REG - Topps Tiles - Annual Financial Report <Origin Href="QuoteRef">TPT.L</Origin> - Part 2
29/11/2016 07:07
- Part 2: For the preceding part double click ID:nRSc3543Qa
acquisition or up to the effective date of disposal, as
appropriate. Where necessary, adjustments are made to the financial statements
of subsidiaries to bring the accounting policies used into line with those
used by the Group. All intra-group transactions, balances, income and
expenses are eliminated on consolidation.
d) Financial period
The accounting period ends on the Saturday which falls closest to 30
September, resulting in financial periods of either 52 or 53 weeks.
Throughout the financial statements, Directors' Report and Business Review,
references to 2016 mean at 1 October 2016 or the 52 weeks then ended;
references to 2015 mean at 3 October 2015 or the 53 weeks then ended.
e) Goodwill
Goodwill arising in a business combination is recognised as an asset at the
date that control is acquired (the acquisition date). Goodwill is measured as
the excess of the sum of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the fair value of the acquirer's
previously held equity interest (if any) in the entity over the net of the
acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed.
If, after reassessment, the Group's interest in the fair value of the
acquiree's identifiable net assets exceeds the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree and
the fair value of the acquirer's previously held equity interest in the
acquiree (if any), the excess is recognised immediately in profit or loss as a
bargain purchase gain.
e) Goodwill (continued)
Goodwill is not amortised but is reviewed for impairment at least annually.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit. An
impairment loss recognised for goodwill is not reversed in a subsequent
period.
On disposal of a subsidiary, the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRSs has
been retained at the previous UK GAAP amounts subject to being tested for
impairment at that date. Goodwill of £15,080,000 written off to reserves under
UK GAAP prior to 1998 has not been reinstated and will not be included in
determining any subsequent profit or loss on disposal.
f) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided
in the normal course of business, net of discounts, VAT and other
sales-related taxes.
Revenue from the sale of goods is recognised on the collection or delivery of
goods, when all the following conditions are satisfied:
· the Group has transferred to the buyer the significant risks and
rewards of ownership of the goods;
· the Group retains neither continuing managerial involvement to the
degree usually associated with ownership nor effective control over the goods
sold;
· the amount of revenue can be measured reliably;
· it is probable that the economic benefits associated with the
transaction will flow to the entity; and
· the costs incurred or to be incurred in respect of the transaction can
be measured reliably.
The level of sales returns is closely monitored by management and provided for
when management considers them to be significant and deducted from income.
Interest income is recognised when it is probable that the economic benefits
will flow to the Group and the amount of income can be measured reliably.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected
life of the financial asset to that asset's net carrying amount on initial
recognition.
g) Exceptional items
Items are classed as exceptional where they relate to one-off costs incurred
in the period that the directors do not expect to be repeated in the same
magnitude on an annual basis, or where the directors consider the separate
disclosure to be necessary to understand the Group's performance. The
principles applied in identifying exceptional costs are consistent between
periods. See note 4 for details of exceptional items in the current period.
The Group has not recognised any exceptional items in the current year.
2 Accounting Policies (continued)
h) Property, plant & equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, less estimated
residual value, over their estimated useful lives, on the following bases:
Freehold buildings 2% per annum on cost on a straight-line basis
Short leasehold land and buildings over the period of the lease, up to 25 years on a straight line basis
Fixtures and fittings over 10 years, except for the following; 4 years for computer equipment or 5 years for display stands, as appropriate
Motor vehicles 25% per annum on a reducing balance basis
Freehold land is not depreciated.
