REG - TheWorks.co.uk PLC - Preliminary results - 53 weeks ended 5 May 2024
01/10/2024 07:00
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RNS Number : 3461G TheWorks.co.uk PLC 01 October 2024
1 October 2024
TheWorks.co.uk plc
("The Works", the "Company" or the "Group")
Preliminary results for the 53 weeks ended 5 May 2024 and trading update
Finished FY24 in line with market forecasts of pre-IFRS16 adjusted EBITDA of
£6.0m.
Well positioned for profit growth in FY25 and to meet market forecasts of
pre-IFRS16 adjusted EBITDA of £8.5m, with a process to evolve the strategy
well underway.
TheWorks.co.uk plc, the family-friendly value retailer of arts, crafts, toys,
books and stationery, announces its preliminary results for the 53 weeks ended
5 May 2024 (the "period" or "FY24")((1)) and an update on current trading.
Financial highlights
· Delivered total revenue growth of 0.9% to £282.6m in FY24 against a
challenging backdrop characterised by cost of living pressures and softened
consumer demand.
· Store sales, which represent c.90% of total sales, continued to drive growth,
increasing by 0.6% on a like for like (LFL((2))) basis. Online LFL sales
declined by 12.4%, resulting in an overall LFL sales decline of 0.9%.
· Pre-IFRS 16 Adjusted EBITDA of £6.0m (FY23: £9.0m). Sales were lower than
originally anticipated, reflecting a tough trading environment and operational
challenges in the run up to Christmas. This combined with increased cost
headwinds put pressure on profitability. However, due to the decisive cost
action taken and improved trading in the final quarter, the Group ended the
year in line with expectations((3)).
· Adjusted profit before tax((4)) (PBT) of £3.2m (FY23 Restated((5)): £5.3m).
· The Group ended the Period with net cash((6)) of £1.6m (the 52-week period
ended with net cash of £6.5m, which compares to net cash of £10.2m at the
end of FY23).
· The Board is not proposing a final dividend for FY24. Future shareholder
distributions will be kept under consideration as profitability improves and
net cash allows.
· Sales in the first 21 weeks of FY25 have been in line with our expectations,
with LFL sales up 0.2%. On track to deliver improved profitability in FY25 and
meet Group compiled market forecasts of pre-IFRS16 Adjusted EBITDA of £8.5m.
· Medium term goal is to return to pre-IFRS 16 EBITDA margins of 5%.
FY24 FY23 (Restated)((5))
£m £m
Revenue 282.6 280.1
Revenue growth % 0.9% 5.8%
Total LFL sales (0.9)% 4.2%
Pre-IFRS16 Adjusted EBITDA((4)) 6.0 9.0
Pre-IFRS16 EBITDA Margin((4)) 2.1% 3.2%
Adjusted profit before tax((4)) 3.2 5.3
Profit before tax 6.9 9.0
Adjusted basic EPS (pence) 4.2p 9.2p
Basic EPS (pence) 10.2p 15.0p
Dividend per share (pence) 0p 0p
Net cash((6)) 1.6 10.2
FY24 business highlights
· Decisive action was taken to grow product margins, reset the cost base and
scale back non-essential investments, with the aim of improving profitability.
This included relocating our online fulfilment centre and changing ways of
working in our retail Distribution Centre, negotiating more favourable terms
with suppliers and landlords, transferring from the Main Market to AIM and
ending our customer loyalty scheme to focus instead on providing customers
with everyday low prices.
· Evolved our brand to fulfil our purpose - to inspire reading, learning,
creativity and play - commencing a project to make our brand positioning
clearer. This is now being rolled out in our external marketing and includes
the introduction of our new #TimeWellSpent strapline.
· Refined our product proposition to more clearly align to our brand purpose
through the introduction of new toys and games ranges and the relaunch of our
kids' book range in Spring 2024.
· Improved the quality of our overall store portfolio through 9 openings, 24
closures (of mostly loss-making or low-profit stores), 5 relocations and 21
refits. Operated from 511 stores at the end of FY24, of which 96% are
profitable. New stores on track to deliver strong payback of approximately one
year.
· Leadership changes at both plc Board and Operating Board level, including
streamlining the Operating Board so that it is more agile and better
positioned to deliver on strategy and growth plans.
· Placed 15th in the 'Best Big Companies to Work For' and 10th in Retail Week's
'Top 50 happiest retailers to work for', demonstrating strong colleague
engagement.
Trading update and outlook
Sales have been in line with our expectations in the first 21 weeks of FY25
(ended Sunday 29 September 2024), with LFL sales up 0.2%, outperforming the
wider sector. This performance is encouraging, against the widely reported
backdrop of improved consumer confidence having yet to translate into
increased consumer spend and non-food retail sales remaining subdued((7)).
We are well-positioned heading into our peak Christmas trading period having
addressed the capacity issues faced in our Distribution Centre last year, our
new brand strapline #TimeWellSpent launching and exciting new product ranges
set to land, including our popular 2 for £12 gifts for all the family and
some fantastic new book releases across our fiction and non-fiction ranges.
Strong product margin growth and cost savings are being delivered, more than
offsetting ongoing cost headwinds. As such, we remain on track to deliver
improved profitability in FY25 and meet Group compiled market forecasts of
pre-IFRS16 Adjusted EBITDA of £8.5m.
Board change
As announced alongside our FY24 results, John Goold and Mark Kirkland, both
Non-Independent Non-Executive Directors of The Works, have decided to step
down from the Board with effect from today.
Gavin Peck, Chief Executive Officer of The Works, commented:
"Against a persistently challenging consumer backdrop and tough Christmas
trading, we were pleased to end FY24 in line with market expectations. This
was a direct result of the continued dedication and strong response of
colleagues, the decisive action taken to improve product margins, reduce costs
and scale back non-essential investments, supported by improved sales in the
final quarter.
"Good strategic progress was made during the year and whilst we believe this
continues to be the right high level strategic direction for The Works, we
also believe that now is the right time to evolve the strategy. Work is
therefore underway to refine our plans to transform the business and drive an
improved performance and shareholder returns in the years ahead.
"Although consumer confidence remains subdued and we continue to face tough
cost headwinds, the cost and operational action we have taken and the
trajectory of recent trading means we are well positioned to offset these and
return to profit growth in FY25. Operationally we are in a much stronger
position this year as we head into the upcoming peak Christmas trading period
and we look forward to supporting customers to have a Christmas well spent
courtesy of The Works."
Preliminary results presentation
A copy of the FY24 Preliminary results presentation will shortly be made
available on the Company's website (www.corporate.theworks.co.uk/investors
(http://www.corporate.theworks.co.uk/investors) ).
A presentation and Q&A for all existing and potential shareholders will be
held via Investor Meet Company at 1.30pm on Wednesday 2 October 2024.
Investors can register here:
https://www.investormeetcompany.com/theworkscouk-plc/register-investor
(https://www.investormeetcompany.com/theworkscouk-plc/register-investor)
Enquiries:
TheWorks.co.uk plc
Gavin Peck, CEO via Sanctuary Counsel
Rosie Fordham, CFO
Sanctuary Counsel
Ben Ullmann 0207 340 0395 theworks@sanctuarycounsel.com
Rachel Miller
Kitty Ryder
Singer Capital Markets (Nomad and Broker) 020 7496 3000
Peter Steel
Alaina Wong
Jalini Kalaravy
Footnotes:
(1) The FY24 annual report and accounts for the Group will cover the 53-week
period ended 5 May 2024, compared to a 52-week period ended 30 April 2023 in
FY23.
(2) 53-week LFL sales growth has been calculated with reference to the prior
53-week comparative sales period. LFL sales growth is the growth in gross
sales from stores which have been trading for the full financial period
(current and previous year), and from the Group's online store.
(3) In November 2023 the Group announced its revised profit forecast of pre-IFRS
16 EBITDA of £6.0m.
(4) Adjusted profit figures exclude Adjusting items. See notes 2 (Alternative
performance measures) and 3 (Adjusting items) of the condensed financial
statements included in this RNS.
(5) Prior period restatements reflect adjustments wholly related to IFRS 16 lease
accounting. Further details can be found in note 12 of the condensed financial
statements included in this RNS.
(6) Net cash at bank excluding finance leases, on a pre-IFRS 16 basis.
(7) The BRC-KPMG Retail Sales Monitor for August reported that non-food sales
decreased 1.7% year-on-year over the three-months to August (link
(https://brc.org.uk/news/corporate-affairs/summertime-picks-up-retail-sales/)
).
Notes for editors:
The Works is one of the UK's leading family-friendly value retailers of arts
and crafts, stationery, toys, and books, offering customers a differentiated
proposition as a value alternative to full price specialist retailers. The
Group operates a network of over 500 stores in the UK & Ireland, as well
as trading online at TheWorks.co.uk (https://www.theworks.co.uk/) .
Chair Review
Introduction
I am delighted to have joined The Works as Chair in July 2024 and, on behalf
of the whole Board, would like to take this opportunity to thank my
predecessor, Carolyn Bradley, for her contribution to the business.
My initial, overriding impression since joining The Works is that this is a
business with a clear purpose, strong value proposition, quality store
portfolio, positive and healthy culture, tight-knit leadership team and
passionate colleagues.
While much important progress has been made in recent years, this has not yet
translated into an improved financial performance. There remains much to be
done and although the business continues to face challenges, this also
presents an exciting opportunity to evolve and grow. I believe there is
substantial potential for increased shareholder value and I look forward to
working closely with Gavin and his leadership team to realise this.
FY24 performance
The business faced difficult economic conditions in FY24, which put pressure
on sales and impacted profitability. Action taken to reduce the cost base and,
grow product margins, as well as improved sales in the final quarter provides
a stronger foundation from which to build, as we have seen in FY25 to date.
Credit must go to Gavin and his leadership team for ensuring The Works ended
the year in line with market expectations and positioning the business for
growth in the years ahead.
Strategy
Following several years of major externally driven operational challenges,
resulting in financial underperformance and a reshaping and strengthening of
both the Operating Board and the plc Board, as detailed below, now is the
opportune moment to put in place a clear plan to transform the business.
Strong, affirmative action is needed to drive sales growth, improve operating
margins and deliver strong shareholder returns. A review of our longer-term
goals, the strategy and operational plans to deliver on those goals is
currently underway and we expect to be in a position to share more on this
alongside our interim results in January 2025.
Our Board and leadership
The business has undergone leadership changes at both an Operating and plc
Board level over the last year.
Lynne Tooms was appointed as Commercial Director in September 2023 and Rosie
Fordham stepped up to the role of CFO in January 2024. Both have had a hugely
positive impact on the business.
To reflect where The Works is today and to ensure that the business is best
able to deliver on its strategy, Gavin restructured his leadership team in
April 2024. We now have a streamlined Operating Board which has accelerated
the delivery of our plans and improved cross-functional working.
We have also seen changes at a plc Board level during the year. In addition to
my appointment in July 2024, John Goold and Mark Kirkland, both from one of
our shareholders Kelso plc, joined as Non-Executive Directors in February
2024. They decided to step down from the Board in October 2024.
Catherine Glickman, Independent Non-Executive Director, announced her
intention not to seek re-election at the AGM. The process to appoint
Catherine's successor, someone that has extensive value retail experience, is
expected to be completed before the end of the calendar year.
Capital distributions
The Board is not proposing a final dividend for FY24. We will continue to keep
future shareholder distributions under consideration as profitability improves
and net cash allows, whilst noting some of our major shareholders' preference
for share buybacks over the payment of dividends. A further update will be
provided alongside our interim results in January 2025.
Outlook
The Board is mindful that the consumer environment has not yet fully recovered
and of continued cost headwinds. With a strengthened leadership team and
Board, a good foundation for strategic progress, action taken around costs,
and a solid start to sales in the new financial year, we are, however,
confident that The Works will deliver profit growth in FY25.
Finally, I would like to thank our shareholders for their continued support
whilst the business is undergoing a period of transition.
