6 156.3
Distribution costs (21.8) (1.2) (20.7) (21.3)
Administration expenses (121.0) (3.5) (117.4) (117.3)
Total operating expenses (142.8) (4.7) (138.1) (138.6)
Underlying operating profit/(loss)* 9.6 (1.9) 11.5 17.6
Adjusting items (1.2) (0.8) (0.4) 2.6
Operating profit/(loss) 8.3 (2.8) 11.1 20.2
Net finance expense (2.4) - (2.4) (3.8)
Profit/(loss) before tax 6.0 (2.8) 8.8 16.4
Underlying profit (loss) before tax* 7.2 (1.9) 9.2 13.8
EBITDA* 34.0 (2.8) 36.7 46.8
Underlying EBITDA* 35.2 (1.9) 37.1 44.2
Statutory earnings per share 12.8p 36.2p
Underlying earnings per share* 15.9p 30.7p
* This report includes alternative performance measures (APMs) which are
defined and reconciled to IFRS information, where applicable, below.
Overview
The Group faced a challenging trading environment throughout FY23. Whilst we
were disappointed to not see progress in our financial results, we are pleased
to be delivering a resilient set of numbers that were ahead of market
expectations. Including Snug, gross sales were in line with the prior year.
However, we saw increased pressure on gross margin largely due to the
increased costs of providing interest-free credit. The ScS business saw a 1.6%
reduction in gross sales, which, coupled with the 44.1% gross margin (FY22:
45.3%), saw gross profit reduce by £6.6m. This was partially offset by a
£0.6m reduction in operating costs and a £1.5m reduction in net finance
costs due to monies received from cash on deposit.
Shareholder returns have increased in the year, with a proposed full year
ordinary dividend increase of 7.4%, coupled with the completion of the £7.0m
share buyback programme announced in March 2022. The Board is mindful of the
challenging economic environment we face and remain committed to retaining a
robust balance sheet in these uncertain times.
On 10 January 2023, we acquired the business and assets of Snug. Initial
post-acquisition trading was slower than we originally forecast as the
business rebuilt from a standing start and Snug made an underlying loss before
tax of £1.9m in the year. Trading in Snug improved significantly in the final
quarter of the year.
Given Snug's relative size, and the fact it has sufficiently similar
characteristics to the rest of the ScS Group to allow aggregation under IFRS
8, we have aggregated Snug into the rest of the Group as one reportable
segment. However, to provide clarity and comparability in the first year, the
following narrative is split: ScS, Snug and Group.
ScS
FY23 FY22 Variance
Gross sales* £339.3m £344.7m (1.6%)
Revenue £321.7m £331.6m (3.0%)
Gross profit £149.6m £156.3m (4.2%)
Gross margin* 44.1% 45.3% (1.2%)
Profit before tax £8.8m £16.4m (£7.6m)
Underlying profit before tax* £9.2m £13.8m (£4.6m)
Gross sales* and revenue
Gross sales* in the period decreased by £5.4m (1.6%) to £339.3m when
compared to prior year (FY22: £344.7m). Like-for-like order intake* remained
in line with FY22 despite a challenging economic environment and encouragingly
we saw order growth in the second half of the year. The movement on gross
sales* is further analysed as follows:
· A decrease in furniture sales in ScS stores of 1.5% to £275.6m
(FY22: £279.9m);
· A decrease in flooring sales in ScS stores of 7.7% to £30.1m
(FY22: £32.6m); and
· An increase in online sales of 4.1% to £33.6m (FY22: £32.2m).
Revenue, which represents gross sales* less charges relating to interest-free
credit sales, decreased by 3.0% from FY22 to £321.7m. Revenue for the period
has been adversely impacted by an increase in the cost of finance due to
increased customer adoption and a number of rate increases across the year.
Gross profit
Gross margin* was 44.1% (FY22: 45.3%). The decrease of 120 basis points was
largely due to an increase in the cost of providing credit to customers, with
a higher proportion of customers utilising credit when compared to the prior
year, further compounded by an increase in the underlying interest rates in
the UK. As a proportion of gross sales* the cost of interest-free credit has
increased by 1.4% to 5.2%. The business also experienced a lower margin on
display stock sales as part of the rollout of our 'decluttering' programme.
The cost of credit and stock impacts were partially offset by product price
rises in the year.
Distribution costs
Distribution costs comprise the total cost of our 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 decreased by £0.6m in the period to £20.7m (FY22:
£21.3m). As a percentage of gross sales* for the period, distribution costs
were 6.1% (FY22: 6.2%). The reduction was driven by improved inbound planning
and performance, coupled with fewer deliveries which resulted in the lower use
of outside carriers and agency staff.
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 customer support functions
and other central costs.
