REG - Shoe Zone PLC - Final Results
09/01/2024 08:15
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RNS Number : 0122Z Shoe Zone PLC 09 January 2024
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the company's obligations under Article 17 of
MAR. Upon the publication of this announcement via regulatory news service
this inside information is now considered to be in the public domain.
Shoe Zone plc
("Shoe Zone" or the "Company")
Final Results for the 52-week period to 30 September 2023
Shoe Zone is pleased to announce its audited results for the 52 weeks to 30
September 2023, (the "Period").
Financials
• Revenue of £165.7m (2022: £156.2m)
o Store revenue £134.8m (2022: £129.8m)
o Digital revenue £30.9m (2022: £26.4m)
• Profit before tax £16.2m (2022: £13.6m), adjusted £16.5m(1)
(2022: £11.2m)
• Interim dividend £1.2m, (2022: £1.25m and £1.6m)
• Proposed final dividend of 8.9 pence per share, total 11.4 pence
per share (2022: 8.8 pps)
• Proposed special dividend 6.0 pence per share, total 17.4 pence
per share (2022: 17.0 pps)
• Earnings per share 27.79p (2022: 21.74p)
• Net cash balance of £16.4m (2022: £24.4m)
• Share buy-back programme, total 3.8m shares for £8.1m since
launch, £2.14 per share
Operational
· 323 stores at Period end (2022: 360) comprising:
o 42 Big Box (2022: 45)
o 93 Hybrid (2022: 44)
o 188 Original (2022: 271)
· 72 closures, 35 opened, 37 fewer stores
· Annualised lease renewal savings of £0.7m, an average reduction of
31%
· Average lease length of 2.2 years (2022: 1.8 years)
· Digital returns rate of 11.8% (2022: 11.3%)
(1)Adjusted to exclude the profit on sale of freehold properties and foreign
exchange revaluation
For further information please call:
Shoe Zone PLC Tel: +44 (0) 116 222 3001
Anthony Smith (Chief Executive)
Terry Boot (Finance Director)
Zeus (Nominated Adviser and Broker) Tel: +44 (0) 203 829 5000
David Foreman, James Hornigold, Ed Beddows (Investment Banking)
Dominic King (Corporate Broking)
Chief Executive's statement
Introduction
Shoe Zone had a very positive year, with strong and consistent results
throughout the key trading periods, particularly in the second half, with
strong peak summer and Back to School trading.
Profit before tax increased by 19.1% to £16.2m for the Period (2022: £13.6m)
and adjusted profit before tax increased by 47.3% to £16.5m (2022: £11.2m),
with an earnings per share of 27.79p (2022: 21.74p).
Store revenue increased by 3.9% to £134.8m (2022: £129.8m), trading out of
37 fewer stores, with strong performance from our relocated and refitted
stores. Digital revenues increased by 17.0% to £30.9m (2022: £26.4m) in the
Period, driven by an increase in conversion and strong Amazon sales. We
continue to invest in our digital infrastructure and the addition of two
automated bagging machines last year significantly improved throughput and
productivity.
We ended the Period trading out of 323 stores, having closed 72 stores, opened
35 new stores and refitted a further 15 existing stores to our new formats. As
we refit existing stores to our new formats, the branded mix will continue to
form a higher proportion of our overall sales.
Our average lease length is now 2.2 years, giving us the opportunity and
flexibility to respond to changes in any retail location at short notice.
Property supply continues to outstrip demand and we expect to take advantage
of this environment and significantly improve our property portfolio over the
medium term.
Total capital expenditure was £11.4m (2022: £5.2m), the majority of which
was for our refit and relocation programme, which is partly offset by £1.8m
of rent-free periods given by Landlords.
We achieved rent reductions on 53 store renewals of £0.7m (2022: £0.6m) on
an annualised basis, an average reduction of 31%.
Strategy Update
We continue to accelerate our store refit and relocation programme and to
drive our digital strategy on the back of these solid set of results. The hard
work completed to reduce costs, streamline operations and accelerate
investment, positions us well for the year ahead.
Capital expenditure
We will spend a minimum of 3-4% of sales per annum to cover 50 store projects
and Head Office infrastructure changes including IT projects and new vehicles.