Steve Bellamy
Chair
CEO Report
Introduction
In FY24 we made good progress against our "better, not just bigger" strategy,
whilst also shifting our focus in response to challenging trading conditions.
Following a challenging second half of 2023, with particularly tough Christmas
trading, stabilising profitability became our primary focus. Decisive action
was taken to grow gross margins, reset the cost base and scale back
non-essential investments. I am pleased to report that, as a result of this
action, we finished the year in line with market expectations. We are well
positioned to realise further benefits and deliver increased shareholder value
in FY25 and beyond.
Trading performance and financial results
In FY24 we delivered total revenue growth of 0.9% to £282.6m and a total
like-for-like (LFL) sales decline of 0.9%, which was lower than our
expectations at the start of the year. Across the year our stores, which
comprise c.90% of sales, saw sales increase by 0.6% on a LFL basis, whilst
online LFL sales declined by 12.4%. Outlined below are the main factors that
contributed to this performance:
· The backdrop to FY24 was persistently challenging, characterised by high
consumer inflation, low consumer confidence and ongoing cost of living
pressures. This impacted Christmas trading in particular and drove high levels
of promotional activity across the market ahead of our peak Christmas season.
· We faced capacity issues at our Distribution Centre in the run up to peak
trading, exacerbated by operational challenges with embedding a new picking
process, which temporarily disrupted the flow of stock during our key trading
period.
· We had a promising start to the year and good strategic progress was made,
particularly through improvements to our product proposition. New toys and
games ranges performed well in H1 and the relaunch of our kids' book, core art
and stationery ranges drove improved trading in-store post-Christmas.
· As part of our ongoing focus on improving the quality of our store portfolio
we closed a net 15 stores, resulting in a sales headwind. As the closed stores
were mostly loss-making or low-profit stores, the profit impact was broadly
neutral.
· We implemented a series of changes to our online channel to improve
profitability. Although this temporarily impacted sales, it meant that our
online channel broke-even in FY24 and the Board expects this channel to be
profitable in FY25.
Pre-IFRS16 EBITDA for FY24 was £6.0m (FY23: £9.0m), which was lower than our
expectations at the start of the year. We faced increased cost headwinds in
FY24, both those that we had anticipated (e.g. higher business rates,
increases to the National Living and Minimum Wages and investment in our
merchandising team) and those we could not have foreseen (e.g. substantial
increases in freight costs due to supply chain disruption). Faced with
constrained profitability and uncertainty regarding a recovery in consumer
confidence, in the second half of the year we implemented a programme to
stabilise profitability. Action taken included:
· Transferring The Works from its Main Market listing to AIM which will result
in lower corporate costs and a more flexible regulatory environment.
· Moving our online fulfilment centre, operated by third-party provider iForce,
to a more efficient facility in early January, which is expected to deliver a
c.£1.0m per year reduction in operating costs.
· Ending our Together Rewards loyalty scheme to focus instead on maintaining
everyday affordable prices. The scheme had c.2 million active members and
although loyalty members typically spent more, it did not deliver adequate
returns on the annual investment of over £2m.
· Improving product margins through negotiations with suppliers and more
targeted promotional activity.
· Introducing changes to ways of working in our Distribution Centre and store
labour models, which are expected to drive significant efficiencies.
· Negotiating rent savings with landlords, particularly for low-profit and
loss-making stores with leases up for renewal.
· Restructuring our Operating Board to give us a more agile, streamlined and
focused leadership team.
We expect to realise most of the benefits from this activity in FY25, however
were encouraged to see improved margins and lower costs coming through towards
the end of FY24. This action, coupled with improving store sales in the final
quarter, meant that we finished the year in line with expectations, delivering
pre-IFRS 16 Adjusted EBITDA of £6.0m (FY23: £9.0m) and Adjusted profit
before tax of £3.2m (FY23 restated: £5.3m).
Overall, whilst it is disappointing that our performance in the year was lower
than anticipated at the outset, I am pleased that the decisive action taken in
the second half has started to deliver positive results. This, combined with
the good strategic progress outlined below, means we are confident that The
Works now has a solid foundation on which to return to growth in FY25 and
beyond.
Strategy
Despite the challenges faced, our teams rallied together and delivered good
progress against our 'better, not just bigger' strategy in FY24. Whilst we
believe that this continues to be the right high level strategic direction for
the business, we feel that that now is the right time to evolve the strategy
and set out a clear plan to transform the business, with the ambition to drive
sales growth, improve operating margins and deliver strong shareholder
returns. A review of the strategy is currently underway and we expect to
update shareholders on our goals and priority focus areas in early 2025.
Strategic progress in FY24 includes:
Developing our brand and increasing our customer engagement
· Recruited a new Commercial Director to lead our product, sourcing and quality
strategy, and to ensure our brand and product proposition continues to evolve
and is aligned with our purpose, with good progress made.
· Continued to evolve our brand to fulfil our purpose to inspire reading,
learning, creativity and play. We commenced a project to make our brand
positioning clearer, which is being rolled out this Christmas and includes the
introduction of our new #TimeWellSpent strapline. This captures the important
role that we play in supporting families with affordable, feel good ways to
spend their time and connecting people with screen-free things to do.
· Improved our product proposition through the introduction of new toys and
games ranges, which performed particularly well in H1. We relaunched our kids'
book range during Spring 2024, with a much clearer offer from baby and toddler
through to fiction books for young adults, including the introduction of more
fun-learning books and a broader range of kids' fiction titles.
Enhancing our online proposition
· Delivered improvements to the retail website to enhance the customer
experience, supported by new analytical tools including revamping our
homepage, optimising product pages and improving navigation across the site.
These changes have seen an improvement on all key metrics, including
conversion, and have laid the foundation for further improvements in FY25.
· Actively tested new trading mechanics to determine the most effective
strategies for engaging our customers, testing a mix of limited-time
discounts, web exclusives and bundles, as well as delivery initiatives to give
better choice on delivery. Early results indicate that targeted promotions
have not only increased sales but also enhanced key KPIs such as average order
value (AOV) and profit per order.
· As part of our broader efforts to improve profitability across the business,
we implemented changes to our online channel in H2, for example increasing the
free delivery threshold and increasing delivery charges. This impacted sales
but improved profitability.
Optimising our store estate
· Focused on maintaining the overall quality of our store portfolio, ensuring we
have the right stores in the right locations for our customers. This included
9 openings, 24 closures, 5 relocations and 21 refits. The business traded from
511 stores at the year end, of which 96% are profitable.
· The majority of closures were of loss-making or low-profit stores where we
were unable to agree suitable terms with the landlord. New stores performed in
line with internal forecasts and should deliver strong payback of
approximately one year.
· Successfully negotiated with landlords on FY24 lease renewals, delivering
£0.8m in annual rent savings.
Driving operational improvements
· Moved our online fulfilment centre, operated by a third-party provider,
iForce, to a more efficient facility in early January, which is expected to
save c.£1m per year in operating costs.
· Strengthened Distribution Centre management to help embed improved ways of
working and deliver benefits and efficiencies in the 2024 calendar year and
beyond.
· Following a successful pilot in 2023, began rollout of new EPOS software
(completed in July 2024) that, in time, will enable improved functionality on
our tills in stores, enabling colleagues to spend more time on the shop floor
and respond to customer's requests quickly and efficiently.
Leadership and Operating Board changes
There have been a number of changes in leadership during the year, at both an
Operating and plc Board level. I would like to take this opportunity to thank
those who have departed and to welcome our new leadership team and Board
members, who all bring a wealth of experience.
After the period end we announced that Carolyn Bradley would be stepping down
as Chair and Steve Bellamy had been appointed as her successor. I would like
to thank Carolyn for her support over the last few years, which has been
hugely valuable during a period of significant change at The Works. I look
forward to working with Steve and am confident that, together with our
streamlined Operating Board, the business has the right leadership structure
and experience to set a clear plan to transform our business and deliver
against it, to ensure we return to growth and deliver increased value for
shareholders.
Colleagues
I am proud that The Works maintained such strong colleague engagement scores
in FY24, placing 15th in the 'Best Big Companies to Work For' and 10th in
Retail Week's 'Top 50 happiest retailers to work for'. I am hugely grateful to
our team of fantastic colleagues for adapting and going above and beyond when
faced with challenging trading conditions and such extensive change across the
business. It is testament to their hard work and dedication, as well as the
supportive, positive culture at The Works that we ended the year on a more
positive trajectory.
ESG
As a business, we remain committed to "Doing Business Better" and to making
positive and sustainable changes which will enable us to continue to inspire
reading, learning, creativity and play for generations to come.
We are taking steps to progress our ambition to be "Net Zero" in Scope 1 by
2035, Scope 2 by 2030, and Scope 3 by 2045, with an ambition to achieve Scope
3 by 2040 to align with the BRC's climate action roadmap. We also made good
progress in the year to support both People and Planet as outlined in the
Annual report and accounts.
Outlook
Although not where we had hoped to be going into the year, we are pleased to
have finished FY24 in line with revised market expectations. This reflects the
actions taken to reset our cost base and improve margins, supported by
improving sales in the final quarter and the business is in a much stronger
position as a result.
Despite inflation falling and interest rates beginning to ease, the consumer
environment remains subdued and we are yet to see a tangible improvement in
consumer spend. We expect trading conditions to continue to be tough in FY25,
with cost headwinds such as the higher National Living Wage, freight and
business rates remaining. However, I am confident that the changes we have
implemented across the business make us well placed to offset these factors
and am encouraged both by the solid sales performance since the year end and
the fact that that we are well placed operationally to maximise sales during
our peak Christmas trading period. We expect to deliver stable sales and an
improved EBITDA in FY25 and over the medium term our ambition is to return to
pre-IFRS 16 EBITDA margins of 5%.
Gavin Peck
Chief Executive Officer
Financial review
Overview
The result for FY24 was in line with the revised forecast announced by the
Group in November 2023 and reflects the refocus on tighter cost control and
improving gross margins.
FY24((1)) FY23
(Restated)((2))
Revenue £282.6m £280.1m
Revenue growth 0.9% 5.8%
LFL sales((3)) (0.9)% 4.2%
Pre-IFRS 16 Adjusted EBITDA((4)) £6.0m £9.0m
Profit before tax £6.9m £9.0m
Net cash at bank((5)) £1.6m £10.2m
((1) ) The FY24 accounting period relates to the 53 weeks ended 5
May 2024 (also referred to as the period) and the comparative FY23 accounting
period relates to the 52 weeks ended 30 April 2023.
((2) ) Prior period restatements reflect adjustment wholly
related to IFRS 16 Lease accounting. Further details can be found in note 12
of the condensed financial statements included in this RNS.
((3) ) 53 week LFL sales growth has been calculated with
reference to the prior 53 week comparative sales period. LFL sales growth is
the growth in gross sales from stores which have been trading for the full
financial period (current and previous year), and from the Group's online
store.
((4) ) Adjusted profit figures exclude Adjusting items. See notes
2 (Alternative performance measures) and 3 (Adjusting items) of the condensed
financial statements included in this RNS.
((5) ) Net cash at bank excluding finance leases, on a pre-IFRS
16 basis.
· Revenue increased by £2.5m (+0.9%) compared with the prior
period due, in part, to an extra week of trading and LFL store sales growth of
0.6%, along with the effect of closing a net 15 stores in the period. Online
sales declined by 12.4%, as we focussed on improving profitability, pulling
total LFL sales growth lower.
· Pre-IFRS16 Adjusted EBITDA of £6.0m, compared to £9.0m in the
prior period, reflects lower than anticipated sales and significant cost
headwinds. We partially offset some of these headwinds through proactive
operational changes at the start of the period. In light of lower sales ahead
of and during the peak trading period, we took further action to re-focus on
improving gross margins and further reduce costs post-Christmas. This helped
us to achieve the forecast for FY24.