Administration costs for the year totalled £117.4m, in line with the prior
year. Administration costs were 34.6% of gross sales*, up from 34.0% in the
prior year. Key movements in the year included:
· £0.4m decrease in marketing investment, however spend remained
consistent at 6.8% of gross sales*;
· £0.4m reduction in performance-related pay due to a decrease in
bonuses accrued for senior management as a result of the performance levels
achieved;
· £2.4m increase in other payroll costs, largely due to the impact
of wage inflation;
· £1.5m reduction in property costs, largely due to a decrease in
depreciation charges on the right of use assets as a result of rent
reductions, with a further benefit from rate reductions; and
· £0.1m reduction in other costs.
Flexible costs
The nature of ScS'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 consistent year-on-year.
Total underlying costs before tax for the period were £330.1m (FY22: of
£330.9m).
Of this total, 74.4% (FY22: 74.3%), or £245.7m (FY22: £245.9m), are variable
or discretionary, and are made up of:
· £189.6m cost of goods sold, including finance and warranty costs
(FY22: £188.4m);
· £20.7m distribution costs (FY22: £21.3m);
· £22.9m marketing costs (FY22: £23.3m); and
· £12.5m performance-related payroll costs (FY22: £12.9m).
Semi-variable costs totalled £45.0m, or 13.6% of total costs, for the year
(FY22: £42.7m; 12.9%) and are predominantly other non-performance-related
payroll costs. Depreciation, interest, rates, heating and lighting make up the
remaining £39.4m (11.9%) of total costs (FY22: £42.3m; 12.8%).
Snug
Following the acquisition of Snug in January 2023, we have re-established
operations from an effective standing start. This included rebuilding supplier
relationships, restoring stock levels, improving brand awareness, and
ultimately building order momentum. These challenges meant order growth was
initially slower than we had hoped but we are pleased that current run rates
are now in line with our expectations.
Snug made a loss before tax in FY23 of £2.8m, removing pre-trading costs
gives an underlying loss before tax of £1.9m in H2. Gross sales* in H2 were
£4.2m and a gross profit of £2.8m was achieved, delivering a gross margin*
of 65.8%. This gross margin was supported by sales of stock purchased at a
reduced cost as part of the administration. Whilst we expect gross margin to
reduce in FY24, we still expect it to exceed the ScS margin due to the
sourcing profile of the Snug business.
Distribution costs totalled £1.2m. Administration costs were £3.5m, with the
main elements being:
· Marketing costs were £1.6m, this equated to 39% of gross sales*
as we invested in re-establishing the brand online;
· Payroll costs totalled £1.3m; and
· Other costs (including property, legal, technology, depreciation
and general running expenses) totalled £0.6m.
Recent trading indicates that the investment and efforts deployed over the
final six months of FY23 are proving successful.
Group
Underlying operating profit*
Operating profit before adjusting items was £9.6m for the year, compared to
£17.6m last year, driven by the £1.9m loss incurred in Snug and the £6.6m
decrease in ScS gross profit, partially offset by a reduction in ScS
distribution costs of £0.6m.
Adjusting items
In the current year the Group has adopted an adjusting items APM to exclude
certain costs and incomes that are material in size or unusual/non-recurring
in nature, from statutory measures to reflect management's view of the
underlying performance of the Group and to aid the reader of the accounts.
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
£'000 £'000
Impairment charge associated with stores (2,438) -
Snug acquisition and pre-trading costs (849) -
Business interruption insurance claim 1,250 -
Exit of Cambridge store 790 -
Business rates relief - 2,570
(1,247) 2,570
Adjusting items (non-GAAP) comprise:
· £2.4m 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;
· An early termination payment from the landlord to exit the
Cambridge store earlier than the lease end date, coupled with the associated
gain on disposal from the lease £0.8m; and
· During the prior year, the Group benefitted from £2.6m of retail
business rates relief provided in response to the COVID-19 outbreak. No
further benefit was received in the year ended 29 July 2023.
For further information, see note 6.
Net finance cost
The net finance cost has decreased by £1.5m to £2.4m compared to FY22 as a
result of increased interest income earned on the Group's significant cash
balances.
Taxation
The tax charge for the financial year is higher (2022: lower) than if the
standard rate of corporation tax had been applied, mainly due to the impact of
non-qualifying depreciation on assets, and non-deductible expenses.
Earnings per share (EPS)
EPS for the year ended 29 July 2023 was 12.8p (2022: 36.2p) and underlying
EPS* which excludes adjusting items, was 15.9p (2022: 30.7p).
A full reconciliation of EPS is shown in note 10.
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 decreased by £1.3m in the year to £69.5m (2022: £70.8m). A summary of
cash flows is shown below:
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
£m £m
Cash generated from operating activities 41.8 28.5
Payment of capital and interest elements of leases (23.3) (28.6)
Net capital expenditure (9.3) (4.7)
Net taxation and interest payments - (3.9)
Free cash flow 9.2 (8.7)
Acquisition of business combination (0.9) -
Dividends (4.7) (4.4)
Purchase of own shares (4.9) (3.6)
Net cash outflow (1.3) (16.8)
The Group continued to be cash generative in the period with a net cash inflow
from operating activities of £41.8m.