Property
We continue to transform our property portfolio with relocations/new stores
being partially funded by landlords through rent free periods of typically 12
months.
We ended the year with 42 Big Box, 93 Hybrid and 188 Original stores. This
year we expect to relocate or open a further 25 stores and continue to close a
number of older stores, and we will refit a minimum of 25 stores to our new
formats.
Digital
We continue to invest in our Digital Shoehub platform and in the next 12
months we will implement a new returns portal, introduce Google pay, Apple pay
and a mobile App.
Part of the success of our digital operation is our efficient returns process
which is complimented by our extensive network of stores. We have a returns
rate of c. 11.8% with the vast majority of these being returned to store and
our physical store network is critical to our continued success. We have seen
over the last few years a reduction in store numbers as we have exited
unprofitable locations. We will continue to rollout our successful 'Big Box'
and 'Hybrid' formats by targeting key towns for conversion or relocation. Our
ultimate goal is a doubling of Big Box locations to approximately 100 and an
increase in Hybrid stores from 93 to approximately 200. Overall, we anticipate
trading from a similar sales square footage, albeit from a reduced number of
locations, and by the end of 2026 we will not have any "Original" Shoe Zone
stores trading.
Product
We expect product margin levels to increase in the next financial year as we
are forecasting a full 12 months of lower container prices compared to 6
months realised last year. Our buying and shipping teams are doing an
exceptional job of managing the direct from factory supply chain, which is
still volatile, and we are confident we are performing better than the market
average.
Dividend
An interim of 2.5 pence per share was paid in August 2023. It is proposed that
a final dividend of 8.9 pence per share be paid in March 2024 on the basis of
a 40% pay-out ratio, totalling 11.4 pence per share (2022: 40% payout 8.8
pence per share). The Board will also propose an additional special dividend
of 6.0 pence per share (to be paid in March 2024), bringing the total to 17.4
pence per share (2022: 17.0 pence per share).
Financial Review
During the Period, total revenue was £165.7m (2022: £156.2m) an increase of
6.1%. We ended the year with 323 stores (2022: 360) having closed 72 and
opened 35.
Profit before tax was £16.2m (2022: £13.6m), adjusted by profit on sale of
freeholds (-£0.3m) and foreign exchange gains on revaluation (+£0.6m),
therefore an adjusted profit before tax of £16.5m (2022: £11.2m). The
year-on-year increase is primarily due to strong second half trading,
including our key back to school period, strong peak summer sales and the
benefit of lower container prices that started to be realised mid-year. We
continue to actively reduce our cost base in all areas of the business and
have reduced our rent bill through proactive discussions with landlords with
further savings on renewals.
Digital revenue was £30.9m (2022: £26.4m) an increase of 17.0%, which was
ahead of management expectations and now ahead of the peak during the
pandemic. Profit contribution from Digital was £8.6m (2022: £7.0m) in the
Period.
Product margins increased to 62.3% (2022: 61.2%), due to the reduction in
container prices, a more favourable Sterling to Dollar exchange rate, less
supply chain volatility, continued improvement in stock management, partly
offset by a higher mix of lower margin branded product.
Statutory gross profit increased by £4.5m to £40.9m, 24.7% of revenue (2022:
£36.4m, 23.3%). The year-on-year cash increase reflects revenue growth and
the percentage increase is as a result of the higher underlying product
margins. Cost of sales increased by £5.0m, due to sales related cost
increases, higher business rates, higher store depreciation and National
Living Wage inflation.
Administration expenses increased by £2.2m to £18.8m (2022: £16.6m) due to
digital sales related courier costs £0.9m, additional cost of living and
profit share bonuses £0.6m, depreciation £0.5m and Head Office repairs
£0.2m.
Distribution costs increased by £0.2m to £5.3m (2022: £5.1m), due to higher
warehouse and distribution wages due to the National Living Wage increase.
The corporation tax charge through the P&L is £3.0m (2022: tax charge of
£2.7m).
Earnings per share is 27.79p (2022: 21.74p).