· Group profit before tax includes a credit of £3.7m (restated
FY23: £3.6m credit) of Adjusting items, comprising of a £1.4m reversal of
impairment charges (as a result of following the requirements of the IFRS16
accounting standard), (restated FY23: charge £1.1m) and £3.5m (FY23: £4.7m)
profit on disposal of right of use assets and lease liabilities. These were
partially offset by other non-recurring costs of £1.2m relating to the
Group's move to AIM (£0.5m) and restructuring costs (£0.7m).
· The Group ended the period with net cash of £1.6m. The
comparable 52-week period to 28 April 2024 ended with net cash of £6.5m,
which compares to net cash of £10.2m at the end of FY23. The Group continues
to have access to, and utilises, a revolving credit facility (RCF) of £20.0m
to support the build of stock prior to peak trading.
· As part of the Company's move to AIM, the fixed charge covenant
was successfully renegotiated under the Group's banking facility, thereby
creating additional headroom when modelling the various scenarios in the
Board's going concern assessment. The accounts have therefore been prepared on
a going concern basis with no inclusion of a material uncertainty. Refer to
note 1 in the condensed financial statements included in this RNS for further
detail.
· In light of the lower profit delivered in FY24, the Board will
not be proposing a final dividend in relation to FY24. Future shareholder
distributions will be kept under consideration as profitability improves and
net cash allows.
The Group refers to alternative performance measures (APMs) in this report as
it believes these provide management and other stakeholders with helpful
additional information. These measures are used by management in running the
business, including pre-IFRS 16 Adjusted EBITDA ("EBITDA") and like for like
("LFL" 1 (#_ftn1) ) sales.
Due to rounding, numbers presented throughout this document may not add up
precisely to the totals provided and percentages may not precisely reflect the
absolute figures.
Revenue analysis
Total revenue grew 0.9% to £282.6m in FY24 (FY23: £280.1m). LFL((1)) sales
were down 0.9%, with stores +0.6% and online -12.4%.
LFL sales growth Stores Online Total
Q1 6.4% (13.1%) 4.5%
Q2 1.2% (11.8%) (0.5%)
H1 3.5% (12.2%) 1.6%
Q3 (3.4%) (11.0%) (4.4%)
Q4 1.6% (14.0%) 0.2%
H2 (1.5%) (11.8%) (2.8%)
Full year 0.6% (12.4%) (0.9%)
((1) ) 53 week LFL sales growth has been calculated with reference
to the prior 53 week comparative sales period. LFL sales growth is the growth
in gross sales from stores which have been trading for the full financial
period (current and previous year), and from the Group's online store.
· H1 headlines
o Group revenue performed well against an increasingly challenging economic
environment. Total LFL sales increased by 1.6% with stores +3.5%
o Early summer trading was particularly strong, with performance supported
by the launch of our new summer 'out to play' ranges, and expansion of our
toys and games offering. Annualising against the residual impact of our late
FY22 cyber-attack also supported comparatives.
o Towards the end of the half, our new and extended Halloween range
performed well, however overall performance was suppressed against a wider
back drop of increasing inflationary pressures and cost of living challenges,
which resulted in an increased level of discounting across the wider retail
market.
· H2 headlines
o H2 LFL sales declined by 2.8%, reflecting a 4.4% reduction in Q3 and a
more stable Q4 increase of 0.2%.
o Performance remained challenging through peak Christmas trading. Family
finances were under increasing pressure, meaning many customers shifted spend
to essentials rather than discretionary gifting. We maintained a level of
promotional discounting across Q3 to echo the wider market and remain
competitive, whilst also executing a more prominent January sale.
o We also faced temporary operational efficiency challenges as we ran out of
space in our Distribution Centre, which created short term disruption to the
flow of stock in the run up to peak trading. This challenge eased
post-Christmas which, along with range improvements, supported the improvement
in LFLs in Q4.
Store numbers
Store numbers FY24 FY23
Stores at beginning of period 526 525
Opened in the period 9 17
Closed in the period (24) (16)
Relocated (excluded from opened/closed above, NIL net effect on store numbers) 5 3
Stores at end of period 511 526
We were trading from 511 stores at the period end, of which over 96% are
profitable on an annual basis. Our store estate represents c.90% of sales and
delivered positive LFLs in the period. The number of stores trading reduced by
15 during the period. The change in store estate was heavily weighted towards
the second half of the financial period, with 12 net closures post-Christmas.
We continued to optimise the portfolio and close low-profit and loss-making
stores where we were not able to agree a commercial rent with landlords whilst
continuing to look to add new stores that fit our profile.
The 14 new stores opened in the period (including relocations) performed well
overall and in line with their internal forecasts, which should see payback of
around 1 year.
Product gross margin and gross profit
FY24 FY23 (Restated)((1)) Variance Variance
£m % of revenue £m % of revenue £m %
Revenue 282.6 280.1 2.5 0.9
Less: Cost of goods sold (120.5) (118.8) (1.7) (1.4)
Product gross margin 162.1 57.3 161.3 57.6 0.8 0.5
Store payroll (50.2) (17.8) (46.8) (16.7) (3.4) (7.3)
Store property and establishment costs (49.3) (17.4) (51.8) (18.5) 2.5 4.8
Store PoS & transaction fees (2.7) (1.0) (2.3) (0.8) (0.4) (17.4)
Online variable costs (15.8) (5.6) (18.4) (6.6) 2.6 14.1
Total non-product related cost of sales (118.0) (41.8) (119.4) (42.6) 1.4 1.2
Store depreciation (1.9) (0.7) (3.7) (1.3) 1.8 49.0
Adjusting items((2)) 3.7 13.1 3.6 1.3 (0.1) (2.8)
IFRS16 impact 5.9 2.1 6.1 2.8 (0.2) (3.3)
Gross profit per financial statements 51.8 18.3 47.9 17.1 3.9 8.1
((1) ) Prior period restatements reflect adjustments wholly
related to IFRS 16 Lease accounting. Further details can be found in note 12
of the condensed financial statements included in the RNS.
((2) ) Adjusted profit figures exclude Adjusting items. See notes
2 (Alternative performance measures) and 3 (Adjusting items) of the condensed
financial statements included in this RNS.
The product gross margin rate decreased by 30bps to 57.3% (FY23: 57.6%).
Notable factors influencing year on year comparisons are as follows:
· Evolving product mix: Our new toys and games ranges drove
incremental sales and saw double digit growth in the period, however these
attract a lower margin percentage. The continued growth in front-list adult
fiction books also pulled the rate lower.
· The additional promotional activity across peak reduced the gross
margin percentage.
· The hedged FX rate on payments made in US dollars remained a
headwind through the period. FY24 hedged US dollar;GB pound rate was 1.22
versus 1.36 in FY23.
· A reduction in container freight rates versus 2022 rates: Average
container rates paid during FY24 were $2k versus FY23 of $6k.
· Q4 margin improved versus FY23, supported by reduced promotional
activity and the impact of a focus on stronger negotiations with suppliers.
This activity supports the expected improvement in margin rates in FY25,
despite the higher freight rates currently being experienced.
Non product related costs of sales decreased by £1.4m in FY24, made up of:
Store payroll costs increased by £3.4m, in part due to the additional week of
trading which increased costs by £0.9m. Underlying costs increased due to:
· Changes to our store labour structure, implemented at the start
of the period, partially mitigated the impact of the 9.7% increase in the
National Living and Minimum Wage ('NLMW') in April 2023 and the corresponding
retail management increases.
· A further hours efficiency programme implemented towards the end
of the financial period is expected to deliver significant savings across
FY25, helping to mitigate further NLMW related cost headwinds.
Store property and establishment costs reduced by £2.5m. The additional week
of trading increased costs by £1.0m, whilst underlying costs reduced by
£3.5m.
· The majority of the reduction was driven by business rates.
£2.8m related to the 2023 business rates revaluation and a further £0.6m of
credits were received from historic backdated rate reductions.
· The renegotiation of expiring leases across the LFL store estate
resulted in a reduction in rents which was further supported by the release of
rent accruals established where the effective date of the rent decrease was
back dated to a prior period (in these situations, we continue to accrue for
the higher rent level until the reduction is confirmed in writing).
· Full period electricity costs increased £1.6m as previously
contracted hedging agreements resulted in a slower unwind of market led energy
price reductions.
Online variable costs decreased by £2.6m. This was primarily due to lower
sales volumes, however ongoing work to improve the overall profitability of
the online business further supported the cost reduction and helped mitigate
inflationary increases. Annualised cost savings of c.£1.0m are on track to be
delivered through FY25 following the move of our online fulfilment centre
operated by a third-party provider, iForce, to a more efficient facility in
January 2024.
Operating profit and pre-IFRS 16 EBITDA
FY24 FY23 (Restated)((1)) Variance Variance
£m % of revenue £m % of revenue £m %
Gross profit per financial statements 51.8 18.3 47.9 17.1 3.9 8
Distribution expenses (12.7) 4.5 (10.3) 3.7 (2.4) 23
Administrative expenses (27.7) 9.8 (24.2) 8.6 (3.5) 14
Operating profit per financial statements 11.4 4.0 13.4 4.8 (2.0) 15
Less Depreciation, amortisation and IFRS16 included in Operating profit 0.6 0.3 113
(1.7) (0.8) 0.9
Adjusting items (3.7) 1.3 (3.6) 1.3 0.1 3
Pre-IFRS 16 Adjusted EBITDA 6.0 2.1% 9.0 3.2% (3.0) 33
((1) ) Prior period restatements reflect adjustments wholly related
to IFRS 16 Lease accounting. Further details can be found in note 12 of the
condensed financial statements included in the RNS.
Distribution costs (before depreciation and IFRS 16) comprising picking stock
and delivering it to stores increased by £2.4m compared with FY23. 52-week
distribution labour costs increased by £1.8m, due to wage rate inflation from
the increase in the NLMW. Costs were further impacted by a reduction in
efficiencies resulting from the Distribution Centre capacity issues
experienced in the run up to peak as previously outlined. Increased outbound
pallet volumes resulted in £0.4m increase in third party pallet delivery
costs. The movement to a new way of working in the Distribution Centre,
supported by strengthened management, is expected to drive efficiencies to
offset the further increase in NLMW in April 2024.
Administration costs (before depreciation and IFRS 16) increased by £2.8m
compared to FY23. 52-week Support Centre salary and related costs increased by
£1.3m due to inflationary increases experienced at the start of the financial
period and the annualising of structural changes implemented in late FY23. The
benefit of the structural changes made in late FY24, related to the
restructure of the Operating Board, had limited benefit to FY24, but will
support a lowering of our ongoing cost base from FY25. IT infrastructure costs
increased by £0.8m as we continued to roll out our new EPOS system and invest
in the strengthening of our IT security.
Adjusting items were £3.7m credit in FY24 (restated FY23: £3.6m credit) and
include other non-recurring costs of £1.2m relating to the Group's move to
AIM (£0.5m) and restructuring costs (£0.7m). These costs are more than
offset by a credit of £1.4m (restated FY23: impairment charge £1.1m),
resulting from the reversal of impairment charges relating to the notional
right of use asset created as a result of following the requirements of the
IFRS16 accounting standard and £3.5m (restated FY23: £4.7m) profit on
disposal of right of use assets and lease liabilities. This is described in
note 11 of the condensed financial statements included in this RNS.
A reconciliation of statutory profit to EBITDA can be found in note 2 of the
condensed financial statements included in this RNS.
Net financing expense
Net financing costs in the period were £4.5m (FY23: £4.4m), £4.0m (FY23:
£4.1m) of which related to IFRS 16 notional interest.
Gross cash interest payable was £0.4m, in relation to facility availability
charges (FY23: £0.3m).
Tax
FY24 FY23
£m (Restated)((1))
£m
Current tax expense/(credit) - (0.4)
Deferred tax expense 0.5 -
Total tax expense/(credit) 0.5 (0.4)
((1) ) Prior period restatements reflect adjustments wholly
related to IFRS 16 Lease accounting. Further details can be found in note 12
of the condensed financial statements included in this RNS.