Cash generated from operating activities is £13.3m higher than FY22 due to
the following:
· FY22 saw a large working capital outflow due to a reduction in
customer deposits as lead times shortened, coupled with the timing of VAT
payments;
· The current year has seen a working capital inflow as a result of
the timing of month end supplier payments. This was partially offset by a
reduction in customer deposits as lead times normalised to pre pandemic
levels;
· FY23 also saw an increase in stock levels following the
investment in our Snug business; and
· The working capital movements noted above were partially offset
by profit being higher in FY22.
The payment of capital and interest elements of leases decreased by £5.4m due
to the prior year 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.
Net taxation and interest payments reduced by £3.8m, due to a reduction in
tax payable of £1.7m (in line with the reduction in profit) and an increase
in interest received on cash deposits of £1.9m. Interest payable reduced
£0.2m following the renegotiation of the Group's revolving credit facility.
Net capital expenditure increased in the year as the Group invested in
modernising the ScS store network and technology stack.
Cash outflow in relation to the purchase of own shares has increased £1.3m in
the year driven by a £2.6m increase in share buybacks, partially offset by a
£1.3m reduction in shares bought by the Group's Employee Benefit Trust.
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 year we invested in implementing our new store format in eight
locations as part of the 'Engaging showrooms' pillar of our strategy.
Return to shareholders
The Board recognises the importance of a dividend to investors and is keen to
reinstate a progressive policy, with the intention to:
· Keep earnings cover in the range of 1.25x to 2.00x;
· Ensure cash cover remains in the range of 1.75x to 2.25x through
the economic cycle; and
· Pay an interim dividend that will be approximately one-third of
the total dividend.
The Board considers this policy appropriate given the strength of the balance
sheet, whilst ensuring the Group has sufficient resources to pursue potential
future opportunities to deliver growth.
The Board is confident the Group can continue to take market share and build
on the strategic progress experienced in the past two years. The Group paid an
interim dividend of 4.5p in May 2023 (2022: 4.5p). The Board is confident in
the outlook for the Group and proposes a final dividend of 10.0p (2022:
9.0p). If approved, this would give a full-year dividend of 14.5p (2022:
13.5p). The final dividend, if approved, will be paid on 15 December 2023 to
shareholders on the register on 17 November 2023. The ex-dividend date is 16
November 2023.
In March 2022 the Group announced a share buyback programme which was
completed in February 2023 returning £7.0m to our shareholders.
Offer for the Company
Following the year end, on 24 October 2023 a wholly-owned subsidiary of
Poltronesofà S.p.A. announced a recommended cash offer for the Company of
270p per share. It is intended that the acquisition will be implemented by way
of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act
and is expected to complete in the first quarter of 2024. The Group's existing
committed debt facilities contain a standard change of control clause that
will be triggered once the acquisition completes. This could result in the
existing committed debt facilities being withdrawn. The Group does not have
visibility of the post completion funding for the Group at this time.
Therefore, this could create some uncertainty as to the Group's going concern.
The Directors note the intention statements by Poltronesofà S.p.A. included
within the announcement on 24 October 2023, which state that following
completion of the acquisition, Poltronesofà S.p.A. intends to support the
Group by leveraging its significant, pan-European industry expertise and
providing the capital necessary to accelerate the Group's strategy.
Poltronesofà S.p.A. is highly supportive of management's vision for the
business and the long-term ambitions of being the UK's best value-for-money
home retailer and recognises and values the strong strategic, operational and
product positioning and setup of the Group, as well as the expertise of its
management team and employees. Poltronesofà S.p.A. therefore intends to work
closely with the Group's senior management to undertake a strategic review of
the Group in order to determine how its short and long-term objectives can
best be delivered or exceeded.
Notwithstanding Poltronesofà S.p.A.'s stated intentions, the current
Directors will not have full control over the acquired Group and therefore
they do not currently have full knowledge of the new ultimate parent
undertaking's future intentions and funding plans in relation to the Group.
Therefore the change of control position indicates a material uncertainty
which may cast significant doubt upon the Group and the Company's ability to
continue as a going concern. The financial statements do not include the
adjustments that would result if the Group and the Company were unable to
continue as a going concern.
Having considered all of the above, the Board is of the opinion that the going
concern basis adopted in the preparation of the consolidated statements is
appropriate.
Principal risks and uncertainties
The principal risks and uncertainties which the Group faces are 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
(https://url.avanan.click/v2/___http:/www.scsplc.co.uk___.YXAxZTpzaG9yZWNhcDphOm86OTIwYzg4YTJlYTc4YzI2MDY1ODdmNDYwNTc0ODU5MDQ6NjoyMjBlOjE0YzU1ZjMzYjZmODBiODliZGRmNTcxMjJlYTcwZmNlYTlmYWEzMDMwOTA4ZmNjN2ZkZjVlZTE0MzM5YmVkMDQ6cDpU)
. 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
During the year, the Group has added climate change as a new principal risk.