Stock levels increased by £1.5m to £33.7m (2022: £32.2m), due to the
earlier delivery of Autumn/Winter 2023 product and an increase in the
proportion of higher value branded product we have in stock compared to last
year.
Capital expenditure increased to £11.4m (2022: £5.2m) as we accelerated our
programme of store relocations and refits to expand our Hybrid formats. We
also invested £1.3m in our central distribution centre to further improve our
Digital efficiency and a further £0.9m on our vehicle fleet. This total is
the gross expenditure and is partially offset by £1.8m of rent-free cash
received via landlords when we opened new stores.
At the year-end, net cash was £16.4m (2022: £24.4m). The decrease was due to
dividends paid £8.2m, further share buy-backs in the year of £7.1m and the
increased level of capital expenditure, offset by the cash generated from
profitable operations. We had £5.0m cash on deposit at the year end, which
matured in December 2023 and our current account is swept daily to attract
interest.
The Shoe Zone pension scheme is in a surplus of £0.5m (2022: surplus of
£7.1m). The reduction is due to the purchase of the buy-in contract with
Rothesay on 2 March 2023. Specifically, the value placed on the Shoe Zone
Scheme's uninsured liabilities on the IAS19 assumptions was lower than the
actual premiums paid to Rothesay to secure member benefits. The Shoefayre
scheme is now in deficit of £2.1m (2022: surplus of £1.8m). This is firstly
due to the scheme's assets delivering a lower-than-expected investment return,
driven by a reduction in the hedging level of the scheme's Liability Driven
Investment (LDI) holdings and secondly, the allowance for inflation has
increased the value placed on the scheme's liabilities.
An interim dividend of 2.5 pence per share was paid on 14 August 2023. It is
proposed that a final dividend of 8.9 pence per share will be paid in March
2024 based on a 40% pay-out ratio (total of 11.4 pence per share, 2022: 8.8
pence per share). The Board has proposed an additional special dividend of 6.0
pence per share, payable in March 2024, giving a total dividend of 17.4 pence
per share (2022: 17.0 pence per share).
The Company continued the share buy-back programme that was started in August
2022 and as at 30 September 2023 had purchased 3,773,170 shares in total (of
which 3,750,000 have been cancelled with the balance held in treasury) at an
average price of £2.14 equating to a total spend of £8.1m since the
beginning of the share buy-back programme. The buy-back programme will
continue for the foreseeable future.
The Group uses derivative financial instruments, typically forward exchange
contracts, to hedge the risk of future foreign currency fluctuations. The
hedging policy enables the effective portion of changes in the fair value of
designated derivatives to be recognised in other comprehensive income.
Historically these movements would have been recognised in the income
statement.
Consolidated income statement for the 52 weeks ended 30 September 2023
52 weeks ended 30 September 52 weeks ended 1 October
2023 2022
£'000 £'000
Revenue 165,657 156,164
Cost of sales (124,805) (119,764)
Gross profit 40,852 36,400
Administration expenses (18,791) (16,620)
Distribution costs (5,311) (5,104)
Profit from operations 16,750 14,676
Finance income - -
Finance expense (568) (1,113)
Profit before taxation 16,182 13,563
Taxation (2,962) (2,718)
Profit attributable to equity holders of the parent 13,220 10,845
Earnings per Share - basic and diluted 27.79p 21.74p
Consolidated statement of total comprehensive income for the 52 weeks ended 30 September 2023
52 weeks ended 30 September 52 weeks ended 1 October
2023 2022
£'000 £'000