The impairment charges and reversals reduced the taxable profits of prior
periods and created available brought forward tax losses, which significantly
reduced the effective tax rate and overall tax charge for FY24 and FY23. As a
result, there was a net tax charge of £0.5m (restated FY23: £0.4m credit)
consisting of a £nil current tax credit and a £0.5m deferred tax charge. The
£0.5m overall tax charge equated to an effective tax rate of 7.8% (restated
FY23: minus 4.4%).
The average headline corporation tax rate for FY24 was 25.0% (FY23: 19.5%).
Deferred tax has been calculated at a rate of 25.0% in both periods.
Earnings per share
Adjusted basic EPS for the period was 4.2 pence (restated FY23: 9.2 pence).
Adjusted diluted EPS was 4.2 pence (restated FY23: 9.1 pence).
The difference between the Adjusted basic and Adjusted diluted EPS figures is
due to the inclusion within the diluted EPS calculation of outstanding,
potentially dilutive, share options.
Other items
Prior period restatements reflect adjustments wholly related to IFRS 16 Lease
accounting. Further details can be found in note 12 to the condensed financial
statements included in this RNS.
Capital expenditure
Capital expenditure in the Period was £5.8m (FY23: £6.7m). It predominantly
relates to;
· New stores and relocations £1.6m (FY23: £1.1m): the net
investment in new stores and relocations increased by £0.5m compared with
FY23. 9 new stores were opened and 5 stores relocated to new units (FY23: 14
new stores, 3 relocations). Costs increased despite the reduction in new
stores due to reduced landlord contributions and cost inflation.
· Store refits, maintenance and lease renewal costs £2.3m (FY23:
£3.0m): the net investment in store refits reduced by £0.7m compared with
FY23. The quantity of refits was lower in FY24 (20) vs FY23 (36), reflecting
the impact of the decision taken to reduce refits to conserve cash, offset, in
part, with wider construction industry inflation increasing the relative cost
per refit.
· IT hardware and software £1.7m (FY23 £2.4m): the net investment
in IT hardware and software reduced by £0.7m compared with FY23. The prior
period included incremental expenditure relating to the configuration and
testing of the new store EPOS software prior to its implementation in stores
during FY24.
FY25 capex is expected to be approximately £5.0m.
Inventory
Stock was valued at £31.4m at the end of the period (FY23: £33.4m), a
decrease of £2.0m. Tighter stock management supported a planned reduction in
our period end closing forward cover and supports lower markdown activity in
FY25. The stock value reflects higher stock on water than we would have
expected because of the extra transit time from China due to the Red Sea
challenges.
Cash flow
The table below shows a summarised non IFRS 16 presentation of cash flow. On
this basis, the net cash outflow for the period was £8.6m (FY23: outflow of
£6.1m).
FY24 FY23 Variance
£m £m £m
Operating profit 11.4 13.4 2.0
Other operating cashflows (8.3) (6.8) (1.5)
Net movement in working capital (4.3) (2.8) (1.5)
Capital expenditure (5.8) (6.5) 0.7
Tax paid (0.1) (1.5) 1.4
Interest and financing costs (0.5) (0.7) 0.2
Dividends - (1.5) 1.5
Purchase of treasury shares (0.3) (0.5) 0.2
Cash flow before Exchange rate movements (7.9) (6.7) (1.2)
Exchange rate movements (0.7) 0.6 (1.3)
Net decrease in cash and cash equivalents (8.6) (6.1) (2.5)
Opening net cash balance excluding IAS 17 leases 10.2 16.3
Closing net cash balance excluding IAS 17 leases 1.6 10.2
The Group ended the period with net cash of £1.6m. Our movement in period-end
date, resulting from the 53(rd) week, meant an additional payment run of
approximately £5.0m fell due before period end compared to the prior
financial period. The 52-week period ended with net cash of £6.5m, which
compares to net cash of £10.2m at the end of FY23.
Bank facilities and financial position
The Group continues to have an RCF of £20.0m, which provides ample liquidity
and is utilised to support the build of stock prior to peak trading. The terms
of this financing agreement expire on 30 November 2026.
Capital distributions
Considering the reduced profit in FY24, the Board is not proposing a dividend
for FY24.
We will continue to keep future shareholder distributions under consideration
as profitability improves and note some of our major shareholders' preference
for share buybacks over the payment of dividends. A further update will be
made alongside our interim results in January 2025 and a new capital
allocation policy will be set out alongside our new strategy in the first half
of 2025.
Employee Benefit Trust funding for the purposes of share schemes
To avoid dilution of existing shareholder interests, the Board's intention is
to consider purchasing shares in the market to re-issue under employee share
schemes as it has done in each of the last two financial years.
Rosie Fordham
Chief Financial Officer
Consolidated income statement
For the period ended 5 May 2024
53 weeks to 5 May 2024 52 weeks to 30 April 2023
(Restated - Note 12)
Note Result before Adjusting Total Result before Adjusting Total
Adjusting items items £000 Adjusting items Items(1) £000
£000 £000 £000 £000
Revenue 282,585 - 282,585 280,102 - 280,102
Cost of sales 3 (234,505) 3,741 (230,764) (235,867) 3,628 (232,239)
Gross profit 48,080 3,741 51,821 44,235 3,628 47,863
Other operating income 8 - 8 8 - 8
Distribution expenses (12,725) - (12,725) (10,284) - (10,284)
Administrative expenses (27,685) - (27,685) (24,197) - (24,197)
Operating profit 4 7,678 3,741 11,419 9,762 3,628 13,390
Finance income 19 - 19 227 - 227
Finance expenses (4,520) - (4,520) (4,648) - (4,648)
Net financing expense (4,501) - (4,501) (4,421) - (4,421)
Profit before tax 3,177 3,741 6,918 5,341 3,628 8,969
Taxation 6 (541) - (541) 395 - 395
Profit for the period 2,636 3,741 6,377 5,736 3,628 9,364
Alternative performance measures 2
Profit before tax and IFRS 16 1,118 (1,022) 96 3,603 (1,488) 2,115
Basic earnings per share (pence) 8 4.2 10.2 9.2 15.0
Diluted earnings per share (pence) 8 4.2 10.2 9.1 14.8
Profit for the period is attributable to equity holders of the Parent.
(1) Profit on disposal of right-of-use assets and lease liability recognised
under IFRS 16 has been restated in the prior period to be shown as an
Adjusting item rather than in the result before Adjusting items.
Consolidated statement of comprehensive income
For the period ended 5 May 2024
FY24 FY23
£000 (Restated -
Note 12)
£000
Profit for the period 6,377 9,364
Items that may be recycled subsequently into profit and loss
Cash flow hedges - changes in fair value 1,664 (2,861)
Cash flow hedges - reclassified to profit and loss 134 (62)
Cost of hedging - changes in fair value (415) (162)
Cost of hedging - reclassified to profit and loss 182 91
Tax relating to components of other comprehensive income (323) 262
Other comprehensive income/(expense) for the period, net of income tax 1,242 (2,732)
Total comprehensive income for the period attributable to equity shareholders 7,619 6,632
of the Parent
Consolidated statement of financial position
As at 5 May 2024
Note FY24 FY23
£000 (Restated -
Note 12)
£000
Non-current assets
Intangible assets 9 1,866 916
Property, plant and equipment 10 12,358 11,773
Right-of-use assets 11 57,703 65,372
Deferred tax assets 13 4,036 4,844
75,963 82,905
Current assets
Inventories 14 31,354 33,441
Trade and other receivables 15 8,384 7,507
Derivative financial assets 306 -
Current tax asset 6 1,189 1,149
Cash and cash equivalents 16 1,619 10,196
42,852 52,293
Total assets 118,815 135,198
Current liabilities
Lease liabilities 11, 17 19,943 19,626
Trade and other payables 18 29,886 34,479
Provisions 19 543 565
Derivative financial liabilities 64 1,048
50,436 55,718
Non-current liabilities
Lease liabilities 11, 17 57,817 74,766
Provisions 19 476 1,298
58,293 76,064
Total liabilities 108,729 131,782
Net assets 10,086 3,416
Equity attributable to equity holders of the Parent
Share capital 625 625
Share premium 28,322 28,322
Merger reserve (54) (54)
Share based payment reserve 2,583 2,780
Hedging reserve 129 (331)
Retained earnings (21,519) (27,926)
Total equity 10,086 3,416
These financial statements were approved by the Board of Directors on 1
October 2024 and were signed on its behalf by:
Rosie Fordham
Chief Financial Officer
Company registered number: 11325534
Consolidated statement of changes in equity
Attributable to equity holders of the Company
Share Share Merger Share-based Hedging Retained Total
capital premium reserve payment reserve (1,2) earnings equity
£000 £000 £000 reserve £000 £000 £000
£000
Reported balance at 01 May 2022 625 28,322 (54) 2,252 2,227 (32,994) 378
Cumulative adjustment to opening balance (Note 12) - - - - - (2,332) (2,332)
Restated balance at 01 May 2022 (Note 12) 625 28,322 (54) 2,252 2,227 (35,326) (1,954)
Total comprehensive income for the period
Profit for the period (Restated - Note 12) - - - - - 9,364 9,364
Other comprehensive expense - - - - (2,732) - (2,732)
Total comprehensive (expense)/ income for the period - - - - (2,732) 9,364 6,632
Hedging gains and losses and costs of hedging transferred to the cost of - - - - 174 -
inventory (Note 12)
174
Transactions with owners of the Company
Share-based payment charges - - - 528 - - 528
Dividend - - - - - (1,492) (1,492)
Own shares purchased by Employee Benefit Trust
- - - - - (472) (472)
Total transactions with owners of the Company
- - - 528 - (1,964) (1,436)
Balance at 30 April 2023 (Restated - Note 12) 625 28,322 (54) 2,780 (331) (27,926) 3,416
Total comprehensive income for the period
Profit for the period - - - - - 6,377 6,377
Other comprehensive income - - - - 1,242 - 1,242
Total comprehensive income for the period - - - - 1,242 6,377 7,619
Hedging gains and losses and costs of hedging transferred to the cost of - - - - (492) - (492)
inventory
- - - - (290) 290 -
Transfer
Transactions with owners of the Company
Reversal of share-based payment charges - - - (197) - - (197)
Dividend - - - - - - -
Own shares purchased by Employee Benefit Trust - - - - - (260) (260)
Total transactions with owners of the Company
- - - (197) - (260) (457)
Balance at 5 May 2024 625 28,322 (54) 2,583 129 (21,519) 10,086
1 Hedging reserve includes £410k (FY23: £150k) in relation
to changes in forward points which are recognised in other comprehensive
income and accumulated as a cost of hedging within the hedging reserve.
2 Hedging reserve includes a £290k (FY23: £nil) transfer
from retained earnings in relation to a historical tax charge for our
financial derivatives that had previously been recognised in the consolidated
income statement.
