REG - Unbound Group PLC - Final Results
03/03/2022 07:16
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RNS Number : 4629D Unbound Group PLC 03 March 2022
Unbound Group plc
Unaudited results for the 16 months ended 31 January 2022
Unbound Group plc ("Unbound Group" or the "Company") is an online multi-brand
retail platform building on its foundational business, Hotter Shoes, to
provide a broader range of own-brand and third-party products and services
that enhance the active lifestyles of its targeted 55 plus demographic.
Unbound Group plc was named Electra Private Equity PLC until January 2022 and
was an investment trust until 1 February 2022 when it was admitted to trading
on AIM. These financial statements reflect the final position of the Company
as an investment trust as at 31 January 2022. Further to the Company's trading
update of 17 February 2022, it expects to announce the full year audited
financials for its Hotter Shoes trading subsidiary in May 2022.
Preliminary Results
· Results to 31 January 2022 reflect final position as an investment
trust prior to admission to trading on AIM on 1 February 2022
· Reported net asset value of £23.1 million reflects closing market
capitalisation on 31 January 2022
Strategic Highlights
· The Company's shares were admitted to trading on AIM on 1 February
2022, completing the transition to Unbound Group
· Unbound Group is an online multi-brand retail platform focused on
enhancing the active lifestyle of the 55 plus consumer through the provision
of products and services that allow them to do more of what they love
· Unbound Group, through Hotter Shoes, already sells to over 29% of the
female 55 plus population through its direct-to-consumer channels
· Addition of carefully selected products and services, in addition to
Hotter Shoes, targeted to increase customer transaction frequency and share of
wallet
· Progress towards launch of Unbound Group partner brands on the
Unbound Group digital platform in summer 2022 is on track
· Planned realisation of remaining non-core assets carried at £3.7
million to focus resource on accelerated development of the Unbound
partnership and product strategy
· Capital Markets Day planned for May 2022 to give a detailed update on
Unbound Group partnerships progress
Hotter Shoes Update
· As announced on 17 February 2022, Unbound Group's foundational
trading business, Hotter Shoes, reported unaudited results for the year to
January 2022 (FY22) in line with expectation - with revenue of approximately
£51.9 million (FY21: £44.5 million) and profit before tax and exceptional
items (on an IFRS basis) improved by over £6.0 million from FY21 to return to
a small positive
· Hotter's trading in FY23 to date in line with expectations
· Partnership with M&S also announced on 17 February 2022 builds on
recently established e-commerce partnerships with John Lewis, Next and The
Very Group
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Unbound Group Balance Sheet on Admission
· Group banking net debt after all admission related costs of £8.7
million
· Non-core assets held for disposal valued at additional £3.7 million
as at 31 January 2022
· Banking facilities (Hotter) extended to December 2024 pre admission
Neil Johnson, Chairman of Unbound Group, commented:
"I am pleased to present our Report and Accounts with the financial statements
presented as an Investment Trust for the final time.
I am delighted with the progress made by the Unbound Group team both at Hotter
and in developing the new multi-brand Unbound Group platform and partnerships.
The Board looks forward with confidence and excitement to the future
development of the Group."
ENQUIRIES
Unbound Group plc
Dan Lampard
020 3874 8300
Stifel Nicolaus Europe Limited (Nomad and corporate broker)
Ash Burman, Nick Adams, Stewart Wallace, Francis North
020 7710 7600
Vico Partners
Sofia Newitt
020 3957 5045
The financial information set out in the announcement does not constitute the
company's statutory accounts for the period ended 31 January 2022 or the year
ended 30 September 2020. The financial information for the year ended 30
September 2020 is derived from the statutory accounts for that year which have
been delivered to the Registrar of Companies. The auditors reported on those
accounts: their report was unqualified and did not contain a statement under
s498(2) or (3) of the Companies Act 2006. Their report did contain an emphasis
of matter in respect of the fact that the financial statements for the year
ended 30 September 2020 were prepared on a basis other than that of a going
concern. The circumstances of the Group and the Company have since changed
and the financial information set out in this announcement has been prepared
on the going concern basis. The audit of the statutory accounts for the year
ended 31 January 2022 is not yet complete. These accounts will be finalised on
the basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the company's annual general meeting.
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1. Chairman's Statement
"After navigating not only the impact of the Covid-19 pandemic but also the
challenges of transitioning to Unbound Group and its AIM listing, I am pleased
to present our Report and Accounts with the financial statements presented as
an Investment Trust for the final time.
I am delighted with the progress made by the Unbound Group team both at Hotter
and in developing the new multi-brand Unbound Group platform and partnerships.
The Board looks forward with confidence and excitement to the future
development of the Group."
I am delighted to present my first statement as the Chairman of Unbound Group
plc ("Unbound", the "Company" or the "Group"), having previously reported as
Chairman of the Company under its former name, Electra Private Equity PLC
("Electra"), until late January 2022.
Throughout the 16-month period ended 31 January 2022, the period reviewed and
reflected in this Annual Report and Financial Statements, the Company traded
as a private equity investment trust. As such the financial statements have
been prepared under IFRS 10 Consolidated Financial Statements on a basis
appropriate for an investment company and consistent with the basis of
preparation of accounts for prior reporting periods. The Company's financial
statements for future reporting period will be prepared under IFRS 10 without
the exception from consolidation requirements for investment entities.
On 1 February 2022, the Company relinquished its listing on the FTSE Main
Market and was admitted to the Alternative Investment Market ("AIM") of the
London Stock Exchange as Unbound Group plc. The admission to AIM marked the
Company ceasing to be an investment trust and investment company, and the
start of it being the parent company of the Unbound Group, a consolidated
trading group. As such, in future periods the financial statements of the
Group will be prepared on the basis of consolidated accounts for a trading
group. In addition, the Company expects to announce the full year audited
financials for its Hotter Shoes trading subsidiary which will be comparable to
the historic financial information contained in the Company's AIM admission
document in May 2022.
Given the situation of the Company as at 31 January 2022, the Directors have
valued the assets of the Company on the basis of its market capitalisation as
at that date. The value attributed to Hotter Shoes ("Hotter") therefore
represents the market capitalisation of the Company on 31 January 2022 less
the other net assets of the Company at that date. As such it does not
represent the Directors' opinion of the future value of Hotter.
The table below presents movement of the Company's Net Asset Value ("NAV") per
share during the 16 months to 31 January 2022.
NAV per share p
As at 1 October 2020 353.4
Capital gains and income 131.1
Expenses and other (29.2)*
Dividend in specie (demerger of Hostmore) (400.7)
As at 31 January 2022 54.6**
*Expenses and other costs represent all operating and transactional costs met
by the Company during the 16-month period to 31 January 2022.
**Closing market price on 31 January 2022.
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Section 5 of this Annual Report (Transformation from Electra Private Equity
PLC to Unbound Group plc) deals in more detail with the period to 31 January
2022. It also deals with the impact of transitioning from investment company
reporting to consolidated group reporting, and the re-presentation of the
"opening" balance sheet of Unbound Group plc as at 31 January 2022 on a
consolidated group basis. It should be noted that these financial statements
relate to Unbound Group plc in its investment company format as at the period
end prior to its transformation on 1 February 2022. The performance of Hotter
in the period to the end of January 2022 referenced in this document is
unaudited.
The transition to Unbound marked the successful conclusion of the value
realisation strategy implemented by the Company as Electra between 2016 and
January 2022. This strategy was first implemented when the market
capitalisation stood at approximately £1.1 billion and has resulted in the
realisation of over £2.3 billion of value to shareholders between 2016 and
late 2021 ahead of the demerger of Hostmore plc ("Hostmore"). With the
demerger of Hostmore in November 2021 and ultimately the transformation to
Unbound in February 2022, the final stage of Electra's strategy has resulted
in shareholders owning two independent and well capitalised businesses with
strong management and deliverable strategies for growth. Electra shareholders
have had the opportunity to realise final value in the short term or to
continue to hold Hostmore and Unbound separately as they implement their
strategies.
In concluding that the final transition into Unbound represented a significant
value creation opportunity for shareholders, the Board took account of the
successful turnaround of Hotter into a growing digitally focused business that
serves almost 30% of the female population of the UK over the age of 55. This
consumer demographic is not only growing faster than any other, but has the
most rapidly increasing digital literacy, an increasingly positive and active
outlook and high disposable wealth and is inherently loyal once trust is
established. The Hotter brand already enjoys extremely high loyalty and trust
ratings with an average transaction frequency of 1.6x per annum per customer,
which is already strong for a footwear business. By adding other trusted
brands that provide products and services to the same demographic and support
our consumers' active lifestyles and wellbeing, we believe that we can build a
strong consumer proposition with significantly increased transaction
frequency.
The strategy outlined above and considered in more detail in the Chief
Executive's Business and Strategy Review on pages 6 to 19 is one focused on
growth. As such, the Board does not anticipate implementing a policy of paying
dividends in the short to medium term.
In implementing the Unbound strategy, it was appropriate that our Board should
evolve from one established to develop and implement the Electra strategy to
one focused on the demands and opportunities of Unbound. As such, as indicated
in my statement for the Second Interim Report, David Lis and Stephen Welker
both stepped down from the Board in November 2021, replaced by Baroness Kate
Rock and Suki Thompson. I would again thank David and Stephen for their
considerable contribution to the success of the Electra strategy over recent
years and look forward to working with Kate and Suki in the years ahead.
On admission to AIM, Ian Watson and Dan Lampard, respectively Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO") of Hotter Shoes, assumed
the same roles in the wider Unbound Group. At the same time, Gavin Manson,
Chief Financial and Operating Officer ("CFOO") of Electra, and I both stepped
back from our Executive roles, with Gavin becoming a Non-Executive Director
and me becoming Non-Executive Chairman. Finally, having seen the Company
through its transition to Unbound, Linda Wilding will step down from the Board
with effect from the AGM on 12 May 2022. The Board is delighted that Gavin
Manson will succeed her as Audit Committee Chair. Gavin's long experience as a
Chartered Accountant and Chief Financial Officer combined with his knowledge
of the Unbound business leave him ideally suited to the role.
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After what has been a challenging period, navigating not only the impact of
the Covid-19 pandemic but also the challenges of transition to Unbound, the
continuing impact of the pandemic and its AIM listing, the Board looks forward
with confidence and excitement to the future development of the Group.
Neil Johnson
Chairman
2 March 2022
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2. Chief Executive's Business and Strategy Review
2.1. Hotter Shoes as the Foundation of Unbound Group
Currently Hotter is the sole trading business within the Unbound Group and it
will form the foundation on which we develop other trading activities of the
Group this year and beyond.
Hotter provides footwear with an uncompromising focus on comfort and fit,
delivered through the use of differentiated technology, to consumers in the UK
and US predominantly in the 55 plus demographic. Founded in 1959, originally
as a slipper manufacturer, Hotter today offers a wide range of men's and
predominantly women's footwear with a focus on comfort provided through
utilising technology in design and manufacture.
Having undergone a significant transformation which started in 2019, the
Hotter brand has pivoted towards digital channels whilst maintaining a
right-sized and profitable store portfolio. The result is a digitally led
business which is agile, flexible and scalable, yielding strong returns from
its leading online business.
Hotter's mission is to provide footwear that enhances its consumers' lives by
allowing them to do more of what they enjoy. Hotter is now a digital first
brand that serves over 29% of the UK's 55 plus female population direct to
their home. In the year to January 2022, Hotter's UK direct to consumer sales
grew by 16% on the corresponding period in 2020.
Following the implementation of a technology infrastructure to support its
developing e-commerce ambitions, over recent months Hotter has established
digital partnerships with a number of online retailers such as Next, John
Lewis, The Very Group and, as recently announced, Marks and Spencer, that
serve a wide demographic including Hotter's targeted consumers.