As a UK premium listed company, the Group is required to demonstrate how it
plans to address the management of Environmental, Social and Governance (ESG)
risks. Our key stakeholders, including customers, employees, investors and
regulators as well as the media continue to focus on the Group's plans and
progress in this area. Failure to meet customer demand for sustainable
products could result in reduced sales. Ensuring the sustainability of our
products and operations is important as not addressing these areas could lead
to increased costs for the business in the medium to long term.
Alternative Performance Measures ("APMs")
In the reporting of financial information, the Board has adopted 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 community. The key APMs used by the Group are summarised in the
table below.
APM Definition Reconciliation
Like-for like order intake 'Like-for-like' order intake 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
warranties before deduction of interest-free credit.
FY23 FY22
£'000 £'000
Revenue 325,865 331,569
Add back: costs of interest free credit 17,592 13,141
Gross sales (note 5) 343,457 344,710
Gross margin Gross profit as a percentage of gross sales.
FY23 FY22
£'000 £'000
Revenue 325,865 331,569
Add back: costs of interest- free credit 17,592 13,141
Gross sales (note 5) 343,457 344,710
Gross profit 152,398 156,264
Gross margin 44.4% 45.3%
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.
FY23 FY22
£'000 £'000
Adjusting items (note 6) (1,247) 2,570
EBITDA and underlying EBITDA Earnings before interest, tax, depreciation and amortisation (EBITDA).
Underlying EBITDA is before the effect of adjusting items in the year.
FY23 FY22
£'000 £'000
Statutory operating profit 8,346 20,199
Depreciation of tangible fixed assets 4,179 4,162
Depreciation of right-of-use assets 20,269 21,523
Amortisation of intangible assets 1,185 882
EBITDA 33,979 46,766
Adjusting items 1,247 (2,570)
Underlying EBITDA 35,226 44,196
Underlying operating profit Underlying operating profit is based on operating profit before the effect of
adjusting items in the year.
FY23 FY22
£'000 £'000
Statutory operating profit 8,346 20,199
Adjusting items 1,247 (2,570)
Underlying operating profit 9,593 17,629
Underlying profit before tax Underlying profit before tax is based on profit before tax before the effect
of adjusting items in the year.
FY23 FY22
£'000 £'000
Statutory profit before tax 5,985 16,358
Adjusting items 1,247 (2,570)
Underlying profit before tax 7,232 13,788
Underlying basic earnings per share (EPS) Underlying basic EPS is based on earnings per share before the effect of
adjusting items in the year.
FY23 FY22
£'000 £'000
Profit for the year 4,450 13,584
Adjusting items net of tax 1,055 (2,082)
Underlying profit after tax 5,505 11,502
Number of shares (000's) 34,691 37,499
Underlying EPS 15.9p 30.7p
Gross margin
Gross profit as a percentage of gross sales.
FY23 FY22
£'000 £'000
Revenue 325,865 331,569
Add back: costs of interest- free credit 17,592 13,141
Gross sales (note 5) 343,457 344,710
Gross profit 152,398 156,264
Gross margin 44.4% 45.3%
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.
FY23 FY22
£'000 £'000
Adjusting items (note 6) (1,247) 2,570
EBITDA and underlying EBITDA
Earnings before interest, tax, depreciation and amortisation (EBITDA).
Underlying EBITDA is before the effect of adjusting items in the year.
FY23 FY22
£'000 £'000
Statutory operating profit 8,346 20,199
Depreciation of tangible fixed assets 4,179 4,162
Depreciation of right-of-use assets 20,269 21,523
Amortisation of intangible assets 1,185 882
EBITDA 33,979 46,766
Adjusting items 1,247 (2,570)
Underlying EBITDA 35,226 44,196
Underlying operating profit
Underlying operating profit is based on operating profit before the effect of
adjusting items in the year.
FY23 FY22
£'000 £'000
Statutory operating profit 8,346 20,199
Adjusting items 1,247 (2,570)
Underlying operating profit 9,593 17,629
Underlying profit before tax
Underlying profit before tax is based on profit before tax before the effect
of adjusting items in the year.
FY23 FY22
£'000 £'000
Statutory profit before tax 5,985 16,358
Adjusting items 1,247 (2,570)
Underlying profit before tax 7,232 13,788
Underlying basic earnings per share (EPS)
Underlying basic EPS is based on earnings per share before the effect of
adjusting items in the year.
FY23 FY22
£'000 £'000
Profit for the year 4,450 13,584
Adjusting items net of tax 1,055 (2,082)
Underlying profit after tax 5,505 11,502
Number of shares (000's) 34,691 37,499
Underlying EPS 15.9p 30.7p
ScS Group plc
Consolidated statement of comprehensive
income
Note Audited Audited
52 weeks ended 52 weeks ended
30 July 2022
29 July 2023
£'000 £'000
Gross sales 5 343,457 344,710
Revenue 5 325,865 331,569
Cost of sales (173,467) (175,305)
Gross profit 152,398 156,264
Distribution costs (21,828) (21,304)
Administrative expenses (122,224) (114,761)
Operating profit 8,346 20,199
Analysed as:
Underlying operating profit 9,593 17,629
Operating adjusting items included within administrative expenses 6 (1,247) 2,570
Operating profit 8,346 20,199
Finance costs 7 (4,322) (3,856)
Finance income 8 1,961 15
Net finance costs (2,361) (3,841)
Profit before taxation 5,985 16,358
Income tax charge 9 (1,535) (2,774)
Profit for the year 4,450 13,584
Profit is attributable to:
Owners of the parent 4,450 13,584
Earnings per share:
Basic earnings per share (pence) 10 12.8p 36.2p
Diluted earnings per share (pence) 10 12.1p 35.0p
There are no other sources of comprehensive income/(expense).
