REG - Topps Tiles - Final Results <Origin Href="QuoteRef">TPT.L</Origin> - Part 2
25/11/2014 08:50
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more challenging. Against this backdrop, the
new financial period has started well with like for like sales over the first eight weeks of our new year increasing by
6.7%. Macro-economic indicators remain positive and the Group's successful strategy of taking profitable market share is
underpinning further progress.
FINANCIAL REVIEW
PROFIT AND LOSS ACCOUNT
Revenue
Revenue for the period ended 27 September 2014 increased by 9.8% to £195.2 million (2013: £177.8 million). Like-for-like
store sales increased by 8.1% in the period, which consisted of a 10.2% increase in the first half of the financial period
and a 6.1% increase in the second half.
Gross Margin
Overall gross margin was 60.9% compared with 60.2% in the previous financial period. At the interim stage of the period
gross margin was 60.8%, and we recorded a gross margin of 60.9% in the second half of the period. The environment in which
we operate continues to be highly competitive and we remain focussed on delivering our customers the very best value at the
same time as also generating improved returns.
Operating Expenses
Total operating costs have risen from £93.2 million to £100.7 million, an increase of 8.0%. Costs as a percentage of sales
were 51.6% compared to 52.4% in the previous period. When adjusting items (detailed below) are excluded, operating costs
were £100.2 million (2013: £91.5 million), equivalent to 51.3% of sales (2013: 51.5% of sales).
The movement in adjusted operating costs is explained by the following key items:
· Inflation at an average of approximately 1.8% has increased our cost base by around £1.7 million
· The average number of UK stores trading during the financial period was 329 (2013: 321), which generated an increase
in costs of approximately £1.8 million
· Employee profit share costs have increased by £3.5 million due to targets across the business being exceeded as a
result of the strong business performance
· Marketing costs for the year were £4.7 million, an increase of £1 million from the previous year
· The strong sales growth we have delivered this year drives an increase in supply chain activity of approximately
£0.3 million
· The remaining elements of the cost base are flat when compared to the prior year
During the period we incurred several charges which we have excluded from our adjusted operating costs as they are not
representative of the underlying cost base of the business. These charges relate to impairments of plant, property and
equipment of £0.3 million (2013: £0.6 million) and business restructuring costs of £0.2 million (2013: £0.2 million). The
charge against property related provisions was £nil (2013: £0.9 million charge). Property related provisions are driven by
providing forward for four years the expected costs of loss making or closed stores. Any change to the property provisions
would be driven by either a change in the number of stores impacted or a change in the forward period provided for.
Operating Profit
Operating profit for the period was £18.2 million (2013: £13.8 million).
Operating profit as a percentage of sales was 9.3% (2013: 7.8%).
Excluding the adjusting items detailed above operating profit was £18.7 million (2013: £15.6 million).
Other Gains and Losses
During the period we disposed of one freehold property generating a gain of £0.4 million. In the prior year we disposed of
one freehold property at the carrying value of the investment and also recognised a further gain of £0.1 million relating
to a previous disposal of the Fenton warehouse.
Financing
The net cash interest charge for the year was £1.6 million (2013: £2.5 million), excluding the impact of currency
revaluations. The underlying interest charge has fallen compared to the prior financial period due to a decision to cancel
the remaining element of the interest rate derivatives in the previous financial year. The prior year included a charge
for the cancellation of outstanding interest rate derivatives of £5.9 million, which was substantially offset by the
reversal of a "marked to market" accrual the company had previously provided for.
The company has in place a number of forward currency contracts giving rise to a "marked to market" revaluation as required
by IAS39 "Financial Instruments: Recognition and Measurement". This revaluation has generated a fair value (non-cash) gain
of £0.1 million (2013: £nil). The combined net gain for the year is therefore £0.1 million (2013: £0.2 million gain). Due
to the nature of the underlying financial instruments, IAS39 does not allow hedge accounting to be applied to these losses
and hence any gains or losses against these derivatives is applied directly to the income statement rather than being
offset against balance sheet reserves.
In addition to the above charges and gains we have also provided for £0.1 million of interest against historic outstanding
potential tax payments. In the prior year period we included a charge of £1.0 million against these potential liabilities,
£0.9 million of this cost had previously been charged against tax and as a consequence there was an offsetting impact
included within the Group's tax charge for the year.
Net interest cover was 14.2 times (2013: 7.4 times) based on earnings before interest, tax, depreciation and the impairment
of plant, property and equipment, excluding the impact of IAS39 in finance charges and the write-down of the unamortised
issue costs relating to the 2011 Revolving Credit Facility.
Profit Before Tax
Reported profit before tax was £16.7 million (2013: £10.6 million).