Profit for the year 13,220 10,845
Items that will not be reclassified subsequently to the income statement
Remeasurement (loss)/gains on defined benefit pension scheme (2,054) 5,798
Movement in deferred tax on pension schemes 513 (1,505)
Share buy back (7,125) (966)
Items that will be reclassified subsequently to the income statement
Fair value movements on cash flow hedges (295) 1,129
Tax on cash flow hedges 54 (226)
Other comprehensive (expense)/income for the year (8,907) 4,230
Total comprehensive income for the year attributable 4,313 15,075
to equity holders of the parent
Consolidated statement of financial position as at 30 September 2023
As at As at
30 September 1 October
2023 2022
£'000 £'000
Assets
Non-current assets
Property, plant and equipment 19,178 12,582
Right-of-use assets 25,751 25,581
Deferred tax asset 529 720
Total non-current assets 45,458 38,883
Current assets
Inventories 33,752 32,188
Trade and other receivables 3,219 6,071
Cash and cash equivalents 16,354 24,427
Corporation tax asset 58 -
Total current assets 53,383 62,686
Total assets 98,841 101,569
Current liabilities
Trade and other payables (24,353) (22,801)
Lease liabilities (13,071) (14,870)
Derivative financial liability - -
Deferred Tax liability - -
Provisions (783) (1,108)
Corporation tax liability - (1,910)
Total current liabilities (38,207) (40,689)
Non-current liabilities
Lease liabilities (22,219) (20,975)
Provisions (3,009) (2,662)
Employee benefit liability (2,054) -
Total non-current liabilities (27,282) (23,637)
Total liabilities (65,489) (64,326)
Net assets 33,352 37,243
Equity attributable to equity holders of the Company
Called up share capital 463 495
Merger reserve 2,662 2,662
Capital Redemption Reserve 37 5
Cash flow hedge reserve 412 653
Retained earnings 29,778 33,428
Total equity and reserves 33,352 37,243
Consolidated statement of changes in equity for the 52 weeks ended 30 September 2023
Share capital Capital Redemption reserve Merger Cash flow hedge reserve Retained earnings Total
reserve
£'000 £'000 £'000 £'000 £'000 £'000
At 3 October 2021 500 - 2,662 (250) 20,506 23,418
Profit for the year - - - - 10,845 10,845
Defined benefit pension movements - - - - 5,798 5,798
Cash flow hedge movements - - - 1,129 - 1,129
Share Buy Back (5) 5 - - (966) (966)
Deferred tax on other comprehensive income - - - (226) (1,505) (1,731)
Total comprehensive income for the year - - - 903 14,172 15,075
Dividends paid during the year (note 11) - - - - (1,250) (1,250)
Total contributions by and distributions to owners - - - - - -
At 1 October 2022 495 5 2,662 653 33,428 37,243
At 2 October 2022
Profit for the year - - - - 13,220 13,220
Defined benefit pension movements - - - - (2,054) (2,054)
Capital Redemption reserve - - - - - -
Cash flow hedge movements - - - (295) - (295)
Share Buy Back (32) 32 - - (7,125) (7,125)
Deferred tax on other comprehensive income - - - 54 513 567
Total comprehensive income for the year (32) 32 - (241) 4,554 4,313
Dividends paid during the year (note 11) - - - - (8,204) (8,204)
Total contributions by and distributions to owners - - - - - -
At 30 September 2023 463 37 2,662 412 29,778 33,352
Share capital comprises the nominal value of shares subscribed for. The
capital redemption reserve represents share purchased by the company back from
shareholders.
The merger reserve has arisen as a result of the application of merger
accounting to the group reorganisation on 26 March 2014.
The cash flow hedge reserve comprises of gains/losses arising on the effective
portion of hedging instruments and is carried at fair value in a qualifying
cash flow hedge.
Retained earnings are all other net gains and losses and transactions with
owners (e.g. dividends) not recognised elsewhere.