Hotter continues to demonstrate delivery as an e-commerce focused business
and, with further product improvements being introduced on an ongoing basis,
the Directors have confidence that a standalone Hotter business has the
opportunity to deliver value well in excess of that attributed to it in recent
valuations. The demonstration of sustained growth and profitability in its new
model and the resilience and performance to date give the Directors grounds
for confidence in its development as an increasingly profitable digital
business serving its target 55 plus demographic in the UK, the US and beyond.
2.2. Unbound's Vision, Mission and Core Strategic Principles
In order to encapsulate what Unbound means to the Board and what we will seek
to ensure that our customers and stakeholders recognise, we have defined
Unbound's vision, mission and five core strategic principles that will define
how and why we do things as being:
Vision
"To help people move better, feel better and do more of what they love."
Mission
"Develop technologies, products, experiences and partnerships rooted in
digital excellence and unrivalled insight - to give people in their 50s and
beyond the comfort and confidence to go further."
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Unbound's five core strategic principles
· Guided by insight - Insight excellence drives all that Unbound does.
Unbound builds its business out of unrivalled insight into the needs,
attitudes and behaviours of its 55 plus audience. Unbound goes the extra mile
to engage with, listen to and respond to its audience's changing needs and
continuously track, measure and improve based on its learnings - embedding
insight into everything it does.
· Superiority through specialism - Expertise and focus are how Unbound
wins.
Unbound is focused and undistracted. Focused on the 55 plus consumers. Experts
in comfort that helps its consumers to do more of what they love. Unbound
leverages its audience and comfort specialism to both strengthen its roots in
footwear and to expand into relevant adjacent categories. Growing and
leveraging its unique database of engaged consumers is central to Unbound's
business strategy and how it plans to achieve its goals.
· Growth through connection - Unbound grows its business by curating,
connecting and engaging.
Unbound has unique access to, and understanding of, the 55 plus consumers.
Leveraging its combination of access and understanding, Unbound brings
together a highly curated group of brands with deep relevance for its
consumers. Unbound's connected commerce excellence enables our customers to
shop when, where and how they want.
· Working smarter - Unbound fuels success by driving productivity.
Unbound continuously assesses and improves the ways in which it works -
seeking to maximise its efficiency and enhance its outputs. Unbound utilises
"Lean Six Sigma" management principles to minimise wastage and maximise
customer experience. Lean Six Sigma represents a methodology for overall
organisational culture change. At its core, it is a process improvement
approach for eliminating inefficiencies and improving work processes by
identifying the defects' root causes. Unbound does this every day in all it
does - believing in the power of marginal gains to drive its business forward.
· Stepping up - Unbound steps up, for our business, our planet and our
community.
Unbound believes in taking responsibility, at an individual and collective
level, for the way in which it operates as a business, for reducing its impact
on the planet and for contributing to the communities of which it is a part.
2.3. Unbound, Building on the Foundation of Hotter
Cultural and demographic shifts provide an opportunity for the Unbound Group
to address a customer audience represented by Hotter's consumers and database
with the characteristics of:
· rapidly increasing digital literacy - the 55 plus age demographic is
now generating over 30% of overall internet participation;
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· long-term structural growth in older demographics, significantly in
excess of growth in younger demographics;
· focus on health, wellbeing, leisure and recreation with a more acute
need for comfort over performance; and
· high concentration of UK wealth in the targeted demographic results
in focus for product selection being on value rather than price.
With the Hotter business already selling to over 29% of the UK 55 plus female
population, the Directors believe that this offers an opportunity for
significant sustainable growth beyond that already being delivered by Hotter.
Building on the strong brand, customer trust and loyalty enjoyed by Hotter,
Unbound is building a curated portfolio of partner brands to offer a selected
range of products and services on an Unbound e-commerce platform. These
products, services that will ultimately lead to a community, will be selected
with a focus on enhancing the lifestyle and wellbeing of customers in the 55
plus demographic.
The revenue model being implemented is to generate commission income on sales
of these selected partner products, which will utilise the Unbound platform.
Unbound's initial partner selection is based on consumer demographic insights
from Hotter's customers. This insight will be developed as the range of
products and services offered expands and will increasingly become a
differentiator allowing Unbound to achieve its goal of allowing our customers
to "do more of what they love" enhancing their lifestyle and wellbeing.
The first Unbound revenues from sales of products other than Hotter footwear
are expected in Q2 2022, with the medium-term ambition being to generate more
than half of Unbound's profit from non-Hotter products.
2.4. Our Focus on Consumer Demographic
Ageing population: growth in the 55 plus demographic that is twice as fast as
the under 55 age group
An ageing population combined with increasing life expectancy will continue to
increase Unbound's addressable market and the proportion of the population
with acute comfort needs. The 55 plus demographic is the fastest growing
demographic of the UK population. Hotter already has almost 30% of 55 plus
female consumers on its database representing a significant opportunity for
Unbound to cross-sell additional products and services. Unbound intends to
further increase its penetration amongst the 55 plus age category across both
men and women.
Large and attractive demographic, growing faster than the UK total
16-55 years UK population 56+ years UK population
2019 34.5 million (63.8%) 19.0 million (36.2%)
2029 34.5 million (60.1%) 22.9 million (39.9%)
2039 35.1 million (58.8%) 24.6 million (41.2%)
Growth 2019-2039 14.0% 26.0%
Source: Office for National Statistics, UK only
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Significant market share for key target group of 55 plus female
Not on Hotter database On Hotter database
Male 8.8 million (95.6%) 0.4 million (4.4%)
Female 7.4 million (71.3%) 3.0 million (28.7%)
Total 16.2 million (82.6%) 3.4 million (17.4%)
Increasing digital literacy and online penetration: rising participation rates
for online shopping in the 55 plus age group, with further room to grow
Older generations have rapidly become more digitally active with the Covid-19
pandemic likely to have accelerated this trend. Over 30% of internet users in
the UK are over 55 years old, broadly in line with their proportion of the UK
demographic. A further growth opportunity continues to exist with 35% of over
65-year-olds and 21% of 55 to 64-year-olds yet to shop online. In addition to
higher participation rates, purchase frequency should increase as they become
more comfortable with e-commerce.
Over 30% of online users are over 55
Age Range Population age composition Online age composition
55+ 38% 32%
45-54 18% 19%
35-44 16% 18%
25-34 17% 19%
18-24 11% 12%
Source: Ofcom Online Nation Report, 2020, Office for National Statistics
% of consumers shopping online by age group
Age Range 2017 2018 2019 2020
45-54 84% 81% 89% 95%
55-64 75% 71% 77% 79%
65+ 45% 48% 54% 65%
Source: Ofcom Online Nation Report, 2020, Office for National Statistics
Demographic trends − household wealth is overwhelmingly concentrated within
older demographics, and this is starting to produce faster increases in
discretionary spending
An ageing population combined with increasing life expectancy will continue to
increase Unbound's addressable market and the proportion of the population
with acute comfort needs. The older demographic is the fastest growing
demographic of the UK population. The UK's wealth is concentrated in the 55
plus demographic with approximately 57% of household wealth within this group
against a population composition of just 38%. Household disposable income for
the 55 plus age demographic has increased threefold* when compared to the
under 55 age demographic which has increased twofold*. The 50 plus demographic
accounts for over half of the consumer spending in the UK, having spent £367
billion* on discretionary items in 2020.
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Household wealth distribution in the UK, by age of lead household member*
Age range Private pension wealth Non pension wealth Total
£ £ £
16-24 8,000 57,000 65,000
25-34 33,000 93,000 126,000
35-44 112,000 220,000 332,000
45-54 269,000 379,000 647,000
55-64 449,000 410,000 859,000
65+ 261,000 432,000 692,000
* Source: 2020 Craft Media - Hotter Channel Planning 2020
Increasing focus on health and wellbeing in the older demographic: health and
wellness is increasingly in focus for the target demographic alongside a wider
trend towards casualisation and comfort
Older generations are becoming more active, with the largest percentage
increase in exercise participation coming from the 55 plus age segment. This
is expected to be further boosted by more active older generations who are
increasingly likely to seek more comfort-oriented products.
Staying active for longer, UK population participating in regular physical
activity
Age range November May May
2015/2016 2017/2018 2018/2019
16-34 72% 71% 70%
34-54 66% 66% 66%
55-74 57% 59% 61% (+4%)
75+ 33% 35% 40% (+7%)
Source: Active England Study 2019, OC&C Commercial Review 2021 and Craft
Media - Hotter Channel Planning 2020
The 55 plus age demographic is materially underserved online
The majority of e-commerce businesses are focused on younger demographics with
a product suite and marketing campaigns that are inappropriate for over
55-year-olds. When combined with the retrenchment of department stores, this
leads to a materially underserved demographic resulting in an opportunity for
Unbound to build a targeted business.
2.5. Hotter Business Overview and Strategy
Hotter is a digitally led, omni-channel footwear brand with an uncompromising
focus on comfort and fit delivered through the use of differentiated
technology to consumers in the UK, the US and Europe predominantly in the 55
plus demographic.
Hotter has transformed its business over the past three years since the
introduction of the new management team and strategy, with Hotter now serving
over 29% of the UK's 55 plus female population direct to their homes. This has
had a significant effect on the distribution of sales by channel and the
profitability of the business with the Group undertaking a strategic
repositioning in March 2019.
Historically, Hotter's business model was focused on a retail store-led
approach. It experienced a decline across all its channels as a result of a
product portfolio that had lost focus with its core consumers. Prior to the
strategic repositioning in the first half of 2019, the Hotter business had a
high fixed cost base and, whilst profitable at an EBITDA level, was loss
making overall with negative operating cash flow.
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Following the strategic repositioning before and during the Covid-19
lockdowns, Hotter has evolved into a direct to consumer-focused business with
growth coming from its rapidly developing e-commerce channel. All channels are
now profitable at the EBITDA level, the US business is no longer significantly
loss making and investment is focused on the UK business. Fixed costs have
been materially reduced resulting in positive operating cash flow and strong
EBITDA cash conversion in the first half of 2022. Overall EBITDA margin in the
six months to July 2021 was just under 13% with a gross margin of almost 62%.
(a) Footwear Market and Purchase Drivers
The UK women's footwear segment is forecast to grow to £3.9 billion by 2024
from a value of £3.1 billion in 2020, representing an annual growth rate of
5.9%. This compares to a pre-pandemic peak of £4.1 billion. The total
addressable market of Hotter is far greater when considering growth plans into
the US and other international markets.
Hotter has continued to have a keen focus on two aspects, as per the business'
value proposition. Shoe fit and comfort are emphasised to distinguish itself
from other brands and peers. 59% of UK consumers identified shoe fit as a
significant purchase driver, while 81% considered comfort a key purchase
driver.
(b) Brand Proposition
The Hotter brand proposition is of key importance and underpins its cultural
values, namely:
"We're here to deliver the ultimate comfort, so people can do more of what
they love."
Hotter targets the 55 plus age demographic and currently has strong traction
within the female footwear segment within this consumer group, providing a
wide range of casual footwear. An important facet of the brand proposition is
to change the negative connotations associated with "comfort", reframing
comfort as active, empowering and freeing. This reinforces the goal to provide
high-quality products and as a result, Hotter has emphasised its brand DNA -
"Customised comfort. Limitless possibilities."
To deliver on the brand proposition, Hotter operates in a customer-first
approach:
· Every foot matters: "Great shoes cannot be made without obsessing
about feet. Hotter understands every size, shape and type of foot, so that it
can create the perfect shoe for each of them."
· Begin and end with comfort: "Every design brief starts with the kind
of comfort Hotter aims to deliver. Every piece of consumer research focuses on
how Hotter's shoes feel in action. All that Hotter does starts and ends with
comfort."
· Expert Tech & Expert People: "From tech to its people, Hotter
does all it can to constantly expand its skills and deepen its knowledge. If
there is anything that enhances the comfort of a shoe, then Hotter makes sure
it knows about it."