ScS Group plc
Consolidated statement of financial position
Note As at As at
29 July 2023 30 July 2022
£'000 £'000
Non-current assets
Intangible assets 3,253 2,494
Goodwill 14 500 -
Property, plant and equipment 21,303 18,076
Right-of-use assets 88,960 96,996
Deferred tax asset 1,873 1,845
Total non-current assets 115,889 119,411
Current assets
Inventories 24,633 19,791
Trade and other receivables 6,336 6,011
Cash and cash equivalents 69,538 70,819
Total current assets 100,507 96,621
Total assets 216,396 216,032
Current liabilities
Current income tax liabilities 159 309
Trade and other payables 11 68,047 57,328
Provisions 231 303
Lease liabilities 20,246 19,721
Total current liabilities 88,683 77,661
Non-current liabilities
Provisions 1,048 1,192
Lease liabilities 81,098 87,012
Total non-current liabilities 82,146 88,204
Total liabilities 170,829 165,865
Capital and reserves attributable to the owners of the parent
Share capital 34 37
Share premium 16 16
Capital redemption reserve 19 16
Treasury reserve 13 (203) (681)
Merger reserve 25,511 25,511
Retained earnings 20,190 25,268
Equity attributable to the owners of the parent 45,567 50,167
Total equity 45,567 50,167
Total equity and liabilities 216,396 216,032
ScS Group plc
Consolidated statement of changes in equity
Attributable to owners of the parent
Share Capital Merger reserve Retained
capital
earnings
Share redemption Treasury reserve 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
Profit and total comprehensive income - - - - - 13,584 13,584
Total comprehensive income - - - - - 13,584 13,584
Share-based payment charge - - - - - 153 153
Repurchase of own shares - - - - - (2,201) (2,201)
Cancellation of repurchased shares (1) - 1 - - - -
Purchase of treasury shares - - - - (1,476) - (1,476)
Issue of treasury shares to employees - - - - 1,344 (1,304) 40
Dividend paid - - - - - (4,443) (4,443)
Total transactions with shareholders (1) - 1 - (132) (7,795) (7,927)
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
Profit and total comprehensive income - - - - - 4,450 4,450
Total comprehensive income - - - - - 4,450 4,450
Share-based payment charge - - - - - 598 598
Repurchase of own shares - - - - - (4,776) (4,776)
Cancellation of repurchased shares (3) - 3 - 116 (116) -
Purchase of treasury shares (note 13) - - - - (148) - (148)
Issue of treasury shares to employees (note 13) 510 (510) -
- - - -
Dividend paid (note 12) - - - - - (4,724) (4,724)
Total transactions with shareholders (3) - 3 - 478 (9,528) (9,050)
Balance at 29 July 2023 34 16 19 25,511 (203) 20,190 45,567
ScS Group plc
Consolidated statement of cash flows
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
Cash flows from operating activities £'000 £'000
Profit before taxation 5,985 16,358
Adjustments for:
Depreciation of property, plant and equipment 4,179 4,162
Depreciation of right-of-use assets 20,269 21,523
Amortisation of intangible assets 1,185 882
Impairment on non-current assets 2,438 -
Loss on disposal of assets 270 -
Profit on termination of lease (346) -
Share-based payment charge 598 153
Finance costs 4,322 3,856
Finance income (1,961) (15)
36,939 46,919
Changes in working capital:
Increase in inventories (4,715) (2,463)
Increase in trade and other receivables (325) (1,064)
Increase/(decrease) in trade and other payables 9,881 (14,908)
Cash generated from operating activities 41,780 28,484
Income taxes paid (1,713) (3,457)
Net cash flow generated from operating activities 40,067 25,027
Cash flows from investing activities
Acquisition of business combination (875) -
Purchase of property, plant and equipment (7,550) (3,741)
Payments to acquire intangible assets (1,708) (1,004)
Interest received 1,961 15
Net cash outflow from investing activities (8,172) (4,730)
Cash flows from financing activities
Dividends paid (note 12) (4,724) (4,443)
Purchase of own shares (note 13) (4,924) (3,677)
Sale of treasury shares (note 13) - 40
Interest paid (265) (418)
Interest paid on lease liabilities (4,057) (3,438)
Payment of capital element of leases (19,206) (25,192)
Net cash flow used in financing activities (33,176) (37,128)
Net decrease in cash and cash equivalents (1,281) (16,831)
Cash and cash equivalents at beginning of year 70,819 87,650
Cash and cash equivalents at end of year 69,538 70,819
Notes to the audited 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
The Board approved the preliminary announcement on 24 October 2023.