Consolidated statement of cash flows for the 52 weeks ended 30 September 2023
52 weeks 52 weeks ended 1 October
ended 30 September 2022
2023
£'000 £'000
Operating activities
Profit after tax 13,220 10,845
Corporation tax charge 2,962 2,718
Finance income - -
Finance expense 568 1,113
Depreciation of property, plant and equipment 3,929 4,118
Fixed asset impairment and loss on disposal of property, plant and equipment 369 (1,075)
and right of use asset
Right-of-use asset depreciation and impairment 17,484 13,016
Pension contributions paid - -
38,532 30,735
Decrease in trade and other receivables 2,852 627
Decrease in foreign exchange contract (295) (527)
Increase in inventories (1,564) (7,057)
Increase in trade and other payables 1,552 6,361
Increase in provisions 22 345
2,567 (251)
Cash generated from operations 41,099 30,484
Net corporation tax paid (4,171) (1,214)
Net cash flows from operating activities 36,928 29,270
Investing activities
Purchase of property, plant and equipment (11,372) (5,225)
Proceeds from sale of PPE 478 3,590
Net cash used in investing activities (10,894) (1,635)
Share buy-back (7,125) (966)
Repayments of secured loan - (4,400)
Capital element of lease repayments (18,954) (15,584)
Interest received 176 (23)
Dividends paid during the year (8,204) (1,250)
Net cash used in financing activities (34,107) (22,223)
Net increase in cash and cash equivalents (8,073) 5,412
Cash and cash equivalents at beginning of year 24,427 19,015
Cash and cash equivalents at end of year 16,354 24,427
Notes to the financial statements for the 52 weeks ended 30 September 2023
Accounting policies
General information
Shoe Zone plc (the 'Company') is a public company incorporated and domiciled
in England and Wales. The registered office is at Haramead Business Centre,
Humberstone Road, Leicester, LE1 2LH. The registered number of the Company is
08961190.
The Company and its subsidiaries' (collectively the Group) principal activity
is footwear retailing.
Basis of preparation
The principal accounting policies adopted in the preparation of the financial
statements are set out below. The policies have been consistently applied for
the 52 weeks ended 30 September 2023 (2022: 52 weeks ended 1 October 2022).
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards and Interpretations (collectively
IFRSs) issued by the International Accounting Standards Board (IASB) as
adopted by the UK adopted international accounting standards ('adopted IFRSs')
and those parts of the Companies Act 2006 that are applicable to companies
that prepare financial statements in accordance with IFRS.
The consolidated financial statements have been prepared on a going concern
basis and under the historical cost convention, as modified for the
revaluation of certain financial assets and financial liabilities at fair
value.
The preparation of financial statements in compliance with adopted IFRS
requires the use of certain critical accounting estimates. It also requires
management to exercise judgement in applying the Group's accounting policies.
The areas where significant judgements and estimates have been made in
preparing the financial statements and their effect are disclosed in note 2.
The consolidated financial statements are presented in Sterling, which is also
the Group's functional currency.
Amounts are rounded to the nearest thousand, unless otherwise stated.
Basis of consolidation
The consolidated financial statements incorporating the financial statements
of Shoe Zone plc and its subsidiary undertakings are all made up to 30
September 2023. The results for all subsidiary companies are consolidated
using the acquisition method of accounting.
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
De-facto control exists in situations where the Company has the practical
ability to direct the relevant activities of the investee without holding the
majority of the voting rights. In determining whether de-facto control exists
the company considers all relevant facts and circumstances, including:
· The size of the Company's voting rights relative to both the size and
dispersion of other parties who hold voting rights
· Substantive potential voting rights held by the company and by other
parties
· Other contractual arrangements
· Historic patterns in voting attendance
The consolidated financial statements present the results of the Company and
its subsidiaries (the "Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore eliminated in
full.
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
income statement from the date on which control is obtained. They are
deconsolidated from the date on which control ceases.
Going Concern
The Directors consider that the business is a going concern and that it is
appropriate to prepare the financial statements on a going concern basis. In
reaching this conclusion, the Directors have assessed the Group's current
performance and position and factors that may affect the Group's future
prospects.
The Group's financial position is strong with healthy positive cash balances.
The Directors have reviewed forecasts and projections and consider that the
Group has adequate banking facilities and cash resources to meet its
operational and capital commitments.
Refitted and relocated store results and our positive digital performance,
combined with the satisfactory cash position gives the Directors a reasonable
basis on which to satisfy themselves that the business is a going concern. The
Group has prepared forecasts and budgets which shows the Group has sufficient
cash to meet its day-to-day liabilities as they fall due. On that basis, the
directors have prepared the financial statements on a going concern basis.
Revenue
Revenue is measured at the fair value of consideration received or receivable
net of discounts, returns and VAT. Revenue is recognised when the company has
transferred the significant risks and rewards of ownership to the buyer at the
point of sale in the shop. At the point of sale, a provision is made for the
level of expected returns based on previous experience.