The Group profit before tax margin was 8.6% (2013: 6.0%)
Excluding the adjusting items detailed on page 1 profit before tax was £17.1 million (2013: £13.0 million).
Tax
The effective rate of Corporation Tax for the period was 25.0% (2013: 13.7%).
The prior period rate includes the effect of a release of £0.9 million relating to historical corporation tax provisions no
longer required. When this adjustment is taken into account the underlying prior period tax rate was 21.8%.
The Group tax rate is higher than the prevailing UK corporation tax rate due to non-deductible expenditure and depreciation
on assets not qualifying for capital allowances.
Earnings Per Share
Basic earnings per share were 6.49 pence (2013: 4.76 pence).
Diluted earnings per share were 6.43 pence (2013: 4.73 pence).
Excluding the adjusting items detailed on page 1 adjusted earnings per share were 6.63 pence (2013: 5.44 pence).
Dividend and Dividend policy
The Company has delivered a strong financial result this year and the Board feels it is appropriate that this is also
reflected in the dividend for the year. The Group's net debt position has also now reduced to a level the Board considers
to be an appropriate balance of an efficient capital structure and financial flexibility.
To this end we are recommending to shareholders a final dividend of 1.60 pence per share (2013: 1.0 pence per share). This
will cost £3.1 million (2013: £1.9 million). The shares will trade ex-dividend on 29 December 2014 and, subject to
approval at the Annual General Meeting, the dividend will be payable on 30 January 2015.
This brings the total dividend for the year to 2.25 pence per share (2013: 1.50 pence per share), an increase of 50%.
BALANCE SHEET
Capital expenditure
Capital expenditure in the period amounted to £11.2 million (2013: £5.5 million), an increase of 103.6%. Investment in our
stores accounts for £7.6 million (2013: £4.2 million) and includes 12 new openings, two conversions, two relocations and 21
full or part store refits. There have been three freehold purchases in the period at a cost of £2.9 million (2013: no
freehold purchases). The remaining expenditure primarily consists of investment in IT infrastructure of £0.7 million (2013:
£1.1 million).
At the period end the Group held eight freehold or long leasehold sites including two warehouses and distribution
facilities with a total carrying value of £16.0 million (2013: six freehold or long leasehold valued at £13.6 million).
Property Disposals
During the period we disposed of one freehold property and generated proceeds of £0.6 million (2013: one property generated
£0.4 million).
Inventory
Inventory at the period end was £27.8 million (2013: £26.2 million) representing 133 days turnover (2013: 135 days
turnover). This small increase in stockholding is driven by an increase in the number of stores trading at year end of 335
(2013: 328).
Capital Structure and Treasury
Cash and cash equivalents at the period end were £19.5 million (2013: £18.4 million) with repayable borrowings at £50.0
million (2013: £55.0 million).
This gives the Group a net debt position of £30.5 million (2013: £36.6 million).
Cash flow
Cash generated by operations was £24.9 million, compared to £28.2 million last period. The reduction in cash generation
year on year is as a result of the prior year period including a working capital gain which was generated from the timing
of year end and has not repeated in the current financial period.
Cautionary Statement
This Strategic & Operational Review, and Chairman's statement have been prepared solely to provide additional information
to shareholders to assess the Group's strategies and the potential for those strategies to succeed. These reports should
not be relied on by any other party or for any other purpose.
The Strategic and Operational Review and Chairman's statement contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information available to them up to the time of their
approval of this report and such statements should be treated with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such forward-looking information.
The Directors, in preparing this Strategic and Operational Review, have complied with s414a of the Companies Act 2006.
This Business Review has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which
are significant to Topps Tiles Plc and to its subsidiary undertakings when viewed as a whole.
Directors' Responsibility Statement
We confirm to the best of our knowledge:
· the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in
the consolidation taken as a whole; and
· the Strategic Report, which is incorporated into the Directors' Report includes a fair review of the development and
performance of the business and the position of the Company and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties they face and a fair, balanced and reasonable
view of the business.
ANNUAL GENERAL MEETING
The Annual General Meeting for the period to 27 September 2014 will be held on 22 January 2015 at 10.00am at Topps Tiles
Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU.