Residual value is calculated on prices prevailing at the date of acquisition.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in the statement of financial
performance.
i) Impairment of tangible assets
At each period end, the Group reviews the carrying amounts of its tangible
assets to determine whether there is any indication that those assets have
suffered an impairment loss. 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). Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the recoverable amount
of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future post-tax cash flows are
discounted to their present value using a post-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment
loss is recognised as an expense immediately, unless the relevant asset is
carried at a re-valued amount, in which case the impairment loss is treated as
a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) 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 (cash-generating unit) in prior years. A
reversal of an impairment loss is recognised as income immediately, unless the
relevant asset is carried at a revalued amount, in which case the reversal of
the impairment loss is treated as a revaluation increase.
j) Inventories
Inventories are stated at the lower of cost and net realisable value and
relate solely to finished goods for resale, net of supplier rebates. Cost
comprises the purchase price of materials and an attributable proportion of
distribution overheads based on normal levels of activity and is valued at
standard cost. Net realisable value represents the estimated selling price,
less costs to be incurred in marketing, selling and distribution. Provision
is made for those items of inventory where the net realisable value is
estimated to be lower than cost. The net replacement value of inventories is
not considered materially different from that stated in the consolidated
statement of financial position.
k) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the period. Taxable
profit differs from net profit as reported in the statement of financial
performance because it excludes items of income or expense that are taxable or
deductible in other periods and it further excludes items that are never
taxable or deductible. The Group's liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects
neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, and interests in jointly controlled
entities, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised based on tax
laws and rates that have been enacted at the balance sheet date. Deferred tax
is charged or credited in the statement of financial performance, except when
it relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
l) Foreign currency
The individual financial statements of each Group company are presented in
pounds sterling (its functional currency). For the purpose of the consolidated
financial statements, the results and financial position of each Group company
are expressed in pounds sterling, which is the functional currency of the
Company, and the presentational currency for the consolidated financial
statements.
Transactions in currencies other than the entity's functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the
dates of transactions. At each period end, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the rates
prevailing on that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at
the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in the statement of financial
performance for the period.
Exchange differences arising on the retranslation of non-monetary items
carried at fair value are included in statement of financial performance for
the period.
Exchange differences are recognised in profit or loss in the period in which
they arise except for exchange differences on transactions entered into to
hedge certain foreign currency risks (see below under financial instruments/
hedge accounting).
2 Accounting Policies (continued)
m) Leases
Rentals payable under operating leases are charged to income on a straight
line basis over the term of the relevant lease even where payments are not
made on such a basis, except where another more systematic basis is more
representative of the time pattern in which economic benefits from the lease
asset are consumed or a provision has been made for an onerous lease.
Contingent rentals arising under operating leases are recognised as an expense
in the period in which they are incurred.
In the event that lease incentives are received to enter into operating
leases, such incentives are recognised as a liability. The aggregate benefit
of incentives is recognised as a reduction of rental expense on a
straight-line basis, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased
asset are consumed.
The Group provides for the unavoidable costs prior to lease termination or
sub-lease relating to onerous leases. Dilapidation costs are provided for
against all leasehold properties across the entire estate.
n) Investments
Fixed asset investments are shown at cost less provision for impairment.
o) Retirement benefit costs
For defined contribution schemes, the amount charged to the statement of
financial performance in respect of pension costs is the contributions payable
in the period. Differences between contributions payable in the period and
contributions actually paid are shown as either accruals or prepayments in the
Statement of Financial Position.
p) Finance costs
Finance costs of debt are recognised in the statement of financial performance
over the term of the debt at a constant rate on the carrying amount.
q) Financial instruments
Financial assets and financial liabilities are recognised in the Group's
statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
All financial assets are recognised and derecognised on a trade date where the
purchase or sale of a financial asset is under a contract whose terms require
delivery of the financial asset within the timeframe established by the market
concerned, and are initially measured at fair value, plus transaction costs,
except for those financial assets classified as at fair value through profit
or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories:
financial assets 'at fair value through profit or loss' (FVTPL),
'held-to-maturity' investments, 'available-for-sale' (AFS) financial assets
and 'loans and receivables'. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial
recognition.
Financial assets at FVTPL
Financial assets are classified as at FVTPL where the financial asset is
either held for trading or it is designated as at FVTPL.