The results for the financial year ended 29 July 2023, including comparative
financial information, have been prepared and approved by the directors in
accordance with UK adopted international accounting standards and the
applicable requirements of the Companies Act 2006.
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 29 July 2023 or 30 July 2022, but is
derived from those accounts. Statutory accounts for 2022 have been delivered
to the Registrar of Companies, and those for 2023 will be delivered in due
course. The auditors have reported on the 2022 accounts; their reports were
(i) unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006. The auditors have also reported on the 2023
accounts; their report was (i) unqualified, (ii) included one reference to a
matter to which the Auditor drew attention without qualifying their report and
(iii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The auditor's report can be found in the ScS group plc's
full Annual Report and Accounts.
This report 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 year noted below. The Group has also adopted a
new APM, adjusting items, which are covered in note 6.
3. Going concern
At the time of approving the financial statements, the Board is required to
formally assess that the business has adequate resources to continue in
operational existence for the foreseeable future 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 29 July 2023, the Group's
cash balance totalled £69.5m and £33.3m 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 12 months to 29 July 2023 and have modelled cash
flow forecasts under the following scenarios:
· A 'base case' scenario to July 2026 which reflects the
challenging economic environment whilst also recognising the impact of our
strategic progress on the group's results.
· A minor sensitivity which sees a reduction in revenue due to a
downturn in consumer confidence whilst being able to maintain our assumed
gross margin as per the 'base case' scenario.
· A moderate sensitivity which sees a reduction in gross margin
versus 'base case' representing an increasingly challenging economic
environment.
· A 'severe but plausible' downside sensitivity which models much
more 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.
Under each sensitivity, the Group has modelled associated reductions in
marketing and distribution costs, bonus costs and sales-related commission
payments in response to the downturn in the Group's performance brought on by
the challenging economic environment, and the Group maintains suitable
liquidity headroom. Under the 'severe but plausible downside' scenario more
severe cash preservation methods are implemented, such as reducing capital
expenditure, suspending shareholder returns and reducing headcount.
Throughout the 'severe but plausible downside' scenario, the Group would have
significant cash headroom. Including the withdrawal of supplier credit
insurance, the cash low point at the end of July 2024 remains substantial at
£21.2m. Forecasts show there is no requirement for any additional sources of
financing throughout the extended viability period.
Following the year end, on 24 October 2023 a wholly-owned subsidiary of
Poltronesofà S.p.A. announced a recommended cash offer for the Company of
270p per share. It is intended that the acquisition will be implemented by way
of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act
and is expected to complete in the first quarter of 2024. The Group's existing
committed debt facilities contain a standard change of control clause that
will be triggered once the acquisition completes. This could result in the
existing committed debt facilities being withdrawn. The Group does not have
visibility of the post completion funding for the Group at this time.
Therefore, this could create some uncertainty as to the Group's going concern.
The Directors note the Poltronesofà S.p.A. intention statements included
within the announcement on 24 October 2023, which state that following
completion of the acquisition, Poltronesofà S.p.A. intends to support the
Group by leveraging its significant, pan-European industry expertise and
providing the capital necessary to accelerate the Group's strategy.
Poltronesofà S.p.A. is highly supportive of the Groups management's vision
for the business and the long-term ambitions of being the UK's best
value-for-money home retailer and recognises and values the strong strategic,
operational and product positioning and setup of the Group, as well as the
expertise of its management team and employees. Poltronesofà S.p.A. therefore
intends to work closely with the Group's senior management to undertake a
strategic review of the Group in order to determine how its short and
long-term objectives can best be delivered or exceeded.
Notwithstanding Poltronesofà S.p.A.'s stated intentions, the current
Directors will not have full control over the acquired Group and therefore
they do not currently have full knowledge of the new ultimate parent
undertaking's future intentions and funding plans in relation to the Group.
Therefore the change of control position indicates a material uncertainty
which may cast significant doubt upon the Group and the Company's ability to
continue as a going concern. The financial statements do not include the
adjustments that would result if the Group and the Company were unable to
continue as a going concern.
Having considered all of the above, the Board is of the opinion that the going
concern basis adopted in the preparation of the consolidated statements is
appropriate.
4. Accounting policies
This report for the 52 weeks ended 29 July 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 year noted below.
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.
Critical accounting judgements and estimates
The preparation of the financial statements requires judgements, estimates and
assumptions to be made that affect the reported value of assets, liabilities,
revenues and expenses. The nature of estimation and judgement means that
actual outcomes could differ from expectation.
Critical accounting estimates and assumptions
Management consider that accounting estimates and assumptions made in relation
to the following items have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities.