Consolidated cash flow statement
For the period ended 5 May 2024
FY24 FY23
£000 (Restated -
Note 12)
Note £000
Profit for the period (including Adjusting items) 6,377 9,364
Adjustments for:
Depreciation of property, plant and equipment 10 3,663 5,147
Impairment of property, plant and equipment 10 1,589 775
Reversal of impairment of property, plant and equipment 10 (1,272) (574)
Depreciation of right-of-use assets 11 18,224 18,451
Impairment of right-of-use assets 11 3,394 2,173
Reversal of impairment of right-of-use assets 11 (4,620) (2,562)
Amortisation of intangible assets 9 632 997
Impairment of intangible assets 9 442 1,048
Reversal of impairment of intangible assets 9 (850) -
Derivative exchange loss/ (gain) 494 (721)
Financial income (19) (227)
Financial expense 536 518
Interest on lease liabilities 11 3,984 4,130
Loss on disposal of property, plant and equipment and intangibles 9, 10 202 163
Profit on disposal of right-of-use asset and lease liability 11 (3,537) (4,717)
Share-based payment charges (197) 528
Taxation 6 541 (395)
Operating cash flows before changes in working capital 29,583 34,098
(Increase)/decrease in trade and other receivables (963) 1,033
Decrease/(increase) in inventories 1,149 (3,129)
Decrease in trade and other payables (3,672) (1,443)
(Decrease)/increase in provisions 19 (844) 746
Cash flows from operating activities 25,253 31,305
Corporation tax paid 6 (97) (1,508)
Net cash inflow from operating activities 25,156 29,797
Cash flows from investing activities
Acquisition of property, plant and equipment 10 (6,078) (7,296)
Capital contributions received from landlords 1,460 1,928
Acquisition of intangible assets 9 (1,208) (1,309)
Interest received 19 227
Net cash outflow from investing activities (5,807) (6,450)
Cash flows from financing activities
Payment of lease liabilities (capital) 17 (22,471) (23,250)
Payment of lease liabilities (interest) 17 (3,984) (4,130)
Payment of fees from loans and borrowings (60) (336)
Interest paid (434) (321)
Repayment of bank borrowings (6,000) (4,000)
Proceeds from bank borrowings 6,000 4,000
Dividend paid 7 - (1,492)
Own shares purchased by Employee Benefit Trust (260) (473)
Net cash outflow from financing activities (27,209) (30,002)
Net decrease in cash and cash equivalents (7,860) (6,655)
Exchange rate movements (717) 571
Cash and cash equivalents at beginning of period 16 10,196 16,280
Cash and cash equivalents at end of period 16 1,619 10,196
Notes to the consolidated financial statements
(Forming part of the financial statements)
1. Accounting policies
Where accounting policies are particular to an individual note, narrative
regarding the policy is included with the relevant note; for example, the
accounting policy in relation to inventory is detailed in Note 14
(Inventories).
(a) General information
TheWorks.co.uk plc is a leading UK multi-channel value retailer of arts and
crafts, stationery, toys, games and books, offering customers a differentiated
proposition as a value alternative to full price specialist retailers. The
Group operates a network of over 500 stores in the UK & Ireland and
online.
TheWorks.co.uk plc (the Company) is a UK-based public limited company
(11325534) with its registered office at Boldmere House, Faraday Avenue, Hams
Hall Distribution Park, Coleshill, Birmingham B46 1AL.
These consolidated financial statements for the 53 weeks ended 5 May 2024
(FY24 or the Period) comprise the results of the Company and its subsidiaries
(together referred to as the Group) and are presented in pounds sterling. All
values are rounded to the nearest thousand (£'000), except when otherwise
indicated.
(b) Basis of preparation
The Group financial statements have been prepared on a historical cost basis,
except for financial assets at fair value through profit and loss including
derivatives. The financial statements are prepared in accordance with
UK-adopted International Accounting Standards.
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of policies,
and the reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience,
future budgets and forecasts, and various other factors that are believed to
be reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is
revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future
periods. The Group's significant judgements and estimates relate to going
concern and fixed asset impairment; these are described in Note 1(e).
(i) Going concern
The financial statements have been prepared on a going concern basis, which
the Directors consider appropriate for the reasons set out below.
The Directors have assessed the prospects of the Group, taking into account
its current position and the potential impact of the principal risks
documented in the Strategic report on pages 38 to 43 of the Annual Report and
Accounts. The financial statements have been prepared on a going concern
basis, which the Directors consider appropriate having made this assessment.
The Group has prepared cash flow forecasts for a period of at least 12 months
from the date of approval of these financial statements (the going concern
assessment period), based on the Board's forecast for FY25 and its three-year
plan, referred to as the 'Base Case' scenario. In addition, a 'severe but
plausible' 'Downside Case' sensitivity has been prepared to support the
Board's conclusion regarding going concern, by stress testing the Base Case to
indicate the financial headroom resulting from applying more pessimistic
assumptions.
In assessing the basis of preparation the Directors have considered:
· The external environment;
· The Group's financial position including the quantum and
expectations regarding availability of bank facilities;
· The potential impact on financial performance of the risks
described in the Strategic report;
· The output of the Base Case scenario, which mirrors the Group's
three-year plan and therefore represents its estimate of the most likely
financial performance over the forecast period;
· Measures to maintain or increase liquidity in the event of a
significant downturn in trading;
· The resilience of the Group to these risks having a more severe
impact, evaluated via the Downside Case which shows the impact on the Group's
cash flows, bank facility headroom and covenants.
Going concern and basis of preparation conclusion
The current economic environment remains challenging with the cost-of-living
crisis continuing to impact much of the UK particularly low-income households,
however the rate of inflation is slowing and interest rates are at the lowest
since July 2023. There is sufficient cash headroom and headroom within both
covenants under both scenarios and therefore the Directors are confident that
the Group will have sufficient funds to continue to meet its liabilities as
they fall due for at least 12 months from the date of approval of the
financial statements and have therefore prepared the financial statements on a
going concern basis.
(ii) New accounting standards
The Group has applied the following new standards and interpretations for the
first time for the annual reporting period commencing 1 May 2023:
· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
· Definition of Accounting Estimates - Amendments to IAS 8
· Deferred Tax Related to Assets and Liabilities Arising from a
Single Transaction - Amendments to IAS 12
The adoption of the standards and interpretations listed above has not led to
any changes to the Group's accounting policies or had any other material
impact on the financial position or performance of the Group.
As at the date of approval of these financial statements, the following
standards and interpretations, which have not been applied in these financial
statements, were in issue, but not yet effective:
· Non-Current Liabilities with Covenants - Amendments to IAS 1 and
Classifications of Liabilities as Current or Non-Current - Amendments to IAS
1(1)
· Lease Liability in a Sale and Leaseback - Amendments to IFRS
16(1)
· Supplier Finance Agreements - Amendments to IAS 7 and IFRS 7(1)
(1) Effective for annual periods starting on or after 1 January 2024
The adoption of the standards and interpretations listed above is not expected
to have a material impact on the financial position or performance of the
Group.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries). Control
is achieved when the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to direct the
activities that affect those returns through its power over the entity.
Consolidation of a subsidiary begins from the date control commences and
continues until control ceases. The Company reassesses whether or not it
controls an investee if circumstances indicate that there are changes to the
elements of control detailed above.
An Employee Benefit Trust operated on the Group's behalf (EBT) is acting as an
agent of the Company; therefore, the assets and liabilities of the EBT are
aggregated into the Company balance sheet and shares held by the EBT in the
Company are presented as a deduction from reserves.
(d) Key sources of estimation uncertainty
The preparation of consolidated financial statements requires the Group to
make estimates and judgements that affect the application of policies and
reported amounts.
Critical judgements represent key decisions made by management in the
application of the Group's accounting policies. Where a significant risk of
materially different outcomes exists, this will represent a key source of
estimation uncertainty.
Estimates and judgements are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates.
Key sources of estimation uncertainty which are material to the financial
statements are described in the context of the matters to which they relate,
in the following notes:
Description Note
Going concern 1(b)(i)
Impairment of intangible assets, property, plant and equipment and 9, 10, 11
right-of-use assets
Inventory provisions 14
2. Alternative performance measures (APMs)
Accounting policy
In the reporting of financial information, the Group tracks a number of APMs
in managing its business. APMs should be considered in addition to IFRS
measurements. The Group's definitions of APMs may not be comparable with
similarly titled performance measures and disclosures by other entities.
The Group believes that these APMs provide stakeholders with additional
helpful information on the performance of the business. They are consistent
with how business performance is planned and reported internally and are also
consistent with how these measures have been reported historically. Some of
the APMs are also used for the purpose of setting remuneration targets.
Like-for-like (LFL) sales
LFL sales are defined by the Group as the year-on-year growth in gross sales
from stores which have been trading for a full financial year prior to the
current year and have been trading throughout the current financial period
being reported on, and from the Company's online store, calculated on a
calendar week basis. The measure is used widely in the retail industry as an
indicator of sales performance. LFL sales are calculated on a gross basis to
ensure that fluctuations in the VAT rates of products sold are excluded from
the like-for-like sales growth percentage figure.
A reconciliation of IFRS revenue to sales on an LFL basis is set out below:
FY24 FY23
£000 £000
Total LFL sales 294,072 296,818
Non-LFL store sales(1) 26,426 19,817
Total gross sales 320,498 316,635
VAT (36,599) (35,149)
Loyalty points (1,314) (1,384)
Revenue per consolidated income statement 282,585 280,102
(1)FY24 is a 53-week period; therefore, the LFL sales APM compares 53 weeks of
FY24 to the equivalent 53 weeks of FY23. Non-LFL store sales for FY23 include
the impact of the 53rd week which is removed to reconcile to the reported
sales number.
Pre-IFRS 16 Adjusted EBITDA and Adjusted profit after tax
EBITDA is defined by the Group as pre-IFRS 16 earnings before interest, tax,
depreciation, amortisation and profit/loss on the disposal of fixed assets,
after adding back or deducting Adjusting items. See Note 3 for a description
of Adjusting items. Pre-IFRS 16 EBITDA is used for the bank facility LTM
EBITDA covenant calculations.
The table below provides a reconciliation of pre-IFRS 16 EBITDA to profit
after tax and the impact of IFRS 16:
FY24 FY23
£000 (Restated -
Note 12)
£000
Pre-IFRS 16 Adjusted EBITDA 6,042 9,000
Income statement rental charges not recognised under IFRS 16 24,288 25,672
Foreign exchange difference on euro leases 69 (152)
Post-IFRS 16 Adjusted EBITDA 30,399 34,520
Loss on disposal of property, plant and equipment (168) (149)
Loss on disposal of intangible assets (34) (14)
Depreciation of property, plant and equipment (3,663) (5,147)
Depreciation of right-of-use assets (18,224) (18,451)
Amortisation (632) (997)
Finance expenses (4,520) (4,648)
Finance income 19 227
Tax credit/(charge) (541) 395
Adjusted profit after tax 2,636 5,736
Adjusting items (including impairment charges and reversals) 3,741 3,628
Tax charge - -
Profit after tax 6,377 9,364
Profit before tax and IFRS 16
The table provides a reconciliation of profit/(loss) before tax and IFRS 16
adjustments to profit/(loss) before tax.
FY24 FY23 (Restated - Note 12)
Adjusted Adjusting items Total Adjusted Adjusting items Total
£000 £000 £000 £000 £000 £000
Profit/(loss) before tax and IFRS 16 adjustments 1,118 (1,022) 96 3,603 (1,488) 2,115
Remove rental charges not recognised under IFRS 16 24,166 - 24,166 25,545 - 25,545
Remove hire costs from hire of equipment 122 - 122 128 - 128
Remove depreciation charged on the existing assets (94) - (94) (1,236) - (1,236)
Remove interest charged on the existing liability 4 - 4 34 - 34
Depreciation charge on right-of-use assets (18,224) - (18,224) (18,451) - (18,451)
Interest cost on lease liability (3,984) - (3,984) (4,130) - (4,130)
Profit on disposal of lease liability - 3,537 3,537 - 4,717 4,717
Foreign exchange difference on euro leases 69 - 69 (152) - (152)
Additional impairment charge under IAS 36 - 1,226 1,226
- 399 399
Net impact on profit/(loss) 2,059 4,763 6,822 1,738 5,116 6,854
Profit/(loss) before tax 3,177 3,741 6,918 5,341 3,628 8,969
Adjusted profit metrics
Profit measures including operating profit, profit before tax, profit for the
period and earnings per share are calculated on an Adjusted basis by adding
back or deducting Adjusting items. These adjusted metrics are included within
the consolidated income statement and consolidated statement of other
comprehensive income, with further details of Adjusting items included in Note
3.
3. Adjusting items
Adjusting items are unusual in nature or incidence and sufficiently material
in size that in the judgement of the Directors they merit disclosure
separately on the face of the financial statements to ensure that the reader
has a proper understanding of the Group's financial performance and that there
is comparability of financial performance between periods.
The Directors believe that the Adjusted profit and earnings per share measures
included in this report provide additional useful information to users of the
accounts. These measures are consistent with how business performance is
measured internally. The profit before tax and Adjusting items measure is not
a recognised profit measure under IFRS and may not be directly comparable with
Adjusted profit measures used by other companies.