Internet sales are recognised when the goods have been paid for, despatched
and received by the customer.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As
well as purchase price, cost includes directly attributable costs.
Depreciation is provided on all items of property, plant and equipment so as
to write off their carrying value over the expected useful economic lives. It
is provided at the following rates:
Freehold and long leasehold
properties
- 50 years on a straight line basis
Short leasehold and leasehold improvements -
5-10 years on a straight line basis
Fixtures and
fittings
- 5-10 years on a straight line basis
Motor
vehicles
- 3-5 years on a straight line basis
No depreciation is provided against freehold land. Depreciation is provided
against freehold shop properties writing off the original cost less estimated
residual value over the useful economic life of the property which is
estimated to be 50 years.
Assets under construction
Whilst held under assets under construction, no depreciation is charged on the
assets. Once the project is completed, the asset will be transferred to the
correct fixed asset category.
Impairment of non-financial assets
The carrying values of non-financial assets are reviewed in conjunction with
an independent third party for impairment when there is an indication that
assets might be impaired. When the carrying value of an asset exceeds its
recoverable amount, the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash generating unit
(i.e. the smallest group of assets in which the asset belongs for which there
are separable identifiable cash flows).
Impairment charges are included in the consolidated income statement in cost
of sales, except to the extent they reverse previous gains recognised in the
consolidated statement of total comprehensive income.
Inventories
Inventories are initially recognised at cost on a first in first out basis,
and subsequently at the lower of cost and net realisable value. Cost comprises
all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition.
Financial assets
The Group classified its financial assets into the categories, discussed
below, due to the purpose for which the asset was acquired. The Group has not
classified any of its financial assets as held to maturity.
The Group documents at the inception of the transaction the relationship
between hedging instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedging transactions. The
Group also documents its assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of hedged
items.
Cash and cash equivalents include cash in hand and deposits held at call with
banks.
Loans and receivables
Loans and receivable assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They arise
principally through the provision of goods to customers (e.g. trade
receivables), but also incorporate other types of contractual monetary asset.
They are initially recognised at fair value plus transaction costs that are
directly attributable to their acquisition or issue, and are subsequently
carried at amortised cost using the effective interest rate method, less
provision for impairment.
The Group's loans and receivables comprise trade and other receivables and
cash and cash equivalents included within the consolidated statement of
financial position.
Impairment provisions are recognised when there is objective evidence (such as
significant financial difficulties on the part of the counterparty or default
or significant delay in payment) that the Group will be unable to collect all
of the amounts due under the terms receivable, the amount of such a provision
being the difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired receivable. For
trade receivables, which are reported net, such provisions are recorded in a
separate allowance account with the loss being recognised within
administrative expenses in the consolidated income statement. On confirmation
that the trade receivable will not be collectable, the gross carrying value of
the asset is written off against the associated provision.
Financial liabilities
The Group classified its financial liabilities as other financial liabilities
which include the following:
· Trade payables and other short-term monetary liabilities, which are
initially recognised at fair value and subsequently carried at amortised cost
using the effective interest method
· Bank loan - external loan which is valued at its amortised cost and
incurs interest
· Finance costs are charged to the income statement over the term of
the debt using the effective interest method so that the amount charged is at
a constant rate on the carrying amount. Issue costs are initially recognised
as a reduction in the proceeds of the associated capital instrument
Derivative financial instruments and hedging activities
Hedge accounting is applied to financial assets and financial liabilities only
where all of the following criteria are met:
At the inception of the hedge there is formal designation and documentation of
the hedging relationship and the Group's risk management objective and
strategy for undertaking the hedge
· For cash flow hedges, the hedged item in a forecast transaction is
highly probable and presents an exposure to variations in cash flows that
could ultimately affect profit or loss
· The cumulative change in the fair value of the hedging instrument is
expected to be between 80-125% of the cumulative change in the fair value or
cash flows of the hedged item attributable to the risk hedged (i.e. it is
expected to be highly effective)
· The effectiveness of the hedge can be reliably measured
· The hedge remains highly effective on each date tested.