A Financial asset is classified as held for trading if:
· it has been acquired principally for the purpose of selling in the near
future; or
· it is a part of an identified portfolio of financial instruments that
the Group manages together and has a recent actual pattern of short-term
profit-taking; or
· it is a derivative that is not designated and effective as a hedging
instrument
Financial assets at FVTPL are stated at fair value, with any resultant gain or
loss recognised in profit or loss. The Directors use their judgement in
selecting an appropriate valuation technique for financial instruments not
quoted in an active market. Valuation techniques commonly used by market
practitioners are applied, such as discounted cash flows and assumptions
regarding market volatility.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or
determinable payments that are not quoted in an active market are classified
as loans and receivables. Loans and receivables are measured at amortised
cost using the effective interest method, less any impairment. Interest
income is recognised by applying the effective interest rate, except for
short-term receivables when the recognition of interest would be immaterial.
Effective interest method
The effective interest method is a method of calculating the amortised cost of
a debt instrument and of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated
future cash receipts (including all fees on points paid or received that form
an integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the debt instrument, or,
where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Income is recognised on an effective interest basis for debt instruments other
than those financial assets and liabilities classified as at FVTPL.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at each Statement of Financial Position date. Financial assets are
impaired where there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been impacted.
For certain categories of financial asset, such as trade receivables, assets
that are assessed not to be impaired individually are subsequently assessed
for impairment on a collective basis. Objective evidence of impairment for a
portfolio of receivables could include the Group's past experience of
collecting payments, an increase in the number of delayed payments in the
portfolio past the average credit period of 50 days, as well as observable
changes in national or local economic conditions that correlate with default
on receivables.
For financial assets carried at amortised cost, the amount of the impairment
is the difference between the asset's carrying amount and the present value of
estimated future cash flows, discounted at the financial asset's original
effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss
directly for all financial assets with the exception of trade receivables,
where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously written
off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and
the decrease can be related objectively to an event occurring after the
impairment was recognised, the previously recognised impairment loss is
reversed through profit or loss to the extent that the carrying amount of the
investment at the date the impairment is reversed does not exceed what the
amortised cost would have been had the impairment not been recognised.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash within three months and are subject to an insignificant risk of
changes in value.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire; or it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another
entity. If the Group neither transfers nor retains substantially all the
risks and rewards of ownership and continues to control the transferred asset,
the Group recognises its retained interest in the asset and an associated
liability for amounts it may have to pay. If the Group retains substantially
all the risks and rewards of ownership of a transferred financial asset, the
Group continues to recognise the financial asset and also recognises a
collateralised borrowing for the proceeds received.
2 Accounting Policies (continued)
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities. Equity instruments issued by the Group
are recorded at the proceeds received, net of direct issue costs.
Financial liabilities are classified as at FVTPL where the financial liability
is either held for trading or it is designated as at FVTPL. The Group does
not have any designated FVTPL liabilities.
A financial liability is classified as held for trading if:
· it has been incurred principally for the purpose of disposal in the
near future; or
· it is a part of an identified portfolio of financial instruments that
the Group manages together and has a recent actual pattern of short-term
profit taking; or
· it is a derivative that is not designated and effective as a hedging
instrument.
Financial liabilities at FVTPL are stated at fair value, with any resultant
gain or loss recognised in profit or loss.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at
fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method,
with interest expense recognised on an effective yield basis. The effective
interest method is a method of calculating the amortised cost of a financial
liability and of allocating interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability, or, where
appropriate, a shorter period, to the net carrying amount on initial
recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire.
Derivative financial instruments
The Group's activities expose it to the financial risks of changes in foreign
currency exchange rates and interest rates.
The Group uses foreign exchange forward contracts to manage its foreign
currency risk. The Group does not hold or issue derivative financial
instruments for speculative purposes.
The use of financial derivatives is governed by the Group's policies approved
by the board of directors, on the use of financial derivatives.
Derivatives are initially recognised at fair value at the date a derivative
contract is entered into and are subsequently re-measured to their fair value
at each period end date. The resulting gain or loss is recognised in profit or
loss immediately.
A derivative is presented as a non-current asset or a non-current liability if
the remaining maturity of the instrument is more than 12 months and it is not
expected to be realised or settled within 12 months. Other derivatives are
presented as current assets or current liabilities.
r) Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payments. In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested as of 1
October 2005.
The Group issues equity settled share based payments to certain employees.