If a transaction or related series of transactions has been treated as
Adjusting in one accounting period, the same treatment will be applied
consistently year on year.
In relation to FY24, the items classified as Adjusting, as shown below, were
related to transactions that had been treated as Adjusting in prior periods.
FY24 FY23
£000 (Restated -
Note 12)
£000
Cost of sales
Impairment charges 5,333 5,702
Impairment reversals (6,742) (4,613)
Profit on disposal of right of use assets and lease liabilities(1) (3,537) (4,717)
Other exceptional items 1,205 -
Total Adjusting items (3,741) (3,628)
(1) In FY23, profit on disposal of right of use assets and leases liabilities
includes a gain on modification of right of use assets of £3.6m
Impairment charges and reversals of prior year impairment charges relate to
fixed assets (see Notes 9, 10 and 11).
Profit on disposal of right-of-use assets and lease liabilities relate to
leases (see Note 11).
Other exceptional items comprise £0.5m (FY23: £nil) of professional fees and
other costs related to the listing of the Company on AIM and £0.7m (FY23:
£nil) of redundancy costs related to the restructure of the Operating Board.
4. Operating profit
Operating profit before Adjusting items is stated after charging the following
items:
FY24 FY23
£000 (Restated -
Note 12)
£000
Loss on disposal of property, plant and equipment 168 149
Loss on disposal of intangible assets 34 14
Depreciation 21,887 23,598
Amortisation 632 997
Net foreign exchange loss 170 392
Cost of inventories recognised as an expense 120,530 119,085
Staff costs 67,855 62,235
Auditor's remuneration:
FY24 FY23
£000 (Restated)
£000
Fees payable to the Group's auditor for the audit of the Group's annual 300 850
accounts
Amounts payable in respect of other services to the Company and its
subsidiaries
Audit of the accounts of subsidiaries 42 40
Audit related assurance services (provision of turnover certificates required
under certain leases)
5 1
Total 347 891
5. Staff numbers and costs
The average number of people employed by the Group (including Directors)
during the period, analysed by category, were as follows:
Number of employees
FY24 FY23
Store Support Centre colleagues 280 243
Store colleagues 3,590 3,564
Warehouse and distribution colleagues 156 147
4,026 3,954
The corresponding aggregate payroll costs were as follows:
FY24 FY23
£000 £000
Wages and salaries 62,367 57,189
Social security costs 4,422 4,156
Contributions to defined contribution pension schemes 1,066 890
Total employee costs 67,855 62,235
Agency labour costs 2,977 2,035
Total staff costs 70,832 64,270
The Directors' remuneration for the period was as follows:
FY24 FY23
£000 £000
Directors' remuneration 791 759
Contributions to defined contribution plans 16 15
807 774
The following number of Directors were members of:
FY24 FY23 (Restated)
Company defined contribution scheme 2 2
2 2
The highest paid Director's remuneration and contributions to defined
contribution plans during the year were as follows:
FY24 FY23
£000 £000
Directors' remuneration 337 322
Contributions to defined contribution plans 10 9
347 331
6. Taxation
Accounting policy
The tax expense represents the sum of the tax currently payable and deferred
tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the 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.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from the initial recognition of goodwill or
from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised based on tax
laws and rates that have been enacted or substantively enacted at the balance
sheet date. Deferred tax is charged or credited in the income statement,
except when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other
comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group expects, at
the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they
relate to items that are recognised in other comprehensive income or directly
in equity, in which case the current and deferred tax are also recognised in
other comprehensive income or directly in equity, respectively. Where current
tax or deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the business
combination.
Recognised in consolidated income statement
FY24 FY23
£000 (Restated(1))
£000
Current tax expense / (credit)
Current year 22 230
Adjustments for prior years 33 (611)
Current tax expense / (credit) 55 (381)
Deferred tax expense/ (credit)
Origination and reversal of temporary differences 1,286 (212)
Change in tax rate - (172)
Adjustments for prior years (800) 370
Deferred tax expense / (credit) 486 (14)
Total tax expense / (credit) 541 (395)
(1) The FY23 corporation tax charge has been restated to reflect the tax
impact of the restatements documented in Note 12.
The UK corporation tax rate for FY24 was 25.0% (FY23: 19.5%). Taxation for
other jurisdictions is calculated at the rates prevailing in the respective
jurisdictions.
As the deferred tax assets and liabilities should be recognised based on the
corporation tax rate applicable when they are anticipated to unwind, the
assets and liabilities on UK operations have been recognised at a rate of
25.0% (FY23: 25.0%). Assets and liabilities arising on foreign operations have
been recognised at the applicable overseas tax rates.
Reconciliation of effective tax rate
FY24 FY23
£000 (Restated - see above)
£000
Profit for the year 6,918 8,969
Tax using the UK corporation tax rate of 25.0% (FY23: 19.5%) 1,730 1,749
Non-deductible expenses 195 147
Effect of tax rates in foreign jurisdictions 14 (13)
Tax over provided in prior periods (767) (111)
Utilisation of unrecognised tax losses brought forward (751) (2,114)
Deferred tax not recognised - (18)
Losses carried forwards 120 137
Change in tax rate - (172)
Total tax expense / (credit) 541 (395)
Effective tax rate 7.8% (4.4%)
The Group's total income tax charge in respect of the period was £541k (FY23:
credit of £395k). The effective tax rate on the total profit before tax was
7.8% (FY23: (4.4)%) whilst the effective tax rate on the total profit before
Adjusting items was 17.0% (FY23: (7.4)%). The difference between the total
effective tax rate and the Adjusting tax rate relates to fixed asset
impairment charges and reversals within Adjusting items being non-deductible
for tax purposes.
The current year tax expense recognised above is predominantly driven by
deferred tax movements on our fixed assets and leases.
There is also a tax charge of £323k (FY23: credit £262k) shown in the
statement of comprehensive income for fair value movements on derivatives
which impacts the deferred tax balance (Note 13).
Consolidated statement of financial position
Included in the consolidated statement of financial position is a current tax
debtor of £1,189k (FY23: £1,149k), resulting from the overpayment of tax in
prior years arising from the prior year restatement (Note 12).
7. Dividends
Accounting policy
At the balance sheet date, dividends are only recognised as a liability if
they are appropriately authorised and are no longer at the discretion of the
Company. Unpaid dividends that do not meet these criteria are disclosed in the
notes to the financial statements.
Pence per share FY24 FY23
£000 £000
Final dividend for the period ended 1 May 2022 paid in FY23 2.4p - 1,492
Total dividend paid to shareholders during the period - 1,492
The Board has not recommended the payment of a dividend in respect of FY24
(FY23: 1.6 pence). At the FY23 Annual General Meeting the resolution to
approve the payment of the FY23 dividend was not approved and consequently the
dividend declared in the FY23 Annual Report was not distributed to
shareholders.
8. Earnings per share
Basic earnings per share is calculated by dividing the profit or loss for the
period, attributable to ordinary shareholders, by the weighted average number
of ordinary shares in issue during the period.
Diluted earnings per share is based on the weighted average number of shares
in issue for the period, adjusted for the dilutive effect of potential
ordinary shares. Potential ordinary shares represent shares that may be issued
in connection with employee share incentive awards.
The Group has chosen to present an Adjusted earnings per share measure, with
profit adjusted for Adjusting items (see Note 3 for further details) to
reflect the Group's underlying profit for the period.
FY24 FY23
Number Number
Number of shares in issue 62,500,000 62,500,000
Number of dilutive share options - 621,130
Number of shares for diluted earnings per share 62,500,000 63,121,130
£000 £000
(Restated -
Note 12)
Total profit for the financial period 6,377 9,364
Adjusting items (3,741) (3,628)
Adjusted profit for Adjusted earnings per share 2,636 5,736
Pence Pence
(Restated -
Note 12)
Basic earnings per share 10.2 15.0
Diluted earnings per share 10.2 14.8
Adjusted basic earnings per share 4.2 9.2
Adjusted diluted earnings per share 4.2 9.1
9. Intangible assets
Accounting policy
Goodwill
Goodwill arising on consolidation represents any excess of the consideration
paid and the amount of any non-controlling interest in the acquiree over the
fair value of the identifiable assets and liabilities (including intangible
assets) of the acquired entity at the date of the acquisition. After initial
recognition, goodwill is measured ast cost less any accumulated impairment
losses. Goodwill is recognised as an asset and assessed for impairment
annually or as triggering events occur. Any impairment in value is recognised
within the income statement. Goodwill was fully impaired in FY20.
Software
Where computer software is not an integral part of a related item of computer
hardware, the software is treated as an intangible asset. Capitalised software
costs include external direct costs of goods and services (such as
consultancy), as well as internal payroll related costs for employees who are
directly working on the project. Internal payroll related costs are
capitalised if the recognition criteria of IAS 38 Intangible Assets are met or
are expensed as incurred otherwise.
Capitalised software development costs are amortised on a straight-line basis
over their expected economic lives, normally between three and seven years.
Computer software under development is held at cost less any recognised
impairment loss. Any impairment in value is recognised within the income
statement and treated as an Adjusting item.
Goodwill Software Total
£000 £000 £000
Cost
At 30 April 2023 16,180 9,310 25,490
Additions - 1,208 1,208
Disposals - (219) (219)
At 5 May 2024 16,180 10,299 26,479
Amortisation and impairment
At 30 April 2023 (Restated) 16,180 8,394 24,574
Amortisation charge - 632 632
Impairment charge - 442 442
Impairment reversals - (850) (850)
Disposals(1) - (185) (185)
At 5 May 2024 16,180 8,433 24,613
Net book value
At 30 April 2023 - 916 916
At 5 May 2024 - 1,866 1,866
1. During FY24 the Group reviewed assets on the fixed asset register
with a nil net book value. Following this review intangible assets with a cost
and accumulated depreciation of £207k were deemed to no longer be in use by
the Group and have therefore been disposed of.
Goodwill Software Total
£000 £000 £000
Cost
At 1 May 2022 16,180 9,058 25,238
Additions - 1,309 1,309
Disposals - (1,057) (1,057)
At 30 April 2023 16,180 9,310 25,490
Amortisation and impairment
At 1 May 2022 (Restated) 16,180 7,392 23,572
Amortisation charge (Restated(2)) - 997 997
Impairment charge (Restated(2)) - 1,048 1,048
Disposals - (1,043) (1,043)
At 30 April 2023 (Restated) 16,180 8,394 24,574
Net book value
At 1 May 2022 (Restated(2)) - 1,666 1,666
At 30 April 2023 (Restated(2)) - 916 916
2. These balances have been restated to reflect the impact of the
prior period restatements in Note 12.
Refer to Note 10 for details of impairment of intangible assets.
10. Property, plant and equipment
Accounting policy
Items of property, plant and equipment are stated at their cost of acquisition
or production, less accumulated depreciation and accumulated impairment
losses.
Depreciation is charged on a straight-line basis over the estimated useful
lives as follows:
• Leasehold property improvements: over the life of the lease.
• Fixtures and fittings: 15% per annum straight line or depreciated
on a straight-line basis over the remaining life of the lease, whichever is
shorter.
• Computer equipment: 25% to 50% per annum straight line.
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date, with the effect of any changes in
estimate accounted for on a prospective basis. An asset's carrying amount is
written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount.
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of
the asset. The gain or loss arising on the disposal or scrappage of an asset
is determined as the difference between the sale proceeds and the carrying
amount of the asset and is recognised in profit or loss.
Impairment of tangible and intangible assets
The carrying amounts of the Group's tangible and intangible assets with a
measurable useful life are reviewed at each balance sheet date to determine
whether there is any indication of impairment to their value. If such an
indication exists, the asset's recoverable amount is estimated and compared to
its carrying value. Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable amount of
the cash generating unit (CGU) to which the asset belongs. The Directors
consider an individual retail store to be a CGU, as well as the Company's
trading website.