Effectiveness is tested quarterly
The Group uses derivative financial instruments such as forward foreign
exchange contracts to hedge its risks associated with foreign currency
fluctuations. Such derivative financial instruments are initially measured at
fair value and subsequently remeasured at fair value. The fair value of
forward foreign exchange contracts is calculated by reference to current
forward exchange rates for contracts with similar maturity profiles.
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in other
comprehensive income. The gain or loss relating to the ineffective portion is
recognised immediately in cost of sales in the income statement.
Amounts accumulated in equity are reclassified to inventories in the period
when the purchase occurs, matching the hedged transaction. The cash flows are
expected to occur and impact on profit and loss within 12 months from the year
end.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss previously
recognised in equity is retained in equity and is recognised when the forecast
transaction is ultimately recognised in cost of sales in the income
statement. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately transferred
to the income statement.
Deferred
taxation
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the statement of financial position differs from
its tax base.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the statement of financial position
date and are expected to apply when the deferred tax liabilities or assets are
settled or recovered. Deferred tax balances are not discounted.
Deferred tax assets are offset when the Group has legally enforceable rights
to set off current tax assets against current tax liabilities and the deferred
tax liabilities relate to taxes levied by the same tax authority on either:
· the same taxable group company; or
· different company entities which intend to either settle current tax
assets and liabilities on a net basis, or to realise the assets and settle the
liabilities simultaneously, in each future period in which significant amounts
of deferred tax assets and liabilities are expected to be settled or
recovered.
Provisions
Provision for dilapidations is made at the best estimate of the expenditure
required to settle the obligation at the reporting date, where material,
discounted at the pre-tax rate reflecting current market assessments of the
time value of money and risks specific to the liability. A dilapidation
provision is only recognised on those properties which are likely to be
exited. Where such property is identified the full costs expected are
recognised. This provision relates to the liability of 'wear and tear'
incurred on the leasehold properties and does not include any removal of shop
refits as experience indicates that liabilities do not arise for removal of
shop refits. Dilapidations are not included in IFRS 16 as they relate to 'wear
and tear' and not structural alterations to the buildings.
Foreign exchange
Transactions entered into the Group entities in a currency other than the
functional currency are recorded at the average monthly rate prevailing during
the year. Foreign currency monetary assets and liabilities are translated at
the rates ruling at the reporting date.
Foreign exchange differences are recognised in the income statement.
Retirement benefits - defined contribution and benefit schemes
The Group operates both defined benefit and defined contribution funded
pension schemes. The schemes are administered by trustees and are independent
of the Group.
Contributions to defined contribution schemes are charged to the consolidated
income statement in the year to which they relate.
Defined benefit scheme surpluses and deficits are measured at:
· the fair value of plan assets at the reporting date; less
· plan liabilities calculated using the projected unit credit method
discounted to its present value using yields available on high quality
corporate bonds that have maturity dates approximating to the terms of the
liabilities; plus
· unrecognised past service costs; less
· the effect of minimum funding requirements agreed with scheme
trustees.
Re-measurements of the net defined obligation are recognised directly within
equity. These include actuarial gains and losses, return on plan assets
(interest exclusive) and any asset ceilings (interest exclusive).
Service costs are recognised in the income statement, and include current and
past service costs as well as gains and losses on curtailments.
Net interest expense (income) is recognised in the income statement, and is
calculated by applying the discount rate used to measure the defined benefit
obligation (asset) at the beginning of the annual period to the balance of the
net defined benefit obligation (asset), considering the effects of
contributions and benefit payments during the year.
Gains or losses arising from changes to scheme benefits or scheme curtailments
are recognised immediately in the income statement.
Settlements of defined benefit schemes are recognised in the period in which
the settlement occurs.
A net pension asset may only be recognized when the group has an unconditional
right to a refund or to reductions in future contributions. As a result, no
asset has been recognised at year end.
Dividends
Dividends are recognised when they become legally payable. In the case of
interim dividends to equity shareholders, this is when declared by the
directors. In the case of final and special dividends, this is when approved
by the shareholders at the AGM.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below.