Equity settled share based payments are measured at fair value (excluding the
effect of non market-based vesting conditions) at the date of grant. The fair
value determined at the grant date of the share based payment is expensed on a
straight line basis over the vesting period, based on the Group's estimate of
shares that will eventually vest. Fair value is measured by use of the Black
Scholes model.
r) Share-based payments (continued)
The Group provides employees with the ability to purchase the Group's ordinary
shares at 80% of the current market value through the operation of its share
save scheme. The Group records an expense, based on its estimate of the 20%
discount related to shares expected to vest on a straight line basis over the
vesting period.
s) Trade payables
Trade payables are initially measured at fair value and are subsequently
measured at amortised cost, using the effective interest rate method.
t) Operating profit
Operating profit is stated after charging/(crediting) restructuring costs but
before property disposals, investment income and finance costs.
u) Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, and it is probable that the Group
will be required to settle that obligation and a reliable estimate can be made
of the amount of that obligation. Provisions are measured at the Directors'
best estimate of the expenditure required to settle the obligation at the
balance sheet date, and are discounted to present value where the effect is
material.
v) Supplier income
Amounts receivable from suppliers are initially held on the balance sheet
within the cost of inventory and recognised within the income statement once
the contractual terms of the supplier agreements are met and the corresponding
inventory has been sold.
Volume rebates and price discounts are recognised in the income statement, as
a reduction in cost of sales, in line with the recognition of the sale of a
product.
w) Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are described
above, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
The critical judgement, apart from those involving estimations (which are
dealt with separately below), that the Directors have made in the process of
applying the Group's accounting policies and that has the most significant
effect on the amounts recognised in financial statements is the detailed
criteria for the recognition of revenue from the sale of goods set out in IAS
18 Revenue. In particular the largest judgement is where there are open
orders and these goods have not been delivered to the customer, and in these
cases the Directors believe the significant risks and rewards of ownership of
the goods have not been transferred to the buyer and therefore do not
recognise revenue on these orders.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the period end date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial period, are discussed below:
Inventory
At the period end there were £1.9 million (2015: £1.9 million) of overheads
absorbed into inventory and £0.6 million (2015: £2.0 million) of supplier
income (rebates) recognised into the inventory balance. Additionally there
were £0.7 million (2015: 0.7 million) of provisions against the net realisable
value of inventories.
2 Accounting Policies (continued)
Property provisions
Onerous lease provision - During the period the Group has continued to review
the performance of its store portfolio, which has resulted in seven further
stores being exited before their lease terms had expired (2015: zero stores).
All seven stores exited in advance of their lease terms related to the exit
the Topps Clearance format, a decision taken in the 2015 financial year. In
respect of the leases in relation to stores exited before lease end dates in
prior periods that are still vacant, the Group has provided for what it
considers to be the unavoidable costs prior to lease termination or sublease.
The Group has further reviewed any trading loss making stores and provided for
those leases considered to be onerous. These estimates are based upon
available information and knowledge of the property market. The ultimate costs
to be incurred in this regard may vary from the estimates.
Dilapidations provision - The Group has estimated its likely dilapidation
charges for its store portfolio and provided accordingly. This estimate
involves an assessment of average costs per store and the expected exit period
for the current portfolio, and is based on management's best estimate, taking
into account knowledge of the property market and historical trends. The
ultimate costs to be incurred may vary from the estimates.
Supplier income
The Group has arrangements with a number of its suppliers which award rebates
on satisfaction of purchase thresholds or discounts against certain inventory
lines. At the period end, the Group has invoiced £nil of rebates (2015: £1.2
million) which are still outstanding in receivables and holds £0.6 million
(2015: £2.0 million) of rebates within the inventory balance (as above) and
accrued rebates of £1.0 million (2015: £1.4 million). The Group does not
recognise the amounts received from suppliers within the income statement
until the associated inventories are sold to the customers of the Group.
During the period the Group renegotiated a number of supplier rebate
agreements, with the effect of the renegotiation being that the Group now
receives a lower net price of goods, and lower retrospective rebate
receivable. This has significantly reduced the level of rebates held in stock
and level of rebates invoiced and not yet received. The overall profit impact
on the Group during the period is nil.