(c) Product Overview
Hotter sells on-trend, affordable footwear for its customer base, covering a
wide range of styles and categories with all of the product offerings designed
and developed by the in-house design team. The Company aims to increase the
number of product drops to 10 per annum, an evolution from the previous
strategy of two drops per season (autumn/winter, spring/summer).
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Hotter's primary product categories are:
· Active · Boots
· Deck · Formal shoes
· Gore-Tex · Sandals
· Shoes · Slippers
All of Hotter's products are aligned to Hotter's core product pillars:
· precision fit - 3D fit technology, and UK whole and half sizes
with four width options (slim to extra wide);
· tailored comfort - Cushion+, Stability+ and Freesole; and
· timeless style - clear Hotter designs, iconic and timeless
silhouettes, and visible and meaningful comfort features.
Hotter has developed innovative technology within its products that offers
differentiation from competitors and enables it to charge a premium price:
· Cushion+ - Freesole, Cushion+ designs are crafted from a PU
compound to return some of the energy put in by every stride and invest it
into the next. This offers improved energy returns and an ultra-flexible,
super lightweight shoe; and
· Stability+ - Hotter's Stability+ designs benefit from a balance
bar and are fitted with an OrthoLite(®) insole, making the shoe both more
secure and more breathable. Hotter also includes adjustability points on every
shoe, which means they are tailored to fit the shape of each individual
customer's foot.
The Group has implemented a clearly defined and scalable product development
process. A fast-paced, multi-drop strategy is executed to anticipate consumer
needs and changing fashion trends. The continuous product refreshment results
in lower working capital and higher gross margins and reduces the Group's
stock risk at the outset of a range launch.
Product cycle drops
Month Product drops
February Spring Drop 1
March Spring Drop 2
April Summer Drop 1
May Summer Drop 2
June Transitional Drop
July Autumn Drop 1
August Autumn Drop 2
September Winter Drop 1
October Winter Drop 2
November Transitional Drop
Hotter's development process follows a structured process:
· Discovery Gate: the start of a new launch with the review and
challenge of product development and brand objectives. This includes consumer
research and a review of digital and manufacturing strategy;
· Definition Gate (approx. four weeks): product strategy and
supplier strategy are reviewed together with margin expectations and pricing
strategy;
· Design Gate (approx. five weeks): consumer validation and
testing, supplier sign off and design review against the creative brief;
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· Development Gate (approx. 24 weeks): creative concepts are turned
into products and financials are approved and backed by detailed trading plans
factoring in feedback, current trading and market conditions;
· Deployment Gate (approx. 16 weeks): the planning of trading the
range gains traction with detailed production and quality planning commencing
together with product commercialisation and factory production; and
· Delivery Gate (approx. three weeks): the range is delivered ready
to be sold in all channels for full launch with a range available for soft
launch.
(d) Customers and Marketing
A key strategy for Hotter is to increase its email database (currently approx.
1.1 million) through both converting the existing analogue customer base
(current total database is approx. 4.6 million) and through new customer
acquisition. Hotter has established a proven marketing strategy, underpinned
by the use of technology, to enable customer conversion, acquisition and
retention in a cost-effective manner. A number of technology solutions are
employed to capture consumer data, both on the Hotter website and through its
17 technology centres and 6 garden centre concessions through the "Footprint"
experience.
The Hotter App is increasingly used by customers due to its ease of use for a
more engaging experience. Hotter has developed innovative new features, such
as an augmented reality shoe try-on, to further drive users towards the app.
The Group expects greater levels of app downloads as the marketing strategy
unfolds, benefiting the Group given a two times conversion rate on the app
when compared with the Hotter website. Overall, digital marketing provides a
cost-effective approach by sending tailored emails, updates to notify
customers about upcoming launches, and promotional activity to generate
engagement and increase customer retention and repeat purchases.
Hotter undertakes a full marketing strategy, including digital and direct
marketing, "above the line" ("ATL") media and retail point-of-sale. From an
ATL perspective, the media objective has been to stimulate consideration
growth, focused on the over 55 female audience.
(e) Store Proposition
As part of the wider strategic e-commerce focus, accelerated by the onset of
the Covid-19 pandemic, the Group decreased its retail store portfolio from 68
locations to 23 locations through a Company Voluntary Arrangement ("CVA")
which commenced in July 2020 and completed in November 2020. 17 of the
remaining stores were repurposed into technology centres, enabling a
personalised digital marketing journey, through targeted product
recommendations to the user while also providing a data acquisition
opportunity to fuel e-commerce growth. 6 of the retail locations are garden
centre concessions.
13
(f) Manufacturing and Operations
The head office, manufacturing facility and distribution centre are all
located in Skelmersdale, UK. The majority of the Hotter collection is
manufactured in the UK site, using shoe uppers sourced from India. The UK
manufacturing plant creates shoe soles and midsoles using direct injection
processes, with Deutschland Shoe Machinery ("DESMA"). The completed uppers are
sent to the UK factory by sea or air freight following a quality inspection,
where they are lasted onto the sole units. The products are then moulded,
trimmed and packed to be sent to the UK distribution centre. The UK
manufacturing plant has the capacity to produce up to 63,000 pairs of shoes a
week.
Though using foreign suppliers for shoe uppers, approximately 80% of the
product range is manufactured in the UK. The UK factory employs c.100 people
tasked with finishing and packing the goods. This manufacturing facility is a
key aspect in ensuring dependability of supply chain as the Group is not
reliant on bought in finished goods, mitigating some supply chain risks
present. A limited number of ranges are purchased as finished goods and
transported, largely from Vietnam.
The Group management is currently in the process of exploring additional
European suppliers and also has placed a strategic focus on the manufacturing
process to increase efficiency and reduce wastages and labour time.
(g) In-House Technology
Hotter's operation is supported by its scalable HCL eCommerce platform
(formerly IBM Websphere Commerce), adapted in house by its technology team to
meet the needs of the market. The platform is already a "headless e-commerce
platform", decoupling the back-end and front-end process, ensuring Hotter is
agile and flexible in its response to business change. The "headless"
capability allows Hotter to test and experiment on the website at pace. This
links inventory, warehouse and orders to support key aspects of Hotter's
operational activity, adapted specifically for Hotter's processes. The system
is managed by Will Rose, Hotter's Technology Director, and his team of
e-commerce and IT professionals. The platform is cloud based and can scale to
fulfil growing order volumes. The team is responsible for continuous
improvements to the platform which can be done on a modular basis, with
discreet changes and upgrades delivered quickly while minimising delivery risk
of these enhancements. Hotter's data-driven business model provides the
analysis of customer browsing and ordering behaviour to support its marketing,
product and customer service strategies and enables a greater understanding of
the customer. Data regarding individual customer browsing behaviour is
provided to the marketing team, informing Hotter's go-to-market strategy and
improving the customer experience through more intelligent matching of
products with specific search terms.
(h) ESG Strategy
The Group is committed to achieving high standards throughout all its
undertakings. The way in which the Group works and operates in all aspects of
its business is a key factor in maintaining its reputation as a responsible
business and maintaining the high standards the Group represents. As such, the
Group has established an ESG Committee. The main purpose of the Committee is
to represent the Board in defining the Company's strategy relating to ESG
matters and in reviewing the practices and initiatives of the Company relating
to ESG matters, ensuring that they remain effective and up to date.
14
Key practices that the Group is currently implementing include:
Environmental
· The Group has completed a review of all materials used in
packaging with a view to reducing excess waste.
· Hotter Shoes will be changing its shoe box to a sustainable
option for spring/summer 2022 rollout. The Group is targeting producers who
will recycle returns packaging.
· The Group is working across its entire material supply chain to
introduce sustainable alternatives, looking to introduce replacements from
spring/summer 2022 onwards.
· The majority of the Hotter Shoes footbeds use premium
OrthoLite(©) foam which contains 5% recycled rubber and is machine washable
and designed to be long lasting.
· Hotter Shoes have introduced organic cotton canvas into its
summer deck shoe ranges.
Social
· The Group maintains a focus on its fundamental principle of
allowing its consumers to do more of what they love.
· The Group has a long-standing relationship with the charity Marie
Curie.
· The Group has a clear privacy policy in place, demonstrating its
commitment to safeguarding and protecting the data of its customers.
· All of the Group's suppliers must sign up to the Group Supplier
Manual which includes the Group's Global Sourcing Principles which are aligned
with the nine-point base code of the Ethical Trade Initiative.
· The Group's Indian factories which supply the majority of Hotter
products have mapped and reported their supply chains to tier 3 level (and
have therefore reviewed their supply chains up to their suppliers of required
materials, e.g. shoelaces).
· As part of the Group's commitment to best practice, all key staff
members are provided with regular training in using the services of SGS, the
world leading testing, inspection and certification company.
Governance
· Unbound has adopted the provisions of the QCA Corporate
Governance Code from admission to trading on AIM.
· In addition to the Audit and Risk Committee, Nomination Committee
and Remuneration Committee, the Group has also established a monthly Executive
ESG Committee, chaired by the CEO, to monitor, control and report on key
actions.
· Hotter Shoes is a member of the Leather Working Group ("LWG") and
all of the Group's Indian suppliers are using tanneries which are gold rated
and approved by the LWG.
· The Group has locally based staff in India under the direction of
in-country managers who visit all key factories on a weekly basis, conducting
audits as required to ensure compliance with the Group's Global Sourcing
Principles.
2.6. Financial Performance
The performance of Hotter in the year to January 2022 marked significant
progress in terms of both strategic progression and in demonstrating
resilience. The period continued to be impacted significantly by the
implications of the Covid-19 pandemic; however, despite this Hotter
demonstrated the key strategic objectives of:
15
· online sales growth: year-on-year growth of 11.6% in online sales
resulting in overall sales growth of 16.5%;
· average selling price growth: significant increases in average
selling prices in FY22 of over 16% compared to the prior year;
· gross margin development: gross margin improvement year on year
from 54.0% to 63.5%; and
· email address capture: rapid growth in the email database to over
one million, growth of over 35%.
These strategic improvements were achieved despite the impact on consumer
confidence of the pandemic extending throughout 2021 and in addition the
specific significant disruptive influences summarised below:
Disruptive influence Impact
1 Hotter's permanent closure of 59 retail stores in 2020 was too late to reduce Margins in early FY22 reduced as inventory levels managed coming into
product volumes planned for winter 2020/21 spring/summer 2021
2 Lockdown over winter 2020/21 reduced sales volume through retail and overall Margins in early FY22 reduced as inventory levels managed coming into
as consumer confidence impacted spring/summer 2021
3 Lockdown throughout Q1 FY22 and continued travel restrictions reduced demand Demand and margins impacted throughout FY22
throughout 2021
4 Lockdown in India over summer 2021 impacted delivery of components for launch Freight costs increased significantly as components shipped by air freight to
of autumn/winter products in 2021 reduce delay
Volumes and margins further impacted over winter 2021/22 as product "landed"
late in season
5 Global supply chain disruption and inflationary pressures in H2 FY22 Freight and other costs impacted in H2 FY22
The resilience demonstrated at sales and margin level combined with the
improved cost efficiency of the e-commerce focused operating model implemented
in 2020 allowed Hotter to make a year-on-year improvement of over £6 million
in profit before tax and exceptional costs associated with the admission to
AIM.
On an IFRS basis, Hotter is expected to generate adjusted EBITDA of
approximately £5.5 million for FY22 (FY21 loss of £0.9 million). Profit
before tax and exceptional items for the year is anticipated to not be below
£0.2 million, an improvement of over £6.0 million compared with the prior
year (FY21 loss of £6.6 million). This improved performance led to cash
conversion at EBITDA level of 53% which combined with the investment of £5.0
million from Electra prior to admission reduced Hotter net banking debt to
£8.7 million at the period end.