Stock provisions
The Group holds £24.6m of inventory at the year end, with the majority of
this stock held for display in our showrooms. Due to the nature of this stock,
it will often be subject to the wear and tear associated with use in a
showroom environment, and some items may have also been in our showroom for an
extended period of time. As such, this stock is often unable to achieve the
same margin as the 'special order' stock purchased and delivered directly to
our customers, and may occasionally be sold at a level lower than cost
following a business decision to refresh the range or better utilise the
space. The Group's policy in relation to stock provisioning is, therefore, to
provide for obsolete, slow-moving and defective stock, and therefore, ensure
that stock is held at the most appropriate estimate of net realisable value.
In estimating this value, management has made judgements in respect of the
quality of the Group's products and saleability, and applied a provision based
on historic sales levels. Whilst management considers that the methodologies
and assumptions adopted in the valuation are supportable, reasonable and
robust, because of the inherent uncertainty of the sale price of stock
currently held, those estimated values may differ from the final sale and the
total differences could potentially be significant.
Impairment of property, plant and equipment and right-of-use assets
Management considers each showroom to be a cash-generating unit (CGU). At each
balance sheet date, the Group reviews the carrying amounts of its property,
plant and equipment, right-of-use assets and intangible assets to determine
whether there is any indication of impairment at a showroom following poor
performance. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss, if
any.
Recoverable amounts for CGUs are the higher of fair value less costs of
disposal, and value in use. Value in use is calculated from cash flow
projections based on the Group's internal budgets, which are then extrapolated
over the remaining showroom lease length, and management's expectations of
estimated growth rates.
The key estimates for the value in use calculations are those regarding the
discount rate used and expected changes to future cash flows. Management
considers the potential impact of changes in these key estimates in performing
sensitivity analysis. Management sets the budgets based on past experiences
and expectations of future changes in the market and estimates discount rate
using pre-tax rates that reflect the current market assessment of the time
value of money and the risks specific to the CGUs, deriving from the Group's
post-tax weighted average cost of capital. If the recoverable amount of an
asset or CGU is estimated to be less than its carrying
amount, the carrying amount of the asset or CGU is
reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately. Where an impairment loss subsequently reverses, the
carrying amount of the asset or CGU is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset or CGU in prior years. A reversal of an
impairment loss is recognised as income immediately.
5. Segmental analysis
The Board has determined the operating segments based on the operating reports
reviewed by the Executive Board (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 Board has
identified that the Executive Board are the chief operating decision makers in
accordance with the requirements of IFRS 8 Operating segments.
The Board considers that the Group operates one type of business generating
gross sales and revenue from the retail of furniture and flooring. All gross
sales and revenue profit before taxation, assets and liabilities are
attributable to the principal activity of the Group and other related
services. All gross sales and revenues are generated in the United Kingdom.
Analysis of gross sales is as follows:
52 weeks ended 29 July 2023 52 weeks ended
30 July 2022
£'000 £'000
Sale of goods 340,998 340,580
Associated warranties 2,459 4,130
Gross sales 343,457 344,710
Less: costs of interest free credit (17,592) (13,141)
Revenue 325,865 331,569
Of which
In-store furniture 263,541 269,781
In-store flooring 28,940 31,704
Online 33,384 30,084
Revenue 325,865 331,569
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 and unusual/non-recurring in nature are excluded from statutory measures.
Adjusting items (non-GAAP) in the year comprised the following:
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
£'000 £'000
Impairment charge associated with stores (2,438) -
Snug acquisition and pre-trading costs (849) -
Business interruption insurance claim 1,250 -
Exit of Cambridge store 790 -
Business rates relief - 2,570
(1,247) 2,570
Impairment charge associated with stores
As a consequence of the current view of future projections for the business an
impairment charge of £2,438,000 has been recognised on the assets associated
with a number of our stores. This has been split between the right-of-use
asset (£1,930,000) and tangible assets (£508,000), 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.
Exit of Cambridge store
The Group exited its Cambridge store in July 2023, ahead of the lease expiry
date. As part of the exit agreement, a termination payment of £650,000 was
received from the landlord. The Group also realised an IFRS16 gain on disposal
of the lease of £341,000 offset partly by disposal of assets with a remaining
net book value of £201,000.
Business rates relief
During the prior year, the Group benefitted from £2,570,000 of retail
business rates relief provided in response to the COVID-19 outbreak. No
further benefit was received in the year ended 29 July 2023.
7. Finance costs
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
£'000 £'000
Bank facility renewal fees 49 -
Bank facility non-utilisation fees 194 413
Other finance costs 22 5
Interest on lease liability 4,057 3,438
4,322 3,856
8. Finance income
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
£'000 £'000
Bank interest received 1,961 15
9. Taxation
The total tax charge for the financial year of £1.5m (2022: £2.8m) results
in an effective rate of 25.6%, which is higher (2022: 17.0% - lower) than if
the standard rate of corporation tax had been applied, mainly due to the
impact of non-qualifying depreciation on assets, and non-deductible expenses.
The prior year benefitted from the capital allowances super deduction on
qualifying additions and the increase in the rate used to measure the Group's
deferred tax asset.