Business simplification provisions
During the prior period the Group announced its intentions to relocate the
finance function to its head office in Leicester, resulting in the closure of
a support office. Additionally the decision was made to exit the Topps
Clearance format in order to focus on the core Topps Tiles brand. During 2016
both of these business simplification initiatives were completed. In the 2016
financial year this simplification work has led to part utilisation of onerous
lease and related property provisions and a number of redundancy payments. No
such costs have been recognised in the current year.
3 Revenue
An analysis of Group revenue is as follows:
52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
£'000 £'000
Revenue from the sale of goods 214,994 212,221
Total revenue 214,994 212,221
Investment revenue represents bank interest receivable. There are no other
gains recognised in respect of loans and receivables.
The Group has one reportable segment in accordance with IFRS 8 - Operating
Segments, which is the Topps Tiles stores and online business segment. The
Group's board are considered the chief operating decision makers. The Board
receives monthly financial information at this level and uses this information
to monitor the performance of the Topps Tiles stores and online business
segment, allocate resources and make operational decisions. Internal reporting
focuses on the Group as a whole and does not identify any further individual
segments. All revenue is derived from sales in the UK and from one class of
business.
4 Exceptional items - Business Simplification Costs
During the prior period the Group announced the decision to relocate the
finance function to Leicester and exit the Topps Clearance format. Both of
these simplification initiatives have been completed during the 2015-16
financial period. This simplification work has led to part utilisation of
onerous lease and related property provisions and a number of redundancy
payments, all in line with the provision raised in the prior year.
No exceptional items were incurred in the 2016 financial year.
52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
Included in administrative expenses: £'000 £'000
Impairment of property, plant and equipment - 172
Restructuring costs - 736
Property related provisions - 1,711
- 2,619
5 Profit before taxation
Profit before taxation for the period has been arrived at after
charging/(crediting):
52 weeks ended1 October 2016 53 weeks endedOctober2015
£'000 £'000
Depreciation of property, plant and equipment 5,832 5,243
Impairment of property, plant and equipment* 152 266
Disposal of property, plant and equipment loss - 23
Property related provisions charged* 719 1,729
Restructuring costs - 736
Staff costs (see note 6) 53,816 51,530
Operating lease rentals 23,830 23,388
Write down of inventories recognised as an expense 3,971 3,431
Cost of inventories recognised as expense** 78,612 78,152
Net foreign exchange gain** - (135)
During the year the business disposed of zero freehold properties (2015: One
freehold property disposal).
* Included in the prior year amounts above for property related provisions and
impairment of property, plant and equipment, are the business simplification
costs in note 4.
**In prior year, the directors included foreign exchange gains within
investment revenue. In the current year, the directors consider a more
appropriate classification to be within cost of sales given the gains relate
to the Group's inventory purchases. On the grounds of materiality, no changes
have been made to the comparative figures. The current year gain was £225,260.
If the prior year gain of £135,000 was included within cost of sales, cost of
inventories recognised as an expense would have been £78,017,000.
Analysis of auditor's remuneration is provided below:
52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
£'000 £'000
Fees payable to the Company's auditor with respect to the Company's annual accounts 41 30
Fees payable to the Company's auditor and their associates for other audit services to the Group:Audit of the Company's subsidiaries pursuant to legislation 87 85
Total audit fees 128 115
Other assurance - 10
Taxation compliance services 70 70
Remuneration Committee advice - 2
Share plan advice - 11
Total non audit fees 70 93
Total fees payable to the Company's auditor 198 208
A description of the work of the Audit Committee is set out in the Annual
Report and includes an explanation of how auditor objectivity and independence
is safeguarded when non-audit services are provided by the auditor.
6 Staff costs
The average monthly number of persons and their full time equivalents employed
by the Group in the UK during the accounting period (including executive
directors) was:
52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
Numberemployed Numberemployed
Selling 1,778 1,731
Administration 199 184
1,977 1,915
2016 2015
£'000 £'000
Their aggregate remuneration comprised:
Wages and salaries (including LTIP, see note 28) 48,667 46,844
Social security costs 4,286 3,838
Other pension costs (see note 27b) 863 848
53,816 51,530
Details of directors' emoluments are disclosed in the Annual Report. The Group
considers key management to be the directors only. Employee profit sharing of
£10.0 million (2015: £10.4 million) is included in the above and comprises
sales commission and bonuses.