The recoverable amount of an asset is the greater of its fair value less
disposal cost and its value in use (the present value of the future cash flows
that the asset is expected to generate). In determining value in use, the
present value of future cash flows is discounted using a discount rate that
reflects current market assessments of the time value of money in relation to
the period of the investment and the risks specific to the asset concerned.
The carrying value represents each CGU's specific assets, as well as the
right-of-use assets, plus an allocation of corporate assets where these assets
can be allocated on a reasonable and consistent basis.
Where the carrying value exceeds the recoverable amount an impairment loss is
established with a charge being made to the income statement. When the reasons
for a write down no longer exist, the write down is reversed in the income
statement up to the net book value that the relevant asset would have had if
it had not been written down and if it had been depreciated.
Measuring recoverable amounts
The Group estimates the recoverable amount of each CGU based on the greater of
its fair value less disposal cost and its value in use (VIU), derived from a
discounted cash flow model which excludes IFRS 16 lease payments. In assessing
the fair value less disposal cost the ability to sublease each store has been
considered and it is concluded that this is not applicable for the majority of
the store estate. Where it is deemed reasonable to assume the ability to
sublet the potential cash inflows generated are insignificant; therefore, the
VIU calculation is used for all stores. A proportion of click & collect
sales are included in store cash flows to reflect the contribution stores make
to fulfilling such orders. The key assumptions applied by management in the
VIU calculations are those regarding the growth rates of sales and gross
margins, medium-term growth rates, central overhead allocation and the
discount rate used to discount the assumed cash flows to present value.
Projected cash flows for each store are limited to the useful life of each
store as determined by its current lease term unless a lease has already
expired or is due to expire within 12 months of 5 May 2024 where the intention
is to remain in the store and renew the lease. For these leases, the lease
term of the previously expired lease is used for cash flow projections.
Projected cash flows for the trading website are limited to 60 months as this
is in line with the average useful economic life of the assets assigned to the
web CGU.
Impairment triggers
Due to the challenging macroeconomic environment and the existence of a
material brought forwards impairment charge, all CGUs other than stores which
have been open for less than 12 months have been assessed for impairment.
Key assumptions
The key financial assumptions used in the estimation of the recoverable amount
are set out below. The values assigned to the key assumptions represent
management's assessment of current market conditions and future trends and
have been based on historical data from external and internal sources.
Management determined the values assigned to these financial assumptions as
follows:
The post-tax discount rate is derived from the Group's weighted average cost
of capital, which has been estimated using the capital asset pricing model,
the inputs of which include a company risk-free rate, an equity risk premium,
a Group size premium, a forecasting risk premium and a risk adjustment (beta).
The discount rate is compared to the published discount rates of comparable
businesses and relevant industry data prior to being adopted.
FY24 FY23
(Restated)
Post-tax discount rate 10.50% 11.95%
Medium-term growth rate 2.0% 1.0%
While the online CGU is in a different stage of establishment to that of the
store CGUs, the same pre-tax discount rate has been used in the impairment
assessment. Given that the website is not performing in line with
expectations, all assets relating to the web CGU are fully impaired; as such
an increase in the pre-tax discount rate used for the web assessment would not
increase the impairment charge recognised.
Cash flow forecasts are derived from the most recent Board-approved corporate
plans that form the Base Case on which the VIU calculations are based. These
are described in Note 1(b)(i) (Going concern).
The assumptions used in the estimation of future cash flows are:
• Rates of growth in sales and gross margins, which have been
determined on the basis of the factors described in Note 1(b)(i) (Going
concern).
• Central costs are reviewed to identify amounts which are
necessarily incurred to generate the CGU cash flows. As a result of the
analysis performed at the end of FY24, 89% (FY23: 87%) of central costs have
been allocated by category using appropriate volumetrics.
Cash flows beyond the corporate plan period (FY28 and beyond) have been
determined using the medium-term growth rate; this is based on management's
future expectations, reflecting, amongst other things, current market
conditions and expected future trends and has been based on historical data
from both external and internal sources. Immediately quantifiable impacts of
climate change and costs expected to be incurred in connection with our net
zero commitments are included within the cash flows. The useful economic lives
of store assets are short in the context of climate change scenario models;
therefore, no medium to long-term effects have been considered.
Impairment charge
During FY24, an impairment charge of £5,333k was recognised against 184
stores with a recoverable amount of £23,396k, and an impairment charge of
£nil was recognised against the trading website (restated FY23: an impairment
charge of £5,111k was recognised against 161 stores with a recoverable amount
of £17,437k , and an impairment charge of £591k was recognised against the
website). An impairment reversal of £5,883k has been recognised in FY24
relating to 135 stores with a recoverable amount of £33,537k as at 5 May
2024, and an impairment reversal of £859k was recognised against the website
(restated FY23: an impairment reversal of £4,613k was recognised relating to
159 stores with a recoverable amount of £35,536k, and an impairment reversal
of £nil was recognised against the website).
A net impairment credit of £1,409k (restated FY23: charge of £1,089k) has
therefore been shown on the face of the consolidated income statement. In line
with the previously adopted treatment, impairment charges and reversals have
been shown as Adjusting items.
Sensitivity analysis
Whilst the Directors believe the assumptions adopted are realistic, reasonably
possible changes in key assumptions could still occur, which could cause the
recoverable amount of certain stores to be lower or higher than the carrying
amount. The impact on the net impairment charge recognised from reasonably
possible changes in assumption are detailed below:
- A reduction in sales of 5% from the Base Case plan to reflect a
potential Downside Scenario would result in an increase in the net impairment
charge of £7,950k. An increase in sales of 5% from the Base Case plan would
decrease the net impairment charge by £5,345k.
- A reduction in gross margin of 2% would result in an increase in the
net impairment charge of £2,051k. An increase in gross margin of 2% would
decrease the net impairment charge by £1,898k.
- A 200 basis point increase in the pre-tax discount rate would result
in an increase in the net impairment charge of £1,245k, while a 200 basis
point decrease in the pre-tax discount rate would result in a decrease in the
net impairment charge of £1,233k.
- A 100 basis point decrease in the medium-term growth rate would
result in an increase in the net impairment charge of £480k, while a 100
basis point increase in the medium-term growth rate would result in an
decrease in the net impairment charge of £470k.
- Increasing the percentage of central costs allocated across CGUs
from 89% to 99% would result in an increase in the net impairment charge of
£1,886k. Decreasing the percentage of central costs allocated across CGUs
from 89% to 79% would result in a decrease in the net impairment charge of
£1,756k.
Whilst the Directors consider their assumptions to be realistic, should actual
results be different from expectations, then it is possible that the value of
property, plant and equipment included in the balance sheet could become
materially different to the estimates used.
Property, plant and equipment
Leasehold improvements Plant and Fixtures and Total
£000 equipment fittings £000
£000 £000
Cost
At 30 April 2023 (Restated(2)) 7,408 3,656 19,195 30,259
Additions 409 353 3,971 4,733
Disposals(1) (1,999) (246) (4,094) (6,339)
At 5 May 2024 5,818 3,763 19,072 28,653
Depreciation and impairment
At 30 April 2023 (Restated(2)) 5,682 3,245 9,559 18,486
Depreciation charge 412 370 2,881 3,663
Impairment charge 209 282 1,098 1,589
Impairment reversals (174) (618) (480) (1,272)
Disposals (1,980) (141) (4,050) (6,171)
At 5 May 2024 4,149 3,138 9,008 16,295
Net book value
At 30 April 2023 (Restated(2)) 1,726 411 9,636 11,773
At 5 May 2024 1,669 625 10,064 12,358
1. During FY24 the Group reviewed assets on the fixed asset register
with a nil net book value. Following this review, fixed assets with a cost and
accumulated depreciation of £4,263k were deemed to no longer be in use by the
Group and have therefore been disposed of. The totals disposed of by category
were as follows: £570k leasehold improvements; £213k plant and equipment;
and £3,274 fixtures and fittings.
2. These balances have been restated to reflect the impact of
the prior period restatements (Note 12).
Leasehold improvements Plant and Fixtures and Total
£000 equipment fittings £000
£000 £000
Cost
At 01 May 2022 10,729 3,818 27,259 41,806
Additions 933 1,109 4,772 6,814
Disposals (4,254) (1,271) (12,836) (18,361)
At 30 April 2023 (Restated(2)) 7,408 3,656 19,195 30,259
Depreciation and impairment
At 1 May 2022 (Restated(2)) 8,577 3,426 19,347 31,350
Depreciation charge (Restated(2)) 1,462 718 2,967 5,147
Impairment charge (Restated(2)) 5 331 439 775
Impairment reversals (Restated(2)) (172) - (402) (574)
Disposals (4,190) (1,230) (12,792) (18,212)
At 30 April 2023 5,682 3,245 9,559 18,486
Net book value
At 1 May 2022 (Restated(2)) 2,152 392 7,912 10,456
At 30 April 2023 (Restated(2)) 1,726 411 9,636 11,773
1. During FY23 the Group reviewed assets on the fixed asset register
with a nil net book value. Following this review, fixed assets with a cost and
accumulated depreciation of £17,502k were deemed to no longer be in use by
the Group and have therefore been disposed of. The totals disposed of by
category were as follows: £3,995k leasehold improvements; £1,172k plant and
equipment; and £12,375k fixtures and fittings.
2 These balances have been restated to reflect the impact of the
prior period restatements (Note 12).
11. Leases
Accounting policy
The Group leases many assets, including properties, IT equipment and warehouse
equipment.
Identification
At the inception of a contract, the Group assesses whether it is, or contains,
a lease. A contract is, or contains, a lease if it conveys the right to
control the use of an asset for a period of time, in exchange for
consideration. Control is conveyed where the Group has both the right to
direct the asset's use and to obtain substantially all the economic benefits
from that use. For each lease or lease component, the Group follows the lease
accounting model as per IFRS 16, unless the permitted recognition exceptions
can be used.
Recognition exceptions
The Group has elected to account for lease payments as an expense on a
straight-line basis over the lease term or another systematic basis for the
following types of leases:
(i) Leases with a term of 12 months or less.
(ii) Leases where the underlying asset has a low value.
(iii) Concession leases where the landlord has substantial substitution
rights.
For leases where the Group has taken the short-term lease recognition
exemption and there are any changes to the lease term or the lease is
modified, the Group accounts for the lease as a new lease.
For leases where the Group has taken a recognition exemption as detailed
above, rentals payable under these leases are charged to the income statement
on a straight-line basis over the term of the relevant lease, except where
another more systematic basis is more representative of the time pattern in
which economic benefits from the lease asset are consumed.
As lessee
Upon lease commencement, the Group recognises a right-of-use asset and a lease
liability.
Initial measurement
The right-of-use asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease payments made at
or before the commencement date, plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset, or to restore
the underlying asset or the site on which it is located at the end of the
lease, less any lease incentives received.
The lease liability is initially measured at the present value of the lease
payments payable over the lease term, discounted at the incremental borrowing
rate as the rate implicit in the lease cannot be readily determined.
Variable lease payments that depend on an index or a rate are included in the
initial measurement of the lease liability and are initially measured using
the index or rate as at the commencement date. Amounts expected to be payable
by the Group under residual value guarantees are also included. Variable lease
payments that are not included in the measurement of the lease liability are
recognised in profit or loss in the period in which the event or condition
that triggers payment occurs unless the costs are included in the carrying
amount of another asset under another accounting standard.
The Group has applied judgement to determine the lease term for some lease
contracts that include renewal options. The assessment of whether the Group is
reasonably certain to exercise such options impacts the lease term, which
significantly affects the value of lease liabilities and right-of-use assets
recognised.
The payments related to leases are presented under cash flows from financing
activities and cash flows from operating activities in the cash flow
statement.
Subsequent measurement
After lease commencement, the Group values right-of-use assets using a cost
model. Under the cost model, a right-of-use asset is measured at cost less
accumulated depreciation and accumulated impairment.
The lease liability is subsequently increased by the interest cost on the
lease liability and decreased by lease payments made. It is re-measured to
reflect changes in the lease term (using a revised discount rate); the
assessment of a purchase option (using a revised discount rate); the amounts
expected to be payable under residual value guarantees (using an unchanged
discount rate); and future lease payments resulting from a change in an index
or a rate used to determine those payments (using an unchanged discount rate).