16
2.7. Looking Forward
As we enter our first period as an independent, listed Group our focus is
clear:
· continue the profitable growth of Hotter Shoes as a digitally focused
business. This will not only deliver increased shareholder value but will
generate cash to support the development of our Unbound strategy; and
· implement the first stages of our Unbound strategy with the launch of
our Unbound digital partnerships in the second quarter of our financial year.
With Hotter's gross bank debt reduced to £12.1 million and extended to
December 2024 prior to AIM admission and overall net bank debt of
approximately £6.0 million, which includes £2.5 million of net cash within
Unbound Group plc, on admission the Group is well funded and, in a position,
to implement its strategy. The successful implementation of the Group's
strategy presents an opportunity to generate significant value for
shareholders and will be to the benefit of all stakeholders. As such, in order
to focus on these drivers of value creation we intend to realise the non-core
assets retained by the Group on transition from Electra over the coming
months. With the carrying value of these assets being £3.8 million as at 31
January 2022, this will give us increased financial resilience and the
resource to accelerate our strategy if appropriate.
Hotter's trading in the period since our Capital Markets Day in September 2021
has shown resilience against the headwinds of supply chain issues and
inflationary pressures. We entered the year to January 2023 with inventory on
plan and at optimum levels and trading in the early weeks of the period has
been in line with our expectations. As such we maintain the medium-term
guidance given at the September Capital Markets Day:
Unbound's Medium-Term Guidance
Strategy Framework
Unbound partnership model · Unbound will add digital partnerships to build on and further develop · Commission-based partnership model for non-Hotter sales.
the focused consumer database already in place through Hotter.
· First revenues from H1 2022 and with a launch planned for this
· Developing on the digital platform already in place for Hotter, summer.
building in a scalable manner.
· Profit generated from non-Hotter revenues targeted at 25% of Group
profit in three years and 50% in five years.
· Unbound partnerships will be EBITDA and cash generative from the
outset but with reinvestment in growth in the short term.
· No investment required in inventory in the short/medium term.
17
Hotter Medium-Term Guidance
Continued growth within online and offline channels, with retail stores
recovering to pre-Covid-19 levels by the end of 2022. Improved gross margin
and continued management of costs driving improving EBITDA margin over the
medium term.
UK direct to consumer Online: mid-teen percentage annual growth expected
Offline: mid-single digit percentage annual growth expected
UK retail Recovers to FY20 levels by end of FY23 and then stable
US direct to consumer Undergoing strategic review, short term maintained at current levels
Hotter digital partnerships Double-digit percentage annual growth
Wholesale Maintained at current levels
Gross margin Approximately 2% above pre-Covid-19 levels from FY23 as Covid-19 disruption
diminishes and positive impact of differentiated product drives margin.
EBIT margin Levels to reach mid-teen percentage over medium term
Cash conversion Operating cash flow (pre-exceptional items) in line with EBITDA
Capital expenditure Annual capital expenditure spend of c.£2.5 million. No material one-off
spends required in the medium term with plan spend exceeding current
depreciation levels
Working capital No structural change with stable conversion of EBITDA to cash
Net debt/(cash) Targeted to be maintained below 2x maintainable EBITDA in the short term, and
in the medium term a net cash position without future strategic spend
2.8. Key Performance Indicators
The Group has implemented an integrated pyramid of key performance indicators
("KPIs") that cascade from the longer-term strategic "shareholder metrics" to
individual department and employee metrics. This structure is intended to
ensure alignment throughout the organisation over focus on achieving
objectives that drive delivery of shareholder objectives and value.
The KPI measures employed for shareholder metrics are:
· earnings per share; and
· total shareholder return.
These are used for measurement of success in relation to Long-Term Incentive
Plans ("LTIPs") whilst other metrics are used to measure achievement of the
shorter-term performance necessary to achieve longer-term objectives. These
shorter-term measures are used for routine performance management and for
annual bonus measures. They reflect specific priorities of the Group in the
short term and are likely to evolve in line with the Group's development.
18
At Board level these metrics are currently:
· earnings before tax ("EBT"): is likely to be retained as a recurring
measure of short-term financial performance;
· net bank debt: is likely to be retained as a long-term measure, but
it is particularly key in the short term during the coincidence of the Unbound
investment phase with rapid online development of Hotter;
· Unbound partners: a critical short-term measure as we seek to add
products and services through the Unbound partnership model;
· Percentage of earnings from Unbound partners: a measure of the
success of the Unbound partnership model in delivering value incremental to
that of Hotter;
· active database size: as an e-commerce focused business the size of
the active database (customers who have purchased within the last 12 months)
is key; and
· ESG targets: the Board is committed to both ESG and CSR. The Group is
engaged in many initiatives in support of ESG measures and is working to bring
these together to form measures and objectives that are reliable and
demanding.
Given the significant changes recently undertaken in the business and the
implementation of the Unbound partnership strategy in the current period
certain operating KPIs are currently being finalised to ensure consistent
integration into the overall structure.
19
3. Transition from Electra Private Equity PLC to Unbound Group plc
Throughout the period under review, from 1 October 2020 to 31 January 2022 the
Company operated as a private equity investment trust focused on the final
stages of the portfolio realisation strategy formally adopted in October 2018.
Given the circumstances of the Company as at 31 January 2022, the Directors
consider it appropriate to adopt Net Asset Value ("NAV") as the closing market
price on that date. This does not necessarily reflect the Directors' view of
the future value of the Company and its investments.
During the 16 months to 31 January 2022, the changes to the investments held
were:
Investment Net (realisations)/investments Investment Investment
fair value as at return fair value as at
30 September 2020 31 January
2022
£m £m £m £m
TGI Fridays 106.6 (150.7) 44.1 -
Sentinel Performance Solutions 10.9 (22.2) 11.3 -
Hotter Shoes 5.8 10.2 3.6 19.6
Total core investments 123.3 (162.7) 59.0 19.6
Hostmore - 2.7 (0.5) 2.2
Other 3.9 (2.2) (0.1) 1.6
Special Product Company 1.0 (1.0) - -
Secondaries 0.4 (0.4) - -
Total non-core investments 5.3 (0.9) (0.6) 3.8
Total investment portfolio 128.6 (163.6) 58.4 23.4
Final Stages of the Realisation Strategy
As at 1 October 2020, each of the remaining principal controlled investments
of the Company was in a period of significant change. In each case that change
had started prior to the emergence of the Covid-19 pandemic with planned
changes being implemented concurrently with adapting to the circumstances of
the pandemic and with subsequent realisation activities.
The main investments and realisations were:
Sentinel Performance Solutions Ltd ("Sentinel"):
Electra gained control of Sentinel for a nominal sum in mid-2019 and,
following the investment of a further £1.7 million, a change of management
and the adoption of a simplification strategy, the business performed strongly
though the non-peak summer months of the first Covid-19 lockdown. Performance
over winter 2020/21 proved to be key to plans for an exit in 2021.
20
Despite significant Covid-19 restrictions in each of its main markets of the
UK, France and Italy in the year to March 2021 Sentinel recorded EBITDA of
over £4.2 million, a 350% increase from the year to March 2019, immediately
before Electra assumed control. This successful turnaround allowed Electra to
complete a successful exit in April 2021 that resulted in net proceeds to
Electra of £22.1 million.
The direct impact and continuing uncertainty of the Covid-19 pandemic
significantly impacted the consumer markets in which both of the other
remaining significant investments, TGI Fridays and Hotter Shoes, operated. As
well as providing significant challenges to these businesses it resulted in
the M&A market for these assets being focused on distressed transactions.
Whilst continuing to explore the possibility of cash realisations the sale
proceeds of Sentinel gave the opportunity to consider alternative solutions
that would provide significantly greater return to shareholders in the longer
term than sub-optimal cash sales.
TGI Fridays ("Fridays"):
Following management changes in late 2019, Fridays was not only going through
significant planned change in 2020, with renewed focus on a mantra of Quality,
Simplicity and Relevance, but was also accelerating the evolution of its
previously premises-based model to adapt to the evolving market and also the
implications of the pandemic. Through the implementation of "click and
collect" and delivery, Fridays outperformed the market throughout the pandemic
whilst implementing a highly efficient and scalable infrastructure platform
and significant customer pacing improvements in quality and consistency of
delivery.
With a highly experienced management team and scalable infrastructure in place
a strategy for growth was developed. This resulted in the establishment of
Hostmore as a holding company for Fridays and a platform on which to add other
complementary and growing hospitality brands. "63(rd)+1(st)" was developed in
house as a cocktail and food concept with three locations opened in 2021.
In November 2021, following a cash investment of £12.5 million from Electra,
Hostmore was demerged to form Hostmore plc, an independent FTSE listed
business that is well led and well capitalised and has a sound strategy for
growth through organic growth of Fridays and "63(rd)+1(st)" and through the
addition of other disruptor brands.
Hotter Shoes ("Hotter"):
Following management change in early 2019, Hotter Shoes commenced the
implementation of product differentiation through the application of
technology within a business-wide digitisation strategy prior to the emergence
of the pandemic. The retail lockdown enforced by the pandemic in the first
half of 2020 led to a CVA resulting in the closure of all but 17 of Hotter's
retail stores. This allowed acceleration of the digital focus of the business,
leaving it smaller but much stronger.
Through its focus on direct-to-consumer marketing Hotter had over 29% of the
female population of the UK on its direct-to-consumer database by early 2021.
This penetration within its target market gave the opportunity to add
additional products and services that would increase frequency of purchase and
share of consumer spending. The Unbound strategy was born, which, following a
£5 million reduction in Hotter's bank debt, funded by Electra, led to the
transformation of Electra into Unbound as a holding company for Hotter and a
platform for the addition of products and services serving Hotter's core 55
plus demographic.
21
The Board is confident that this strategy provides the opportunity for
shareholders to realise significantly more value in the medium term than would
have been available from a disposal of Hotter followed by winding up Electra.
Other Assets:
During the period, the Company also realised £1.6 million from the disposal
of Adjustoform Products Limited and £1.0 million from the distribution from
an escrow holding following the disposal of the assets of Special Product
Company Inc. in 2019.
The Impact of Transition of Electra to Unbound
As Electra Private Equity PLC, the Company was an investment trust listed on
the FTSE Main Market as an investment company under Listing Rule 15, following
the UK Corporate Governance Code and with financial reporting as an investment
company. In ceasing to be both an investment company and an investment trust,
the Company had no automatic right to move from being listed on the FTSE Main
Market under Listing Rule 15 (Investment Companies) to remaining on the Main
Market under Listing Rule 6 (Consolidated Groups). As such the Directors
concluded that in transitioning to Unbound a relisting on AIM was appropriate
given the size and nature of Unbound. Unbound is now a trading group and
admission to trading on AIM.
Given its scale the Company has now adopted the Quoted Companies Alliance
("QCA") Corporate Governance Code. However, as the Company operated as an
investment trust during the period under review, the Board considers that
reporting against the principles and provisions of the Association of
Investment Companies ("AIC") Code, which has been endorsed by the Financial
Reporting Council, will provide better information to shareholders.
As the financial statements reported in this document relate to the period
ended 31 January 2022, the day before admission to AIM, the statutory balance
sheet reflects the position of the Company as an investment company owning
Hotter Shoes as a portfolio company. Given the position of the Company at that
date the valuation of Hotter reflected in the statutory reported balance sheet
is based on the market capitalisation of the Company as at 31 January 2022
less other net liabilities at book value. As such the value attributed to
Hotter does not necessarily reflect what the Directors consider to be the
underlying value of the business.
Whilst the basis of preparation of the statutory accounts reflects the
situation of the Company as at 31 January 2022 as an investment company, given
the subsequent transition to become a trading group with effect from 1
February 2022, shareholders will find an equivalent balance sheet prepared as
a consolidated trading group useful. The table on page 23 illustrates the
transition from the balance sheet presented in these financial statements to
one prepared as a consolidated trading group as at the same date using the
same base data.