Accounting estimates and assumptions
Retirement benefits:
The Groups' defined benefit schemes' pension surplus/obligation, which is
assessed each period by actuaries, is based on key assumptions including
discount rates, mortality rates, inflation, future salary costs and pension
costs. These assumptions, individually or collectively, may be different to
actual outcomes; refer to note 25 for further details. A net pension asset may
only be recognized when the Group has an unconditional right to a refund or to
reductions in future contributions. As a result, no asset has been recognised
at year end.
Estimated impairment of store assets:
The Group tests whether store assets have suffered any impairment in
accordance with the accounting policies stated in note 1. The recoverable
amount of cash-generating units is determined on a value-in-use calculation.
The method requires an estimate of future cash flows and the selection of a
suitable discount rate in order to calculate the net present value of cash
flows. The Group has performed a sensitivity analysis on the impairment tests
for its store portfolio using various reasonably possible scenarios. An
increase of three percentage points in the post-tax discount rate would have
resulted in no increase to the impairment charge. A decrease of one
percentage point in the growth rate after year three would have resulted in no
increase to the impairment charge.
Estimated useful life of property, plant and equipment:
At the date of capitalising property, plant and equipment, the Group estimates
the useful life of the asset based on management's judgement and experience.
Due to the significance of capital investment to the Group, variances between
actual and estimated useful economic lives could impact results both
positively and negatively, see note 12.
Judgements
Foreign currency hedge accounting:
Group policy is to adopt hedge accounting for cash flows for the purchase of
goods for resale. Due to the degree of judgement in determining forecast cash
flows there is a risk that the assumptions made in the effectiveness testing
are inappropriate.
Discount rate - The weighted average lessee's incremental borrowing rate
applied to the lease liabilities on 30 September 2023 was 1.82%. If the
discount rate was changed by 1% this would result in an increase of assets in
excess of £300,000.
Segmental information
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker has been identified as the management team including the
Chairman, Chief Executive and Finance Director.
The Board considers that each store is an operating segment but there is only
one reporting segment as the stores qualify for aggregation, as defined under
IFRS 8. The Directors now consider Digital to be its own operating segment.
Management reviews the performance of the Group by reference to total results
against budget. The total profit measures are operating profit and profit for
the year, both disclosed on the face of the consolidated income statement. No
differences exist between the basis of preparation of the performance measures
used by management and the figures in the Group financial statements.
52 weeks ended 30 September 52 weeks ended 1 October
2023 2022
£'000 £'000
Revenue
United Kingdom stores 134,078 128,664
Digital 30,966 26,967
Other 613 533
165,657 156,164
There are no customers with turnover in excess of 10% of total turnover.
52 weeks ended 30 September 52 weeks ended 1 October
2023 2022
£'000 £'000
Non-current assets excluding deferred tax asset by location:
United Kingdom 44,929 38,163
44,929 38,163
Digital non-current and current assets have not been disclosed due to the
immaterial value. The contribution is £8.6m (2022: £7.0m)
The Group has only one operating and reporting segment which reflects the
Group's management and reporting structure as viewed by the board of
directors.
Dividends
52 weeks ended 30 September 52 weeks ended 1 October
2023 2022
£'000 £'000
Dividends paid during the year 8,204 1,250
Share capital
52 weeks ended 30 September 52 weeks ended 1 October
2023 2022
£'000 £'000
Share capital issued and fully paid
46,250,000 (2022:49,500,000) ordinary shares of 1p each 463 495
463 495
Ordinary shares carry the right to one vote per share at general meetings of
the company and the rights to share in any distribution of profits or returns
of capital and to share in any residual assets available for distribution in
the event of a winding up.
Earnings per share
Earnings per share is calculated by dividing profit for the year by the weighted average number of shares outstanding during the year.
52 weeks 52 weeks
ended 30 September 2023 ended 1 October 2022
£'000 £'000
Numerator
Profit for the year and earnings used in basic and diluted EPS 27.79p 21.74p
30 September 2023 1
October
2022
Denominator
Weighted average number of shares used in basic and diluted EPS 46,250,000 49,500,000
Ultimate controlling party
The company is controlled by the Smith family albeit there is not a single
controlling party.
This announcement does not constitute full statutory accounts.
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