7 Investment revenue and finance costs
52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
£'000 £'000
Investment revenue
Bank interest receivable and similar income 85 107
Fair value gain on forward currency contracts* - 135
85 242
Finance costs
Interest on bank loans and overdrafts (1,092) (1,231)
Interest on underpaid tax** (84) (852)
(1,176) (2,083)
*In prior year, the directors included foreign exchange gains within
investment revenue. In the current year, the directors consider a more
appropriate classification to be within cost of sales given the gains relate
to the Group's inventory purchases. On the grounds of materiality, no changes
have been made to the comparative figures.
**The Group has historically provided for tax on open HMRC enquiries. During
2015/16 financial year a £0.6 million payment was made, and in the first few
weeks of the 2016/17 financial year a further payment of £2.9 million was
made, all payments being provided for in previous periods. It is believed that
these payments resolve the majority of outstanding historic tax issues.
No finance costs are appropriate to be capitalised in the period, or the prior
period.
Interest on bank loans and overdrafts represents gains and losses on financial
liabilities measured at amortised cost. There are no other gains or losses
recognised in respect of financial liabilities measured at amortised cost.
8 Taxation
52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
Continuing operations: £'000 £'000
Current tax - charge for the period 3,906 3,946
Current tax - adjustment in respect of previous periods 148 103
Deferred tax - charge for period (note 19) 302 (158)
Deferred tax - adjustment in respect of previous periods (note 19) 95 63
4,451 3,954
The charge for the period can be reconciled to the profit per the statement of
financial performance as follows:
Continuing operations 52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
£'000 £'000
Profit before taxation 19,982 17,019
Tax at the UK corporation tax rate of 20.0% (2015: 20.5%) 3,997 3,489
Expenses that are not deductible in determining taxable profitDifference between IFRS 2 and corporation tax relief 58137 119-
Reduction in UK corporation tax rate (246) -
Chargeable gain lower than profit on sale of freehold property - (2)
Tangible fixed assets which do not qualify for capital allowances 261 182
Adjustment in respect of prior periods 244 166
Tax expense for the period 4,451 3,954
In the period, the Group has recognised a corporation tax credit directly to
equity of £448,000 (2015: £8,000) and a deferred tax debit to equity of
£630,000 (2015: £485,000) in relation to the Group's share option schemes.
9 Dividends
52 weeks ended 1 October 2016 53 weeks ended 3 October 2015
£'000 £'000
Interim dividend for the period ended 1 October 2016 of £0.01 (2015: £0.0075) per shareProposed final dividend for the period ended 1 October 2016 of £0.025 (2015: £0.0225) per share 1,930 4,803 1,447 4,358
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting and has not been included as a liability in these
financial statements.
10 Earnings per share
The calculation of earnings per share is based on the earnings for the
financial period attributable to equity shareholders and the weighted average
number of ordinary shares.
2016 2015
Number of Number of
Shares Shares
Weighted average number of issued shares
For basic earnings per share 195,063,550 193,683,323
Weighted average impact of treasury shares for basic earnings per share (2,131,436) (799,088)
Weighted average number of shares under option 5,769,647 1,234,227
For diluted earnings per share 198,701,761 194,118,462
The calculation of the basic and diluted earnings per share used the
denominators as shown above for both basic and diluted earnings per share.
11 Goodwill
£'000
Cost and carrying amount at 27 September 2014, 3 October 2015 and 1 October 2016 245
The balance of goodwill remaining is the carrying value that arose on the
acquisition of Surface Coatings Ltd in 1998.
The Group tests goodwill annually for impairment, or more frequently if there
are indications that goodwill might be impaired.
The recoverable amounts are determined from value in use calculations. The key
assumptions for the value in use calculations are those regarding the discount
rates, growth rates and expected changes to, selling prices and direct costs
during the period. Management estimates discount rates based on the Group's
weighted average cost of capital. The growth rates are based on industry
growth forecasts. Changes in selling prices and direct costs are based on past
practices and expectations of future changes in the market. Discounted cash
flows are calculated using a pre-tax rate of 14.2% (2015: 14.4%).