22
As at 31 January 2022 Investment Company Consolidation entries Unbound Group consolidated
(£ million) Hotter
Fixed assets
Investments 19.6 - (19.6) -
Intangible assets - 4.1 25.7 29.8
Tangible assets - 2.7 - 2.7
Right-of-use assets - 6.9 - 6.9
Deferred tax assets - 3.8 - 3.8
Current assets/liabilities
Investments 3.7 - - 3.7
Inventory - 5.0 - 5.0
Cash 1.9 3.6 - 5.5
Lease liabilities (0.1) (1.4) - (1.5)
Borrowings - (2.0) - (2.0)
Other net liabilities (2.0) (10.0) - (12.0)
Non-current liabilities
Lease liabilities - (6.3) - (6.3)
Borrowings - (10.1) - (10.1)
Provisions - (1.0) - (1.0)
Net assets 23.1 (4.7) 6.1 24.5
Related Party Transactions
The Electra Private Equity Executive Share of Value Plan ("SoVP") vested in
May 2021. As awards made under the plan vested in cash, in order to maintain
alignment between the executives and shareholders the executives undertook to
reinvest the full net proceeds of their awards in the purchase of new shares
issues to them by the Company. As a result, on 7 May 2021 Neil Johnson and
Gavin Manson respectively acquired 249,057 and 441,509 shares in the Company
at a price of 530p per share, which was the closing market price on the day of
the issuance.
Prior to the demerger of Hostmore plc on 1 November 2021, the executives of
Hostmore undertook to receive awards due to them under the TGI Fridays
Management Incentive Arrangements as shares in Hostmore plc rather than in
cash. This ensured continued alignment between the objectives of Hostmore
management and shareholders. The Hostmore Executive Directors, Robert Cook and
Alan Clark respectively received 3,360,662 and 2,421,518 shares in Hostmore.
Prior to Admission to AIM on 1 February 2022, the executives of Hotter
undertook to receive awards due to them under the Hotter Shoes Management
Incentive Arrangements as shares in Unbound Group plc rather than in cash.
This ensured continued alignment between the objectives of Hostmore management
and shareholders. As announced on 9 December 2021 and 14 January 2022, Ian
Watson, the CEO of Hotter Shoes, and from Admission to AIM the CEO of Unbound
Group plc received 2,086,833 shares in Unbound Group plc.
Ian Watson
Chief Executive Officer
2 March 2022
23
Consolidated Income Statement
16 months to 31 January 2022 12 months to 30 September 2020
Revenue Capital Total Revenue Capital Total
Note For the £m £m £m £m £m £m
2 Investment income 6.5 - 6.5 0.7 - 0.7
14 Investment gains/(losses) - 48.9 48.9 - (57.8) (57.8)
3 Other expenses (12.4) - (12.4) (2.5) - (2.5)
Loss on revaluation of foreign currencies - - - - (0.2) (0.2)
Net (loss)/return before tax (5.9) 48.9 43.0 (1.8) (58.0) (59.8)
Tax - - - (0.2) - (0.2)
(Loss)/return after tax (5.9) 49.4 43.0 (2.0) (58.0) (60.0)
9 Basic and diluted (loss)/return per share (p) (15.3) 126.7 111.4 (5.0) (151.4) (156.4)
The "Total" columns of this statement represent the Group's Consolidated
Income Statement prepared in accordance with International Financial Reporting
Standards ("IFRS") adopted by the United Kingdom. The supplementary "Revenue"
and "Capital" columns are prepared under guidance published by the Association
of Investment Companies ("AIC"). This is further explained in the Basis of
Accounting and Significant Accounting Policies.
All activities represent continuing operations. The Company has no recognised
gains and losses other than those shown above and therefore no separate
Statement of Total Comprehensive Income has been presented.
The accompanying notes are an integral part of these financial statements.
24
Consolidated Statement of Changes in Equity
Note For the 16 months to Called up share capital Own shares held Capital Revenue reserve Total
31 January 2022 Share premium reserve equity
£m £m £m £m £m £m
As at 1 October 2020 9.6 - (2.4) 76.9 51.2 135.3
Distribution in specie - - - (161.2) - (161.2)
15 Share issuance 1.0 5.0 - - - 6.0
Net return/(loss) during the period - - - 48.9 (5.9) 43.0
As at 31 January 2022 10.6 5.0 (2.4) (35.4) 45.3 23.1
Note For the 12 months to Called up share capital Capital redemption reserve Own shares held Capital reserve Revenue reserve Total equity
30 September 2020 Share premium
£m £m £m £m £m £m £m
As at 1 October 2019 9.6 122.9 34.9 (0.4) (11.6) 54.5 209.9
Net loss during the period - - - - (58.0) (2.0) (60.0)
15 Reserve reclassification - (122.9) (34.9) - 157.8 - -
15 Share forfeiture - - - - 0.5 - 0.5
Share-based payments - - - (2.0) - (1.3) (3.3)
8 Dividends - - - - (11.8) - (11.8)
As at 30 September 2020 9.6 - - (2.4) 76.9 51.2 135.3
The accompanying notes are an integral part of these financial statements.
25
Company Statement of Changes in Equity
Called up share capital Share premium Own shares held Capital reserve Revenue reserve Total equity
Note
For the 16 months to
31 January 2022
£m £m £m £m £m £m
As at 1 October 2020 9.6 - (2.4) 226.5 (98.4) 135.3
Distribution in specie - - - (161.2) - (161.2)
15 Share issuance 1.0 5.0 - - - 6.0
Net return during the period - - - 9.0 34.0 43.0
As at 31 January 2022 10.6 5.0 (2.4) 74.3 (64.4) 23.1
Called up share capital Share premium Capital redemption reserve Own shares held Capital reserve Revenue reserve Total equity
Note
For the 12 months to
30 September 2020
£m £m £m £m £m £m £m
As at 1 October 2019 9.6 122.9 34.9 (0.4) 138.2 (95.3) 209.9
Net loss during the year - - - - (58.2) (1.8) (60.0)
15 Reserve reclassification - (122.9) (34.9) - 157.8 - -
15 Share forfeiture - - - - 0.5 - 0.5
15 Share-based payments - - - (2.0) - (1.3) (3.3)
8 Dividends - - - - (11.8) - (11.8)
As at 30 September 2020 9.6 - - (2.4) 226.5 (98.4) 135.3
The accompanying notes are an integral part of these financial statements.
26
Consolidated Balance Sheet
31 January 30 September 2020
2022
Note As at £m £m
Non-current assets
14 Investments held at fair value - 128.6
- 128.6
Current assets
14 Investments held at fair value 23.4 5.6
11 Trade and other receivables 0.4 0.6
Current tax asset 0.2 0.3
Cash 1.9 1.3
25.9 7.8
Current liabilities
12 Trade and other payables (2.3) (0.9)
13 Provisions (0.5) -
(2.8) (0.9)
Total assets less current liabilities 23.1 135.5
Non-current liabilities
13 Provisions - (0.2)
- (0.2)
Net assets 23.1 135.3
Capital and reserves
15 Called up share capital 10.6 9.6
15 Share premium 5.0 -
15 Own shares held (2.4) (2.4)
15 Capital reserve (35.4) 76.9
15 Revenue reserve 45.3 51.2
Total equity 23.1 135.3
10 Basic and diluted net asset value per share (p) 54.6 353.4
15 Number of ordinary shares in issue 42,258,128 38,282,763
The accompanying notes are an integral part of these financial statements.
Approved by the Board of Directors and signed on its behalf by:
Neil Johnson Dan Lampard
Chairman Chief Financial Officer
2 March 2022 2 March 2022
Unbound Group plc
Company number: 00303062
27
Company Balance Sheet
31 January 30 September 2020
2022
Note As at
£m £m
Non-current assets
14 Investments held at fair value - 20.9
- 20.9
Current assets
14 Investments held at fair value 23.4 5.6
11 Trade and other receivables 0.4 108.3
Current tax assets 0.2 0.3
Cash 1.9 1.3
25.9 115.5
Current liabilities
12 Trade and other payables (2.3) (0.9)
13 Provisions (0.5) -
(2.8) (0.9)
Total assets less current liabilities 23.1 135.5
Non-current liabilities
13 Provisions - (0.2)
- (0.2)
Net assets 23.1 135.3
Capital and reserves
15 Called up share capital 10.6 9.6
15 Share premium 5.0 -
15 Own shares held (2.4) (2.4)
15 Capital reserve 74.3 226.5
15 Revenue reserve (64.4) (98.4)
Total equity 23.1 135.3
The Company's return for the 16 months to 31 January 2022 was £43.0 million
(12 months to 30 September 2020: loss of £60.0 million).
The accompanying notes are an integral part of these financial statements.
Approved by the Board of Directors and signed on its behalf by:
Neil Johnson Dan Lampard
Chairman Chief Financial Officer
2 March 2022 2 March 2022
Unbound Group plc
Company number: 00303062
28
Consolidated Cash Flow Statement
For the 16 months to 31 January 2022 12 months to 30 September 2020
£m £m
Operating activities
Purchase of trading investments (40.2) (14.0)
Sales of trading investments 50.2 31.6
Dividends and distributions received 0.7 1.5
Interest income received 1.5 -
Expenses paid (11.5) (4.6)
Cash generated from operations 0.7 14.5
Tax repaid 0.1 0.6
Net cash inflow from operating activities 0.8 15.1
Financing activities
Dividends paid - (11.8)
Share forfeiture - 0.5
Purchase of shares held under incentive schemes - (2.0)
Repayment of lease liabilities (0.2) (1.0)
Net cash used in financing activities (0.2) (14.3)
Net increase in cash and cash equivalents 0.6 0.8
Opening cash 1.3 0.5
Closing cash 1.9 1.3
The accompanying notes are an integral part of these financial statements.
29
Notes to the Financial Statements
1. Segmental Analysis
Throughout the period, the Group operated as a single business segment for
reporting purposes. It was managed as a single investment company and
reporting was provided to the Board of Directors on an aggregated basis. The
Company's portfolio of investments was predominantly based in the United
Kingdom.
2. Revenue Income
16 months to 12 months to
31 January 2022 30 September 2020
£m £m
Interest income 5.8 0.1
Other income 0.7 0.6
Total revenue income 6.5 0.7
3. Other Expenses
16 months to 12 months to
31 January 2022 30 September 2020
£m £m
Administrative expenses 12.4 2.5
Total other expenses 12.4 2.5
Administrative expenses for the 16 months to 31 January 2022 above include a
£7.6 million charge (2020: credit of £1.3 million) related to vesting of the
SoVP.
Auditor's Remuneration
16 months to 12 months to
31 January 2022 30 September 2020
Group Company Group Company
£000 £000 £000 £000
Audit of Group financial statements pursuant to legislation 132.6 132.6 81.9 81.9
Audit of subsidiary financial statements pursuant to legislation - - 43.0 -
Sub-total 132.6 132.6 124.9 81.9
Other assurance services* 106.8 106.8 33.0 33.0
Total auditor's remuneration 239.4 239.4 157.9 114.9
*The other assurance services include £56,800 related to the half year and
second half year reviews (2020: half year review only £32,400), and £50,000
relating to reviews of the circulars on the demerger of Fridays and AIM
listing of Unbound (2020: £nil).
Non-Audit Services
It is the Group's practice to employ Deloitte LLP on assignments additional to
its statutory audit duties only when its expertise and experience with the
Group are important or where it has been awarded assignments on a competitive
basis. Details of the Group's process for safeguarding and supporting the
independence and objectivity of the external auditor are given in the Audit
and Risk Committee Report.
30
4. Employee Costs
During the 16 months to 31 January 2022, the Company did not have any
non-Director employees.