Matt WilliamsChief Executive Officer 25 November 2014 Rob ParkerChief Financial Officer
Consolidated Statement of Financial Performance
For the 52 weeks ended 27 September 2014
Notes 52 weeks ended 27 September 2014 52 weeks ended 28 September 2013
£'000 £'000
Group revenue - continuing operations 3 195,237 177,849
Cost of sales (76,367) (70,826)
Gross profit 118,870 107,023
Employee profit sharing (9,827) (6,251)
Distribution and selling costs (69,161) (68,483)
Other operating expenses (5,359) (4,656)
Administrative costs (11,665) (10,025)
Sales and marketing costs (4,672) (3,763)
Group operating profit 18,186 13,845
Other gains 4 401 109
Investment revenue 6 251 170
Finance costs 6 (2,147) (3,733)
Fair value gain on interest rate derivatives 6 - 210
Profit before taxation 4 16,691 10,601
Taxation 7 (4,179) (1,457)
Profit for the period attributable to equity holders of the company 25 12,512 9,144
Earnings per ordinary shareFrom continuing operations 9
- basic 6.49p 4.76p
- diluted 6.43p 4.73p
Consolidated statement of comprehensive incomeFor the 52 weeks ended 27 September 2014
52 weeks ended 27 September 2014 52 weeks ended 28 September 2013
£'000 £'000
Profit for the period 12,512 9,144
Total comprehensive income for the period attributable to equity holders of the parent Company 12,512 9,144
Consolidated Statement of Financial Position
As at 27 September 2014
2014 2013
Notes £'000 £'000
Non-current assets
Goodwill 10 245 245
Property, plant and equipment 11 41,294 35,348
41,539 35,593
Current assets
Inventories 27,846 26,196
Trade and other receivables 13 5,800 7,711
Cash and cash equivalents 14 19,547 18,443
53,193 52,350
Total assets 94,732 87,943
Current liabilities
Trade and other payables 15 (36,240) (35,929)
Current tax liabilitiesProvisions 18 (4,888)(876) (3,734)(1,014)
(42,004) (40,677)
Net current assets 11,189 11,673
Non-current liabilities
Bank loans 16 (49,581) (54,820)
Deferred tax liabilities 18 (261) (426)
Provisions 18 (2,043) (2,204)
Total liabilities (93,889) (98,127)
Net assets/ (liabilities) 843 (10,184)
Equity
Share capital 19 6,455 6,404
Share premium 20 1,879 1,492
Own shares 21 (656) (10)
Merger reserve 22 (399) (399)
Share based payment reserve 23 1,941 649
Capital redemption reserve 24 20,359 20,359
Retained earnings 25 (28,736) (38,679)
Total funds/ (deficit) attributable to equity holders of the parent 843 (10,184)
The accompanying notes are an integral part of these financial statements.
The financial statements of Topps Tiles Plc, registered number 3213782, were approved by the board of directors and
authorised for issue on 25 November 2014. They were signed on its behalf by:
M.T.M Williams
R. Parker
Directors
Consolidated Statement of Changes in EquityFor the 52 weeks ended 27 September 2014
Share-Based Capital
Share Share Own Merger Payment Redemption Retained Total
Capital Premium Shares Reserve Reserve Reserve Earnings Equity
£'000 £'000 £000 £'000 £'000 £'000 £'000 £'000
Balance at
29 September 2012 6,395 1,481 (4) (399) 566 20,359 (45,746) (17,348)
Profit and total comprehensive income for the period - - - - - - 9,144 9,144
Issue of share capital 9 11 - - - - - 20
Dividends - - - - - - (2,396) (2,396)
Own shares purchased in the period - - (6) - - - - (6)
Credit to equity for equity-settled share based payments - - - - 83 - - 83
Deferred tax on share-based payment transactions - - - - - - 319 319
Balance at
28 September 2013 6,404 1,492 (10) (399) 649 20,359 (38,679) (10,184)
Profit and total comprehensive income for the period - - - - - - 12,512 12,512
Issue of share capital 51 387 - - - - - 438
Dividends - - - - - - (3,175) (3,175)
Own shares purchased in the period - - (650) - - - - (650)
Own shares issued in the period - - 4 - - - - 4
Credit to equity for equity-settled share based payments - - - - 1,292 - - 1,292
Deferred tax on share-based payment transactions - - - - - - 606 606
Balance at
27 September 2014 6,455 1,879 (656) (399) 1,941 20,359 (28,736) 843
Consolidated Cash Flow Statement
For the 52 weeks ended 27 September 2014
52 weeks ended 27 September 2014£'000 52 weeks ended 28 September 2013£'000
Cash flow from operating activities
Profit for the period 12,512 9,144
Taxation 4,179 1,457
Fair value gain on interest rate derivatives - (210)
Finance costs 2,147 3,733
Investment revenue (251) (170)
Other gains on sale of freehold properties (401) (109)
Group operating profit 18,186 13,845
Adjustments for:
Depreciation of property, plant and equipment 4,553 4,258
Impairment of property, plant and equipment 348 553
Share option charge 1,292 83
Decrease/(increase) in trade and other receivables 1,834 (486)
Increase in inventories (1,650) (279)
Increase in payables 348 10,209
Cash generated by operations 24,911 28,183
Interest paid (1,695) (3,265)
Taxation paid (2,582) (2,649)
Net cash from operating activities 20,634 22,269
Investing activities
Interest received 140 199
Purchase of property, plant and equipment (11,450) (5,586)
Proceeds on disposal of property, plant and equipment 733 398
Purchase of own shares (646) -
Net cash used in investment activities (11,223) (4,989)
Financing activities
Dividends paid (3,175) (2,396)
Proceeds from issue of share capital 438 14
Settlement of interest rate hedge - (5,897)
Loan issue costs (570) -
Repayment of bank loans (5,000) (5,000)
Net cash used in financing activities (8,307) (13,279)
Net increase in cash and cash equivalents 1,104 4,001
Cash and cash equivalents at beginning of period 18,443 14,442
Cash and cash equivalents at end of period 19,547 18,443
Notes to the Financial Statements
For the 52 weeks ended 27 September 2014
1 General information
Topps Tiles Plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered
office is given in the Annual Report. The nature of the Group's operations and its principal activity are set out in the
Directors' Report in the Annual Report.