The UK corporation tax standard rate for the period was 21% (2022: 19%). The
Finance Act 2021 maintained the main rate of UK corporation tax at 19% until
31 March 2023, before increasing it to 25% from 1 April 2023. These changes
were substantively enacted by the prior year balance sheet date and
consequently deferred tax at 30 July 2022 and 29 July 2023 were both
calculated based on the rate of 25%.
10. Earnings per share
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
a) Basic earnings per share attributable to the ordinary equity holders of the
company
From underlying operations 15.9p 30.7p
From adjusting items (3.0p) 5.5p
Total basic earnings per share 12.8p 36.2p
b) Diluted earnings per share attributable to the ordinary equity holders of
the company
From underlying operations 15.0p 29.6p
From adjusting items (2.9p) 5.4p
Total diluted earnings per share 12.1p 35.0p
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
£'000 £'000
c) Reconciliations of earnings used in calculating earnings per share
Profit from operations 4,450 13,584
- Adjusting items net of tax 1,055 (2,082)
Total profits from underlying operations 5,505 11,502
d) Weighted average number of shares used as the denominator
52 weeks ended 52 weeks ended
29 July 2023 30 July 2022
Number Number
Weighted average number of shares in issue for the purposes of basic earnings 34,690,701 37,498,925
per share
Effect of dilutive potential ordinary shares:
- share options 2,031,118 1,354,896
Weighted average number of ordinary shares for the purpose of diluted earnings 36,721,819 38,853,821
per share
11. Trade and other payables current
As at As at
29 July 2023 30 July 2022
£'000 £'000
Trade payables 33,267 18,374
Payments received on account 18,906 25,540
Other tax and social security payable 4,729 2,236
Accruals 11,145 11,178
68,047 57,328
The fair value of financial liabilities approximates their carrying value due
to short maturities. Financial liabilities are denominated in pounds sterling.
Payments received on account represent deposits taken from customers at the
point of order and in advance of the Group fulfilling its performance
obligations to provide goods and services for customer orders. They will be
realised in the next 12 months. The brought forward balance of payments
received on account was recognised as revenue during the year.
12. 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 year ended 29 July 2023.
An interim dividend of 4.5p (2022: 4.5p) per ordinary share was declared by
the Board on 21 March 2023 and resulted in a payment of £1,522,000 which was
made on 11 May 2023. It has been recognised in shareholders' equity in the
year ended 29 July 2023.
During the year dividend equivalents were paid on the vesting of LTIPs
totalling £4,000.
Given the strength of the Group's balance sheet coupled with the resilient
result for the year a final dividend of 10.0 p has been proposed and, if
approved, will be recorded within the financial statements for the year ending
27 July 2024.
13. 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 year, 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
106,637 ordinary shares of 0.1 pence each in the Group at an average price of
139.00 pence per ordinary share, and 228,008 ordinary shares were used to
satisfy management incentive awards.
As at 29 July 2023 the Group holds 131,360 of its own ordinary shares of 0.1
pence each in the Group at an average purchase price of 154.9 pence.
As part of the Group's share buyback programme, during the period the Group
acquired 2,740,841 ordinary shares at an average share price of 171.6 pence
per ordinary share for a total consideration including associated fees of
£4,776,000. Following this purchase, the ordinary shares purchased by the
Group were cancelled, and the Group's issued share capital at 29 July 2023
subsequently consisted of 33,954,674 ordinary shares, each with one voting
right.
14. 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
Goodwill 500
Total asset value 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 underlying profit contribution
Snug contributed revenues of £4,121,000 and a net loss before tax of
£1,938,000 to the Group for the year ended 29 July 2023.
15. Post balance sheet events
Subsequent to the 29 July 2023, a further £1,250,000 business interruption
insurance payment was received relating to loss of profit as a result of the
COVID-19 pandemic. As at the year end the Group did not have a high level of
certainty that this payment would be received, or the timeframe on which it
may do so, and therefore did not disclose it is a receivable. As such, in line
with the treatment of the £1,250,000 received during the year to 29 July
2023, we expect to recognise and disclose this item as an adjusting item to
consolidated income in the year to 27 July 2024.
On 24 October 2023, a wholly-owned subsidiary of Poltronesofà S.p.A.
announced a recommended offer for the entire issued and to be issued share
capital of the Company of 270p per share in cash. In addition, shareholders
who are on the register at the close of business on 17 November 2023 will be
entitled to receive the final dividend of 10.0p (in respect of the year ended
29 July 2023).
It is intended that the acquisition will be implemented by way of a
Court-sanctioned scheme of arrangement under Part 26 of the Companies Act.
Cerezzola Limited (a wholly-owned subsidiary of Poltronesofà S.p.A.) has
indicated its intention (subject to the requisite acceptance thresholds being
achieved referred to in the announcement of 24 October 2023) to delist the
Company from the London Stock Exchange as soon as practicable following the
cancellation of listing and trading of the Company's shares. This process will
take place following the release of the Annual Report and is targeted to
complete in the first quarter of 2024.
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