5. Right-of-Use Assets
16 months to 12 months to
31 January 2022 30 September 2020
£m £m
Opening balance 0.3 -
Adjustment on transition to IFRS 16 - 1.5
Additions - 0.4
Disposals - (1.1)
Depreciation (0.2) (0.2)
Onerous contract (0.1) -
Closing balance - 0.3
The Company adopted IFRS 16 Leases on 1 October 2019 in respect of the head
office which the Company rents, using the "modified retrospective" approach on
transition. Prior to adoption of IFRS 16, the lease was recognised as an
operating lease and the related rental expenses were recognised in other
expenses in the Income Statement.
The head office property is the only right-of-use asset held by the Company.
As part of its downsizing plan, the Company relocated to a smaller office in
December 2019. Disposals in the above table relate to the exit of the old
lease. The new office lease was entered into in December 2019 with a
three-year lease term and is measured as a right-of-use asset with an initial
value of £0.4 million, which is depreciated over its lease term in accordance
with the Company's accounting policy.
Due to its transition to Unbound Group plc, the Company determined that the
leased office is unlikely going to be materially used for its intended
purposes and concluded that the contract had become onerous as at 31 January
2022. Therefore, the remaining right-of-use asset value of £0.1 million has
been fully impaired.
6. Lease Liabilities
In accordance with IFRS 16 Leases, a liability of £0.4 million was recognised
when the office lease was entered into. The cash commitment amounts to
£200,000 in total for the remaining lease period. Interest charge is
calculated at an incremental borrowing rate of 3.5%, totalling £20,000 over
the three-year lease term, and charged in the Income Statement. The carrying
value of lease liabilities as at 31 January 2022 is £0.1 million.
7. Tax
Analysis of Tax Charge During the Period
16 months to 31 January 2022 12 months to 30 September 2020
Revenue Capital Total Revenue Capital Total
£m £m £m £m £m £m
Current tax
UK corporate tax on (loss)/return for the period - - - - - -
Deferred tax
Adjustments in respect of previous periods - - - 0.2 - 0.2
Total tax charge - - - 0.2 - 0.2
31
7. Tax (continued)
The difference between the income tax expense shown above and the amount
calculated by applying the effective rate of UK corporation tax, currently
19.0% (2020: 19.0%), to the (loss)/return before tax is as follows:
16 months to 31 January 2022 12 months to 30 September 2020
Revenue Capital Total Revenue Capital Total
£m £m £m £m £m £m
(Loss)/return on ordinary activities before tax (5.9) 48.9 43.6 (1.8) (58.0) (59.8)
(Loss)/return before tax at the rate of UK corporation tax of 19.0% (2020: (1.1) 9.3 8.2 (0.3) (11.0) (11.3)
19.0%)
Effects of:
Adjustments in respect of prior period - - - 0.2 - 0.2
Capital (return)/loss not taxable - (9.3) (9.3) - 11.0 11.0
Deferred tax not recognised (0.5) - (0.5) (0.2) - (0.2)
Disallowed expense 1.6 - 1.6 0.5 - 0.5
Total tax charge - - - 0.2 - 0.2
Disallowed expenses in the reconciliation above relate to tax charge on excess
management expenses of £8.4 million (2020: £2.5 million). Excess management
expenses are expenses incurred by the Company, exceeding the income the
Company generated during the period.
8. Dividends
16 months to 12 months to
31 January 2022 30 September 2020
£m £m
Dividend in specie (net) 161.2 -
Special Dividend of FY20 (31.0p per share) - 11.8
Total dividends 161.2 11.8
As at 31 January 2022, the Company had distributable reserves of £27.3
million (2020: £217.2 million), being the sum of the realised capital reserve
and the revenue reserve. The Board does not consider the unrealised capital
reserve of negative £17.3 million (2020: negative £89.0 million) to be
distributable, and therefore the Company's net distributable reserves as at 31
January 2022 were £10.0 million (2020: £128.1 million).
9. (Loss)/Return per Share
The capital, revenue and total return per ordinary share are based on the net
(loss)/return shown in the Consolidated Income Statement and the weighted
average number of ordinary shares during the 16 months to 31 January 2022 of
38,592,946 (12-month period to 30 September 2020: 38,282,763). There are no
dilutive instruments issued by the Company.
10. NAV per Share
The NAV per share is calculated by dividing the NAV of £23.1 million (2020:
£135.3 million) by the number of ordinary shares in issue as at 31 January
2022 of 42,258,128 (30 September 2020: 38,282,763). There are no dilutive
instruments issued by the Company.
32
11. Trade and Other Receivables
As at 31 January 2022 30 September 2020
Group Company Group Company
£m £m £m £m
Amounts owed by subsidiary undertakings - - - 107.7
Other receivables 0.4 0.4 0.6 0.6
0.4 0.4 0.6 108.3
12. Trade and Other Payables
31 January 2022 30 September 2020
As at Group Company Group Company
£m £m £m £m
Other payables 2.3 2.3 0.9 0.9
Trade and other payables consist of accrued expenses, including £1.8 million
estimated transaction costs on AIM listing of Unbound Group plc and completion
of the Company's final strategic delivery, and supplier invoices received but
not settled.
13. Provisions
16 months to 12 months to
31 January 2022
30 September 2020
Group Company Group Company
£m £m £m £m
Opening balance 0.2 0.2 0.3 0.3
Amounts paid (0.2) (0.2) - -
Change in provision 0.5 0.5 (0.1) (0.1)
Closing balance 0.5 0.5 0.2 0.2
The closing provisions as at 31 January 2022 relate to onerous contracts as a
result of the Company's transition to Unbound Group plc, including costs on
the Company's leased office and other service providers.
The closing provisions as at 30 September 2020 included liability and National
Insurance contributions provided for on the SoVP incentive scheme, which
vested in May 2021, and therefore the related provisions have been settled
during the 16 months to 31 January 2022.
14. Financial Instruments
Management of Risk
The Group's financial instruments comprise securities in listed and unlisted
companies, trade receivables, trade payables and cash. The main risks arising
from the Group's and Company's financial instruments are fluctuations in
market price, liquidity and capital. The policies for managing each of these
risks are summarised below. The financial risks of the Company are aligned to
the Group's financial risks.
Market Price Risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments used in the Group's operations. It represents the
potential loss the Group might suffer through holding market positions in the
face of price movements. The Group is exposed to the risk of the change in
value of its investments in listed and unlisted equity.
33
14. Financial Instruments (continued)
Liquidity Risk
The Group's assets comprise unlisted equity, which is illiquid by nature.
Short-term flexibility is achieved through holding of cash, which is available
on demand, and liquid investments such as listed equity. The Group's financial
liabilities are expected to be settled in less than a year.
Credit Risk
The Group's exposure to credit risk principally arises from its cash deposits.
Only major banks are used when making cash deposits and the level of cash is
reviewed on a regular basis. In total, cash balance of £1.9 million (30
September 2020: £1.3 million) was principally held with two UK banks, whose
credit ratings are listed in the table below.
Bank credit ratings as at 31 January 2022 Moody's
HSBC A1 (stable)
Royal Bank of Scotland International A3 (stable)
Capital Risk Management
The Group's capital, as at 31 January 2022, comprised share capital of £10.6
million (2020: £9.6 million) and total other reserves of £12.5 million (30
September 2020: £125.7 million).
The Group's objective in the management of capital risk is to maintain an
optimal capital structure. In doing so the Group may adjust the amount of
dividends paid to shareholders or issue new shares or debt. During the 16
months to 31 January 2022, TGI Fridays demerged from the Group by way of
dividend in specie to the Company's shareholders, and no cash dividend was
paid (12 months to 2020: £11.8 million). The Group has an existing authority
to implement an on-market share buy-back programme to generate shareholder
value. There are no externally imposed requirements on the
Company's capital.
Financial Assets and Liabilities
Group Company
31 January 2022 30 September 2020 31 January 2022 30 September 2020
As at £m £m £m £m
Financial assets
Equity shares 23.4 11.0 23.4 11.0
Non-equity shares - 2.1 - 2.1
Fixed interest securities - 115.5 - 7.8
Floating rate securities - 5.6 - 5.6
Cash at bank 1.9 1.3 1.9 1.3
Other assets 0.4 0.6 0.4 108.3
Financial liabilities
Other payables 2.3 0.9 2.3 0.9
Cash and other receivables and payables are measured at amortised cost and the
rest of the financial assets in the table above are held at fair value through
profit or loss. The carrying values of the financial assets and liabilities
measured at amortised cost are short-term in nature and repayable/payable on
demand, and therefore are considered to be materially equal to the fair value.
Fair Value Hierarchy
Fair value is the amount for which an asset could be exchanged between
knowledgeable willing parties in an arm's length transaction. The Group
complies with IFRS 13 in respect of disclosures about the degree of
reliability of fair value measurements. The levels of fair value measurement
bases are defined as follows:
34
14. Financial Instruments (continued)
Level 1: fair values measured using quoted prices (unadjusted) in active
markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs
significant to the measurement other than quoted prices included within level
1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for which any
significant input to the valuation is not based on observable market data
(unobservable inputs).
The Group considers observable data to be market data that is readily
available, regularly distributed or updated, reliable and verifiable, not
proprietary and provided by independent sources that are actively involved in
the relevant market.
The following tables present the Group's assets by hierarchy levels. During
the 16 months to 31 January 2022, £2.2 million of level 3 assets were
transferred to level 1 and £20.1 million of level 3 assets were transferred
to level 2 (during the 12 months to 30 September 2020: no transfer).
Financial Assets at Fair Value through Profit or Loss
Level 1 Level 2 Level 3 Total
£m £m £m £m
Investments as at 31 January 2022 2.2 19.6 1.6 23.4
Investments as at 30 September 2020 5.6 - 128.6 134.2
Investments classified within level 1 consist only of listed equity
investments, whose values are based on quoted market prices in active markets.
The Group does not adjust the quoted price for these instruments.
Investments classified within level 2 consist of unlisted equity investments,
whose values are based on quoted market prices in active markets adjusted for
other assets and liabilities held by the Group and the Company.
Investments classified within level 3 consist of private equity direct
investments, on which observable prices are not available and the Group uses
valuation techniques to derive the fair value.
The following tables present the movement of assets measured at fair value,
based on fair value measurement levels.
16 months to 31 January 2022 12 months to 30 September 2020
Group Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
£m £m £m £m £m £m
Opening balance 5.6 - 128.6 17.3 - 192.4
Purchases 21.0 - 23.4 9.1 - 4.1
Realisations (26.6) - (187.0) (20.9) - (12.0)
Transfer from level 3 to level 1 2.7 - (2.7) - - -
Transfer from level 3 to level 2 - 19.6 (19.6) - - -
(Decrease)/increase in valuation (0.5) - 58.9 0.1 - (55.9)
Closing balance 2.2 19.6 1.6 5.6 - 128.6
35
14. Financial Instruments (continued)
16 months to 31 January 2022 12 months to 30 September 2020
Company Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
£m £m £m £m £m £m
Opening balance 5.6 - 20.9 17.3 - 44.7
Purchases 21.0 - 19.2 9.1 - 2.9
Transfer from Group entities - - 176.2 - - -
Realisations (26.6) - (187.0) (20.9) - (12.2)
Transfer from level 3 to level 1 2.7 - (2.7) - - -
Transfer from level 3 to level 2 - 19.6 (19.6) - - -
(Decrease)/increase in valuation (0.5) - (5.4) 0.1 - (14.5)
Closing balance 2.2 19.6 1.6 5.6 - 20.9
Realisations in the tables above include interest and distributions received
from investments. During the 16 months ended 30 January 2022, the Company
incurred costs of £5.2 million in transaction costs (12 months to 30
September 2020: £1.9 million). Total gains and losses on assets measured at
level 3 are recognised as part of the investment gains and losses balance in
the Consolidated Income Statement and no other comprehensive income has been
recognised on these assets. Total unrealised gains for the 16 months ended 31
January 2022 were £2.2 million (12 months to 30 September 2020: loss of
£58.2 million).