These financial statements are presented in pounds sterling because that is the currency of the primary economic
environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note
18.
Adoption of new and revised standards
In the current period, the following new and revised standards and interpretations have been adopted and may affect the
future amounts reported in the financial statements:
IFRS 13 - Fair Value Measurement, this standard defines fair value, sets out in a single IFRS a framework for measuring
fair value and requires disclosures about fair value measurements.
Standards not affecting the reported results nor the financial position
The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not
had any significant impact on the amounts reported in these financial statements that may impact the accounting for future
transactions and arrangements.
IAS 1 (amended) - Presentation of Items of Other Comprehensive Income, the amendments improve the consistency and clarity
of the presentation of items of other comprehensive income.
IAS 19 (revised) - Employee Benefits, this revised standard prescribes the accounting and disclosure by employers for
employee benefits.
Improvements to IFRSs 2011-13. Aside from those items already identified above, the amendments made to standards under the
2010 improvements to IFRSs have had no impact and will not have any impact on the group.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been
applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by
the EU):
IFRS 9 - Financial Instruments
IFRS 10 - Consolidated Financial Statements
IFRS 11 - Joint Arrangements
IFRS 12 - Disclosure of Interests in Other Entities
IFRS 15 - Revenue from Contracts with Customers
IAS 16 and IAS 38 (amended): Clarification of Acceptable Methods of Depreciation and Amortisation
IAS 27 (amended): Equity Method in Separate Financial Statements
The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material
impact on the financial statements of the Group.
2 Accounting policies
a) Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards 'IFRSs'. The
financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group
financial statements comply with Article 4 of the EU IAS regulation. The financial statements have been prepared on the
historical cost basis, except for the revaluation of derivative financial instruments. Historical cost is generally based
on the fair value of the consideration given in exchange for the assets.
b) Going concern
When considering the going concern test the Board review several factors including a detailed review of the above risks and
uncertainties, the Group's forecast covenant and cash headroom against lending facilities (which were refinanced in June
2014) and management's current expectations. As a result of this review the Board believes that the Group will continue to
meet all of its financial commitments as they fall due and will be able to continue as a going concern. Therefore, the
Board considers it appropriate to prepare the financial statements on the going concern basis.
The principal accounting policies adopted are set out below.
c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of
financial performance from the effective date of 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 2014 mean at 27 September 2014 or
the 52 weeks then ended; references to 2013 mean at 28 September 2013 or the 52 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.
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 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.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established
(provided that it is probable that the economic benefit will flow to the Group and the amount of income can be measured
reliably).
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. There were no exceptional items in the current or prior period.
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, per annum 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.
Assets held in the course of construction for production, supply or administrative purposes, or for purposes not yet
determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying
assets, borrowing costs capitalised in accordance with the Group's accounting policy. Depreciation of these assets, on the
same basis as other property assets, commences when the assets are ready for their intended use.
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 and intangible assets excluding goodwill
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. An intangible asset with an indefinite useful life is tested for impairment at least annually and
whenever there is an indication that the asset may be impaired.
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. 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 charge for the period 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); and
- exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised
initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of
the net investment.
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 balance sheet.
p) Finance costs
Finance costs which are directly attributable to the construction of tangible fixed assets are capitalised as part of the
cost of those assets. The commencement of capitalisation begins when both finance costs and expenditures for the asset are
being incurred and activities that are necessary to get the asset ready for use are in progress. Capitalisation ceases
when substantially all the activities that are necessary to get the asset ready for use are complete.
All other 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. The Group has no designated FVTPL financial assets.
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 43 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.
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
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