The Group prepares cash flow forecasts derived from the most recent financial
budgets approved by management for the next five years and extrapolates cash
flows for the following five years. The growth rate applied does not exceed
the average long-term growth rate for the relevant markets. There are no
reasonable changes that would result in the carrying value of goodwill being
reduced to its recoverable amount.
As a result of the annual test of impairment of goodwill, no impairment has
been identified for the current period.
12 Property, plant and equipment
Land and buildings Fixtures
Short and Motor
Freehold leasehold fittings vehicles Total
Cost £'000 £'000 £'000 £'000 £'000
At 27 September 2014 17,951 1,832 63,459 120 83,362
Additions 1,129 231 10,643 5 12,008
Disposals (520) (109) (1,793) (67) (2,489)
At 3 October 2015 18,560 1,954 72,309 58 92,881
Additions - 93 10,411 5 10,509
Disposals - - (691) - (691)
At 1 October 2016 18,560 2,047 82,029 63 102,699
Accumulated depreciation and impairment
At 27 September 2014 1,767 1,719 38,511 71 42,068
Charge for the period 290 38 4,896 19 5,243
Provision for impairment - - 266 - 266
Eliminated on disposals (11) (109) (1,627) (43) (1,790)
At 3 October 2015 2,046 1,648 42,046 47 45,787
Charge for the period 289 49 5,482 12 5,832
Provision for impairment - - 152 - 152
Eliminated on disposals - - (691) - (691)
At 1 October 2016 2,335 1,697 46,989 59 51,080
Carrying amount
At 1 October 2016 16,225 350 35,040 4 51,619
At 3 October 2015 16,514 306 30,263 11 47,094
Freehold land and buildings include £4,104,000 of freehold land (2015:
£4,104,000) on which no depreciation has been charged in the current period.
There is no material difference between the carrying and market values.
Cumulative finance costs capitalised in the cost of tangible fixed assets
amount to £nil (2015: £nil).
Contractual commitments for the acquisition of property, plant and equipment
are detailed in note 27.
During the period, the Group has closed ten stores in the UK. As the fixtures
and fittings within these stores cannot be re-used in other locations within
the Group, the carrying value of these assets has been fully provided for in
the period, with the associated impairment charge of £152,000 (2015: £266,000)
included within other operating expenses.
13 Subsidiaries
A list of all subsidiaries, including the name, country of incorporation and
proportion of ownership interest is given in note 3 to the Company only
financial statements.
14 Trade and other receivables
2016 2015
£'000 £'000
Amounts falling due within one year:
Amounts receivable for the sale of goods 681 712
Allowance for doubtful debts (33) (27)
Other debtors and prepayments
-Rent and rates 4,001 4,808
-Other 2,059 2,548
6,708 8,041
The Directors consider that the carrying amount of trade and other receivables
at 1 October 2016 and 3 October 2015 approximates to their fair value on the
basis of discounted cash flow analysis.
Credit risk
The Group's principal financial assets are bank balances and cash and trade
receivables.
The Group considers that it has no significant concentration of credit risk.
The majority of sales in the business are cash based sales in the stores.
Total trade receivables (net of allowances) held by the Group at 1 October
2016 amounted to £0.6 million (2015: £0.7 million). These amounts mainly
relate to sundry trade accounts and Tesco Clubcard Scheme generated sales. In
relation to these sales, the average credit period taken is 54 days (2015: 51
days) and no interest is charged on the receivables.
Before accepting any new customer, the Group uses an external credit scoring
system to assess the potential customer's credit quality and defines credit
limits by customer. Limits and scoring attributed to customers are reviewed
periodically.
Included in the Group's trade receivable balance are debtors with a carrying
amount of £94,000 (2015: £96,000) which are past due at the reporting date for
which the Group has not provided as there has not been a significant change in
credit quality and the amounts are still considered recoverable. The Group
does not hold any collateral over these balances.
Ageing of past due but not
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