15. Called up Share Capital and Reserves
The Company has 42,258,128 (30 September 2020: 38,282,763) allotted, called up
and fully paid ordinary shares of 25p each, totalling £10.6 million as at 31
January 2022 (30 September 2020: £9.6 million).
Upon vesting of the Electra SoVP in May 2021, the Company issued a total of
690,566 ordinary shares to the Chairman and CFOO (before the Company's
transition to Unbound). In January 2022, 3,284,799 of the Company's new shares
were issued to the management team at Hotter in settlement of its entitlement
under the Hotter Management Incentive Plan ("MIP"). All recipients of the new
shares have retained the shareholding in the Company since issuance.
Own Shares Held
Own shares held are shares purchased by the Company's Employee Benefit Trust
(the "Trust") in relation to the SoVP scheme operated by the Company. The
Trust waives its rights to dividends on the shares held. The number of shares
held by the Trust was 690,481 as at 31 January 2022 (30 September 2020:
690,481). These shares are held at a historic cost of £2.4 million (2020:
£2.4 million).
Share Premium and Capital Redemption Accounts
The Company cancelled its share premium account and capital redemption reserve
in July 2020, increasing the distributable reserves by £157.8 million, to
facilitate the distribution of the Company's targeted returns to shareholders.
Issuance of the 690,566 ordinary shares in settlement of vesting of the
Electra SoVP in May 2021 and 3,284,799 ordinary shares in settlement of the
Hotter MIP in January 2022 have created a £5.0 million share premium account.
Capital Reserve
The capital reserve includes both realised capital reserve, which is the
accumulated gains and losses on the realisation of investments and unrealised
capital reserve, which is the accumulated changes in the value of financial
instruments measured at fair value which have been charged through profit and
loss.
36
15. Called up Share Capital and Reserves (continued)
Revenue Reserve
The revenue reserve is the accumulated net revenue profits and losses of the
Group.
Share Forfeiture
Following approval at the AGM in February 2020, the Company commenced a
programme to seek to identify and contact shareholders with whom contact was
lost for in excess of 12 years. The programme was concluded in August 2020 and
in total 72 shareholders have been identified as untraced and as a result
11,194 shares and related unclaimed dividends with a total value of £0.5
million, after fees, were forfeited.
16. Particulars of Holdings
Subsidiary Undertakings
The results and balances of the following subsidiaries are included in the
consolidated financial statements of the Group for the 16 months to 31 January
2022:
Hotter MIPCO Limited
Company number: 13227465
Registered office: 17 Old Park Lane, London, England W1K 1QT
Place of incorporation: United Kingdom
Ownership: 100% in ordinary shares
Electra Private Equity Limited (formerly Electra Investments Limited)
Company number: 00021895
Registered office: 17 Old Park Lane, London, England W1K 1QT
Place of incorporation: United Kingdom
Ownership: 100% in ordinary shares
Significant Interests in Investee Undertakings
The Group has a significant interest in the following investee company as at
31 January 2022:
Galaxy Topco Limited (holding company for Hotter Shoes)
Company number: 08812566
Registered office: 2 Peel Road, Skelmersdale, England WN8 9PT
Place of incorporation: United Kingdom
Ownership: 100% in ordinary shares
Loss for the period ended 2 February 2020: £25.1 million
Net assets as at 2 February 2020: negative £182.3 million
17. Related Party Transactions
Balances and transactions between the Company and its subsidiaries are
eliminated on consolidation. Details of transactions between the Company and
other related parties are disclosed below.
The Electra Private Equity Executive Share of Value Plan ("SoVP") vested in
May 2021. As awards made under the plan vested in cash, in order to maintain
alignment between the executives and shareholders the executives undertook to
reinvest the full net proceeds of their awards in the purchase of new shares
issues to them by the Company. As a result, on 7 May 2021 Neil Johnson and
Gavin Manson respectively acquired 249,057 and 441,509 shares in the Company
at a price of 530p per share, which was the closing market price on the day of
the issuance.
37
17. Related Party Transactions (continued)
Prior to the demerger of Hostmore plc on 1 November 2021, the executives of
Hostmore undertook to receive awards due to them under the TGI Fridays
Management Incentive Arrangements as shares in Hostmore plc rather than in
cash. This ensured continued alignment between the objectives of Hostmore
management and shareholders. The Hostmore Executive Directors, Robert Cook and
Alan Clark respectively received 3,360,662 and 2,421,518 shares in Hostmore.
Prior to Admission to AIM on 1 February 2022, the executives of Hotter
undertook to receive awards due to them under the Hotter Shoes Management
Incentive Arrangements as shares in Unbound Group plc rather than in cash.
This ensured continued alignment between the objectives of Hostmore management
and shareholders. As announced on 9 December 2021 and 14 January 2022, Ian
Watson, the CEO of Hotter Shoes, and from Admission to AIM the CEO of Unbound
Group plc received 2,086,833 shares in Unbound Group plc.
Sherborne Investors Management LP ("Sherborne") has served as an adviser to
the Group on research and formulation as well as making proposals to the Board
of Directors. Stephen Welker, who is also a Partner in Sherborne, served as a
Non-Executive Director in the Company until his resignation on 1 November
2021. Under the terms of its contract with the Company, Directors appointed by
Sherborne have waived their fees but were entitled to be reimbursed for all
reasonable expenses. In the 16 months to 31 January 2022, Sherborne charged no
expenses to the Company (12 months to 30 September 2020: £22,609 as
reimbursement for Mr Welker's travel and subsistence costs), and no
outstanding amount was payable by the Company as at 31 January 2022 (30
September 2020: £nil). There are now no Directors of the Company appointed by
Sherborne.
18. Capital Commitments and Contingencies
There were no outstanding capital commitments or contingent liabilities as at
31 January 2022.
19. Post Balance Sheet Events
On 1 February 2022, listing of the Company's shares on the premium segment of
the Official List of the Financial Conduct Authority of the United Kingdom was
cancelled, and trading of the Company's shares was removed from the Main
Market for listed securities of the London Stock Exchange plc and was admitted
on AIM as Unbound Group plc.
20. Basis of Accounting and Significant Accounting Policies
The Group financial statements for the 16 months ended 31 January 2022 have
been prepared in accordance with the Companies Act 2006 and International
Financial Reporting Standards ("IFRSs"). IFRSs comprise standards and
interpretations approved by the International Accounting Standards Board
("IASB") and the IFRS Interpretations Committee ("IFRS IC") as adopted by the
United Kingdom.
In order to reflect the activities of an investment trust company,
supplementary information which analyses the Consolidated Income Statement
between items of a revenue and capital nature has been presented alongside the
Consolidated Income Statement. In analysing total income between capital and
revenue returns, the Directors have followed the guidance contained in the
Statement of Recommended Practice ("SORP") for investment companies issued by
the Association of Investment Companies in November 2014 and updated in
October 2019.
The recommendations of the SORP which have been followed include:
· realised and unrealised profits or losses arising on the revaluation
or disposal of investments classified as held at fair value through profit or
loss should be shown in the "Capital" column of the Consolidated Income
Statement;
38
20. Basis of Accounting and Significant Accounting Policies (continued)
· realised gains are taken to the realised reserves in equity and
unrealised gains are transferred to the unrealised reserves in equity;
· returns on any share or debt security (whether in respect of
dividends, interest income or otherwise) should be shown in the "Revenue"
column of the Consolidated Income Statement. The total of the "Revenue" column
of the Consolidated Income Statement is taken to the revenue reserve in
equity; and
· the Board should determine whether the indirect costs of generating
capital gains should also be shown in the "Capital" column of the Consolidated
Income Statement. If the Board decides that this should be so, the management
expenses should be allocated between revenue and capital in accordance with
the Board's expected long-term split of returns, and other expenses should be
charged to capital only to the extent that a clear connection with the
maintenance or enhancement of the value of investments can be demonstrated.
The Board has decided that the Company should continue to charge management
expenses as a revenue item for the 16 months to 31 January 2022.
The separate financial statements of the Company have been prepared in
accordance with Financial Reporting Standard 101 ("FRS 101") and the Companies
Act 2006. The Company has taken advantage of the exemption under section 408
of the Companies Act 2006 and accordingly has not presented a separate Company
Income Statement.
In preparing these financial statements, the Company applies recognition,
measurement and disclosure requirements of FRS 101 and the following
exemptions have been applied:
15. Cash Flow Statement and related notes;
16. related party disclosures in respect of transactions with wholly owned
subsidiaries;
17. the effects of new but not yet effective IFRSs; and
18. IFRS 2 Share-Based Payment in respect of Group settled share-based payment
schemes.
Going Concern
Following the adoption of the wind-down strategy in 2018 it became
appropriate, in light of the likely ultimate wind-up of the Company, for the
Company to report on a basis other than that of a going concern. Given the
Company's transition to Unbound Group plc as a trading holding company for
Hotter, listed on AIM on 1 February 2022, this basis of preparation is no
longer appropriate. As such these accounts are prepared on the basis of a
going concern.
The Directors have conducted a going concern review and concluded that
preparation of the report on a going concern basis was appropriate because the
Group is expected to be able to meet its liabilities as they fall due for a
period of 12 months from the date of approval of the financial statements. In
reaching this decision the Directors considered the trading position of Hotter
Shoes in relation to the covenants on its banking facilities that extend to
December 2024, forecast profitability and levels of cash, and also the Board's
intention to realise the non-core assets of the Company.
Given the situation of the Company, the change of basis of preparation has no
numerical impact on the financial performance or position of the Company as
reported.
Basis of Consolidation
The consolidated financial statements include the Company and its subsidiary
undertakings. Subsidiaries are entities controlled by the Group. Control, as
defined by IFRS 10, is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee.
39
20. Basis of Accounting and Significant Accounting Policies (continued)
The amendments to IFRS 10 and IFRS 12 define an investment entity and include
an exception from the consolidation requirements for investment entities.
The Company has been deemed to meet the definition of an investment entity per
IFRS 10, as the following conditions exist:
· the Company has multiple unrelated investors which are not related
parties and holds multiple investments;
· ownership interests in the Company are exposed to variable returns
from changes in the fair value of the Company's net assets;
· the Company has obtained funds for the purpose of providing investors
with investment management services;
· the Company's business purpose is investing solely for returns from
capital appreciation and investment income; and
· the performance of investments is measured and evaluated on a fair
value basis.
The Company does not consolidate the portfolio companies it controls. The
principal subsidiaries are wholly owned companies, which provide
investment-related services through the provision of investment management or
advice and hold investments in managed assets. The primary purpose of these
entities is to provide investment-related services that relate to the
Company's investment activities and therefore they are not considered to be
investment entities. These subsidiaries continue to be consolidated.
Investments
Purchases and sales of listed investments are recognised on the trade date
where a contract exists whose terms require delivery within a timeframe
determined by the relevant market. Purchases and sales of unlisted investments
are recognised when the contract for acquisition or sale becomes
unconditional.
Investments are designated at fair value through profit or loss (as detailed
in the financial statements as investments held at fair value) and are
subsequently measured at reporting dates at fair value. The fair value of
direct unquoted investments is calculated in accordance with the Principles of
Valuation of Investments below.
Principles of Valuation of Investments
The Group estimates the fair value of each investment at the reporting date in
accordance with IFRS 13 and the International Private Equity and Venture
Capital Valuation ("IPEV") Guidelines. Fair value is the price for which an
asset could be exchanged between knowledgeable and willing parties in an arm's
length transaction. In estimating fair value, the Manager applies a valuation
technique which is appropriate in light of the nature, facts and circumstances
of the investment and uses reasonable current market data and inputs combined
with judgement and assumptions. Valuation techniques are applied consistently
from one reporting date to another except where a change in technique results
in a better estimate of fair value.
In respect of unlisted investments, the Group selects one or more of the
following valuation techniques:
· a market approach, based on the price of the recent investment,
earnings multiples or industry valuation benchmarks;
· an income approach, employing a discounted cash flow technique; and
· a replacement cost approach valuing the net assets of the portfolio
company.
40
20. Basis of Accounting and Significant Accounting Policies (continued)
In assessing whether a methodology is appropriate the Group maximises the use
of techniques that draw heavily on observable market-based measures of risk
and return. In some circumstances the Group may apply a multiple to the net
assets of a business, typically where the business' value derives mainly from
the underlying fair value of its assets rather than its earnings, such as
property holding companies.
The fair value of listed investments is based on quoted prices in active
markets at the Balance Sheet date. A market is regarded as active, if quoted
prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm's
length basis. The quoted market price used for financial assets held by the
Group is the current bid price.
Subsidiary Undertakings
Investments in subsidiaries are stated in the Company Balance Sheet at the
fair value.
Cash
Cash comprises cash at bank and is measured at amortised cost.
Leased Assets - Group as a Lessee
For any new contracts entered into on or after 1 October 2019, the Group
considers whether a contract is or contains a lease. A lease is defined as a
contract, or part of a contract, that conveys the right to use an asset (the
underlying asset) for a period of time in exchange for a consideration. The
Group assesses whether it has the right to direct how and for what purpose the
asset is used throughout the period of use.
For leases identified, the Group recognises a right-of-use asset and a lease
liability on the Balance Sheet at lease commencement date. The right-of-use
asset is measured at cost, which is made up of the initial measurement of the
lease liability, any initial direct costs incurred by the Group, an estimate
of any costs to dismantle and remove the asset at the end of the lease, and
any lease payments made in advance of the lease commencement date (net of any
incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from
the lease commencement date to the earlier of the end of the useful life of
the right-of-use asset or the end of the lease term. The Group also assesses
the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
interest rate implicit in the lease if that rate is readily available or the
Group's incremental borrowing rate. Lease payments included in the measurement
of the lease liability are made up of fixed payments (including in-substance
fixed), variable payments based on an index or rate, amounts expected to be
payable under a residual value guarantee and payments arising from options
reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments
made and increased for interest. It is remeasured to reflect any reassessment
or modification, or if there are changes in in-substance fixed payments. When
the lease liability is remeasured, the corresponding adjustment is reflected
in the right-of-use asset, or profit and loss if the right-of-use asset is
already reduced to zero. The Group has elected to account for short-term
leases and leases of low-value assets using the practical expedients. Instead
of recognising a right-of-use asset and lease liability, the payments in
relation to these are recognised as an expense in profit or loss on a
straight-line basis over the lease term.
41
20. Basis of Accounting and Significant Accounting Policies (continued)
Foreign Currencies
The Group's and Company's presentational and functional currency is Pounds
Sterling ("Sterling"), since that is the currency of the primary economic
environment in which the Group operates. Transactions in currencies other than
Sterling are recorded at the rates of exchange prevailing on the dates of the
transactions. Foreign currency assets and liabilities are translated into the
functional currencies of the Group's respective entities at rates prevailing
at the Balance Sheet date. Foreign currency revenue and expenses are
translated into the functional currencies of the Group's respective entities
at the month-end rate for the period the transaction occurred. Exchange
differences arising are recognised through the Consolidated Income Statement.
At each Balance Sheet date, assets and liabilities of foreign operations are
translated into Sterling at the rates prevailing on the Balance Sheet date.
Foreign exchange differences arising on retranslation of the equity and
reserves of subsidiaries with functional currencies other than Sterling are
recognised directly in the translation reserve in equity. Foreign exchange
differences arising on the retranslation of non-monetary items carried at fair
value are included in the Consolidated Income Statement for the year.
Investment Income
Dividends receivable from equity shares are accounted for on the ex-dividend
date or, where no ex-dividend date is quoted, when the Group's right to
receive payment is established. Fixed returns on non-equity shares and debt
securities are recognised on a time apportionment basis so as to reflect the
effective yield when it is probable that economic benefit will flow to the
Group. Where income accruals previously recognised, but not received, are no
longer considered to be reasonably expected to be received, either through
investee company restructuring or doubt over its receipt, then these amounts
are reversed through expenses.
Expenses
Expenses are charged through the "Revenue" column of the Consolidated Income
Statement.
Defined Contribution Plan
The Group operates a defined contribution pension plan under which the Group
pays fixed contributions. Pension contributions are recognised as expenses in
the Consolidated Income Statement, as incurred.
Tax
The tax effect of different items of income/gain and expense/loss is allocated
between capital and revenue on the same basis as the particular item to which
it relates, using the Company's effective rate of tax for the accounting year.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit before tax as reported in the Consolidated Income
Statement because it excludes items of income or expense that are taxable or
deductible in other years 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.
Provisions
Provisions are recognised when the Group has a present obligation of uncertain
timing or amount as a result of past events and it is probable that the Group
will be required to settle that obligation and a reliable estimate of that
obligation can be made. The provisions are measured at the Directors' best
estimate of the amount to settle the obligation at the Balance Sheet date.
Changes in provisions are recognised in the Consolidated Income Statement.
42
20. Basis of Accounting and Significant Accounting Policies (continued)
Revenue and Capital Reserves
Net capital return is added to the capital reserve in the Consolidated
Statement of Changes in Equity, while the net revenue return is added to the
revenue reserve.
Receivables and Payables
Receivables and payables are typically settled in a short time frame and are
carried at the amount due to be settled. As a result, the fair value of these
balances is considered to be materially equal to the carrying value, after
taking into account potential impairment losses.
Share Capital
Ordinary shares issued by the Group are recognised at the proceeds or fair
value received with the excess of the amount received over nominal value being
credited to the share premium account. Direct issue costs, net of tax, are
deducted from equity.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used
in preparing the financial information are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting judgements and
estimates will, by definition, seldom equal the related actual results.
In the course of preparing the Annual Report and Financial Statements for the
16 months ended 31 January 2022, the Directors concluded that the Company
continues to meet the definition of an investment entity based on the
reassessment of the conditions listed under the basis of consolidation above.
Key Sources of Estimation Uncertainty
The valuation for Hotter as at 31 January 2022 is derived by adjusting the
market capitalisation of Unbound Group plc on that date by all other assets
and liabilities held by the Company, and the Company's liabilities include
accrued transaction costs on its transition to Unbound and estimated costs
provided for contracts, which have become onerous as a direct result of the
transition.
There is a risk that these costs could be different to the amounts estimated
as at the year end, therefore causing adjustments to the carrying amounts of
assets and liabilities within the next financial year. However, the Company
has performed a detailed review of the cost estimates, many of which are based
on either quotes from service providers or contractual amounts. Therefore, the
Directors believe that any differences between actual and estimated costs
would be immaterial.
43
Information for Shareholders
Financial calendar for 2022/23
Annual results announced 3 March 2022
Annual General Meeting 12 May 2022
Website and Unbound News via Email
For further information on share prices, regulatory news and other
information, please visit www.unboundgroupplc.com.
If you would like to receive email notification of our announcements, please
visit the Unbound website at www.unboundgroupplc.com/regulatory-news/ and
"Subscribe to Unbound Group's News Alerts". Registering for email alerts will
not stop you receiving Annual Reports or any other shareholder documents you
have selected to receive by post or electronically.
Shareholder Enquiries
In the event of queries regarding your ordinary shareholding, contact the
Company's Registrar, Equiniti Limited, which will be able to assist you with:
• registered holdings;
• balance queries;
• lost certificates; and
• change of address notifications.
Equiniti Limited's full details are provided on page 46 or please visit
www.equiniti.com.
If you are an existing shareholder and wish to buy more/sell your shares in Unbound:
An internet and telephone dealing service has been arranged through Equiniti, which provides a simple way for UK shareholders of Unbound to buy or sell Unbound's shares. For full details and terms and conditions simply log onto www.shareview.co.uk/dealing or call 0371 384 2351. Please note that lines are open 8.30am to 5.30pm (UK time) Monday to Friday (excluding public holidays in England and Wales).
The service is only available to shareholders of Unbound who hold shares in their own name, have a UK registered address and are aged 18 and over.
Shareview Dealing is provided by Equiniti Financial Services Limited. Equiniti Financial Services Limited is authorised and regulated by the Financial Conduct Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS (FCA reference 468631). Equiniti Financial Services Limited is registered in England and Wales with number 6208699.
If you are not an existing shareholder:
If you are not an existing shareholder, we recommend you seek your own
personal financial advice from an appropriately qualified independent adviser
or alternatively contact your own broker. Unbound Group plc's shares are
listed on the London Stock Exchange with the ticker "UBG".
Please Note: The above information is not a recommendation to buy or sell
shares. The value of shares and any income from them can fluctuate and you may
get back less than the amount invested. If you have any doubt over what action
you should take, please contact an authorised financial adviser.
44
Trading Information - Ordinary Shares
Listing London Stock Exchange
ISIN GB0003085445
SEDOL 0308544
Ticker/EPIC code UBG
Bloomberg UBGLN
Share Fraud Warning
We are aware that in the past a number of shareholders have received
unsolicited phone calls or correspondence concerning investment matters. These
are typically from overseas-based brokers who target UK shareholders, offering
to sell them what often turn out to be worthless or high-risk shares. These
operations are commonly known as boiler room scams.
Please be very wary of any such calls or correspondence. Ask for the name and
organisation of the person calling you and check if they can be found on the
Financial Conduct Authority ("FCA") Register. If they are not listed, please
report it directly to the FCA using its consumer helpline (0800 111 6768). You
may also wish to advise us by telephoning 020 3874 8300 or emailing
Investorrelations@unboundgroup.com.
It is very unlikely that either the Company or the Company's Registrar,
Equiniti, would make unsolicited telephone calls to shareholders. Such calls
would only relate to official documentation already circulated to shareholders
and never be in respect of investment advice.
Please remember that if you use an unauthorised firm to buy or sell shares,
you will not be eligible to receive payment under the Financial Services
Compensation Scheme if things go wrong.
45
Contact Details
Unbound Group plc
Board of Directors
Neil Johnson (Chairman)
Ian Watson (Chief Executive Officer, appointed as a Director on 1 February
2022)
Dan Lampard (Chief Financial Officer, appointed as a Director on 1 February
2022)
Paul Goodson
Gavin Manson
Baroness Kate Rock (appointed on 1 November 2021)
Suki Thompson (appointed on 1 November 2021)
Linda Wilding
Registered Office
Registered in England: Company no. 00303062
17 Old Park Lane, London, England W1K 1QT
Telephone +44 (0)20 3874 8300
www.unboundgroupplc.com
Company Secretary and Administrator
Frostrow Capital LLP (to 12 May 2022)
25 Southampton Buildings, London, England WC2A 1AL
Telephone +44 (0)20 3008 4910
ONE Advisory Limited (from 12 May 2022)
3 Temple Avenue, Temple, London, England EC4Y 0DT
Telephone +44 (0)20 7583 8304
Registered Independent Auditor
Deloitte LLP
Hill House, 1 Little New Street, London, England EC4A 3TR
Corporate Brokers
Stifel Nicolaus Europe Limited
4(th) Floor, 150 Cheapside, London, England EC2V 6ET
HSBC
8 Canada Square, Canary Wharf, London, England E14 5HQ
Registrar and Transfer Office
Equiniti Limited
Aspect House, Spencer Road, Lancing, West Sussex, England BN99 6DA
Telephone (UK) 0371 384 2351*
Textel/hard of hearing line (UK) 0371 384 2255*
Telephone (overseas) +44 121 415 7047
* Lines open 8.30am to 5.30pm (UK time), Monday to Friday (excluding public
holidays in England and Wales).
46
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