The re-measurements are matched by adjustments to the right-of-use asset.
Lease modifications may also prompt re-measurement of the lease liability
unless they are determined to be separate leases.
Depreciation of right-of-use assets
The right-of-use asset is subsequently depreciated using the straight-line
method, from the commencement date to the earlier of either the end of the
useful life of the right-of-use asset or the end of the lease term. The
estimated useful lives of right-of-use assets are determined on the same basis
as those of property, plant and equipment. In addition, the right-of-use asset
is reduced by impairment losses, if any, and adjusted for certain
re-measurements of the lease liability.
Determining the lease term
Termination options are included in a number of property leases across the
Group. These terms are used to maximise operational flexibility. At the
commencement date of property leases, the Group determines the lease term to
be the full term of the lease, assuming that any option to break or extend the
lease is unlikely to be exercised. Leases will be revalued if it becomes
likely that a break clause is to be exercised. In determining the likelihood
of the exercise of a break option, management considers all facts and
circumstances that create an economic incentive to exercise the termination
option. For property leases, the following factors are the most relevant:
• The profitability of the leased store and future plans for the
business.
• If there are any significant penalties to terminate (or not
extend), the Group is typically reasonably certain to extend.
(i) Amounts recognised in the statement of financial
position
Right-of-use assets
Land and buildings Plant and equipment
£000 £000 Total
£000
2024
At 30 April 2023 (Restated) 64,703 669 65,372
Depreciation charge for the year (17,949) (275) (18,224)
Additions to right-of-use assets 10,931 - 10,931
Effect of modifications to right-of-use assets (1,059) - (1,059)
Derecognition of right-of-use assets (543) - (543)
Impairment charge (3,394) - (3,394)
Impairment reversals 4,620 - 4,620
At 5 May 2024 57,309 394 57,703
Land and buildings Plant and equipment
£000 £000 Total
£000
2023
At 1 May 2022 (Restated) 69,563 1,013 70,576
Depreciation charge for the year (18,094) (357) (18,451)
Additions to right-of-use assets 17,217 13 17,230
Effect of modifications to right-of-use assets (4,075) - (4,075)
Derecognition of right-of-use assets (297) - (297)
Impairment charge (2,173) - (2,173)
Impairment reversals 2,562 - 2,562
At 30 April 2023 (restated) 64,703 669 65,372
The total impairment charge/ reversal is in Adjusting items.
Lease liabilities
Land and buildings Plant and equipment
£000 £000 Total
£000
2024
At 30 April 2023 (Restated) 93,686 706 94,392
Additions to lease liabilities 8,929 - 8,929
Interest expense 3,962 22 3,984
Effect of modifications to lease liabilities 1,059 - 1,059
Lease payments (26,151) (304) (26,455)
Disposals of lease liabilities (4,080) - (4,080)
Foreign exchange movements (69) - (69)
At 5 May 2024 77,336 424 77,760
Land and buildings Plant and equipment
£000 £000
Total
£000
2023
At 1 May 2022 (Restated) 106,844 1,047 107,891
Additions to lease liabilities 15,051 15 15,066
Interest expense 4,107 33 4,140
Effect of modifications to lease liabilities (4,075) - (4,075)
Lease payments (26,991) (389) (27,380)
Disposals of lease liabilities (1,402) - (1,402)
Foreign exchange movements 152 - 152
At 30 April 2023 93,686 706 94,392
Carrying value of leases included in the consolidated statement of financial
position
FY24 FY23
£000 £000
Current 19,943 19,626
Non-current 57,817 74,766
Total carrying value of leases 77,760 94,392
Maturity analysis - contractual undiscounted cash flows:
FY24 FY23
£000 £000
Less than one year 23,446 27,163
One to two years 18,787 21,904
Two to three years 13,738 17,225
Three to four years 9,968 12,363
Four to five years 6,574 8,771
More than five years 17,632 20,727
Total undiscounted lease liabilities 90,145 108,153
(ii) Amounts recognised in the consolidated income statement
FY24 FY23
£000 (Restated -
Note 12)
£000
Depreciation charge on right-of-use assets (RoUA) 18,224 18,451
Interest cost on lease liability 3,984 4,140
Profit on disposal of RoUA / lease liability (3,537) (1,105)
Foreign exchange difference on euro leases 69 (152)
Additional impairment charge under IAS 36 (1,226) 3,564
Operating lease rentals - hire of plant, equipment and motor vehicles
- Low-value leases 362 371
Total plant, equipment and motor vehicle operating lease rentals 362 371
Operating lease rentals - store leases
- Stores with variable lease rentals (434) 300
- Concession leases (the landlord has substantial substitution rights) 848 977
- Low-value leases (11) 13
- Lease is expiring within 12 months or has rolling break clauses 63 53
- Lease has expired 766 397
- Variable lease payments as a result of COVID-19 concessions - (181)
Total store operating lease rentals 1,232 1,559
Depreciation of right-of-use asset by class:
FY24 FY23
£000 (Restated -
Note 12)
£000
Land and buildings 17,949 18,094
Plant and equipment 275 357
Total right-of-use asset depreciation 18,224 18,451
12. Prior period restatements
FY23 prior period restatement
The FY23 financial statements included a prior year restatement which resulted
in an increase to the impairment of right-of-use assets, following a
correction to the allocation of central costs to each cash generating unit,
which had previously been omitted from the calculations. This also resulted in
a reduction in the depreciation charge as a result of the reduced net book
value of the right of use assets.
FY24 prior period restatement
There were a number of stores where the lease had expired prior to the start
of the FY24 financial period. The Group recognises a right-of-use asset and
lease liability for such stores where it is likely that a new lease will be
entered into, based on an estimate of the new lease terms, prior to final
agreement of terms with the landlord. These stores had been subject to
impairment as part of the FY23 prior period restatement described above.
During the current period, the Directors have considered the allocation of
impairment to these stores and concluded that impairment was incorrectly
calculated in light of the modification of the lease. A gain on modification
of the lease of £3,612k should have been recognised in the prior period, with
a corresponding increase to right of use assets of £3,612k.
As a result, the FY22 closing impairment balance relating to right-of-use
assets has been increased by £2,657k, the closing impairment balance relating
to property, plant and equipment has been reduced by £628k and the closing
impairment balance relating to intangible assets has been reduced by £60k.
The adjustment to FY22 closing reserves is therefore £1,969k.There are
further impacts due to impairment disposed of variance £(1,373)k,
depreciation variance £1,596k and change in NBV if PPE £140k, all of the
impacts total to £2,332 which is the opening adjustment seen in the Statement
of Changes in Equity.
In FY23, the net impairment charge has been reduced by £3,723k for
right-of-use assets, £170k for property, plant and equipment and £70k for
intangible assets. Therefore, the net increase to total profit before tax
relating to FY23 impairment charges is £3,963k.
Depreciation reduction due to impairment
As a result of the adjustments to right-of-use assets and impairment above,
the net book value of fixed assets was higher at the start of FY23 than
previously disclosed, resulting in the depreciation charge being understated.
The FY22 closing accumulated depreciation has been increased
by £1,516k relating to right of use assets, £69k relating to property, plant
and equipment and £11k relating to intangible assets, with a corresponding
decrease in retained earnings of £1,596k.
In FY23, the depreciation charge has increased by £3,032k relating to right
of use assets, £100k relating to property, plant and equipment and £18k
relating to intangible assets, reducing Adjusted profit before tax by
£3,150k.
Adjustment related to closed stores
There were a number of stores closed prior to FY24, where property, plant and
equipment had been correctly disposed of but corresponding depreciation had
not been adjusted for when calculating the prior year restatement in the FY23
financial statements.
In FY23, the depreciation charge related to property, plant and equipment has
been increased by £598k and the depreciation charge related to intangible
assets has been increased by £101k. Therefore, the net decrease to total
profit in FY23 is £698k.
Impairment reduction as a result of depreciation adjustment on disposed assets
As a result of the adjustments to right-of-use assets and depreciation above
for closed stores, the net book value of fixed assets was lower at the start
of FY23 than previously disclosed, resulting in the impairment charge being
overstated. The FY22 closing accumulated impairment has been decreased by
£1,603k relating to right of use assets, with a corresponding increase in
retained earnings of £1,603k.
In FY23, the impairment charge has decreased by £230k relating to right of
use assets, increasing Adjusted profit before tax by £230k.
Adjustment to opening balances
As part of the review of IFRS 16 balances during the period, the Directors
identified adjustments to opening balances that were not required. These
balances related to previous adjustments to the residual rent balance in the
consolidated income statement following the IFRS 16 calculations.
These adjustments resulted in an increase in the FY23 opening balances of
£3,245k to the right of use assets brought forward and £3,245k decrease to
the lease liability brought forward. In FY23, the depreciation charge
associated with right of use assets has been increased by £578k, with a
corresponding reduction in the rent charge in the consolidated income
statement. The depreciation charge to the right of use asset has been reduced
by £578k and the lease liability reduced by £578k in the consolidated
statement of financial position.
Impact on cash flow statement
These adjustments increase the 'depreciation of property, plant and
equipment', 'depreciation of right of use assets' and 'amortisation of
intangible assets' balance in the consolidated cash flow statement, however
there is no overall impact on 'net increase in cash and cash equivalents'.
Corporation tax restatement
The above adjustments have resulted in restatements to the corporation tax
charges, current tax assets/ liabilities and the deferred tax asset. Refer to
Notes 6 and 13 for restated tax disclosures.
The following tables summarise the impact of the above restatements on the
Group's consolidated financial statements including the impact of current and
deferred corporation tax.
Summarised consolidated income statement
Per FY23 financial statements Right-of-use asset cost variance Depreciation variance Impairment disposed of variance Impairment charge variance Disposals depreciation reduction adjustment IFRS 16 adjustment FY23
restated balance
Income statement
Revenue 280,102 - - - - - - 280,102
Cost of sales (236,202) 3,612 (3,150) 230 3,963 (692) - (232,239)
Gross profit 43,900 3,612 (3,150) 230 3,963 (692) - 47,863
Other operating income 8 - - - - - - 8
Distribution expenses (10,284) - - - - - - (10,284)
Administrative expenses (24,197) - - - - - - (24,197)
Operating profit 9,427 3,612 (3,150) 230 3,963 (692) - 13,390
Finance income 227 - - - - - - 227
Finance expense (4,648) - - - - - - (4,648)
Profit before tax 5,006 3,612 (3,150) 230 3,963 (692) - 8,969
Taxation 265 - 25 (42) - 147 - 395
Profit after tax 5,271 3,612 (3,125) 188 3,963 (545) - 9,364
Summarised consolidated statement of financial position
Per FY23 financial statements Right-of-use asset cost variance Depreciation variance Impairment disposed of variance Impairment Disposals depreciation reduction adjustment IFRS 16 adjustment FY23
charge restated
variance balance
Non-current assets
Intangible assets 916 - (29) - 130 (101) - 916
Property, plant and equipment 11,733 - (167) - 798 (591) - 11,773
Right of use assets 67,463 3,612 (4,549) 1,603 1,066 - (3,823) 65,372
Other non-current Assets 4,854 - 40 (199) - 149 - 4,844
84,966 3,612 (4,705) 1,404 1,994 (543) (3,823) 82,905
Current assets 52,293 - - - - - - 52,293
Total assets 137,259 3,612 (4,705) 1,404 1,994 (543) (3,823) 135,198
-
Liabilities
Current lease liabilities (23,449) - - - - - 3,823 (19,626)
Other current liabilities (36,092) - - - - - - (36,092)
Non-current lease liabilities (74,766) - - - - - (74,766)
Other non-current lease liabilities (1,298) - - - - - - (1,298)
Total liabilities (135,605) - - - - - 3,823 (131,782)
Net assets 1,654 3,612 (4,705) 1,404 1,994 (543) - 3,416
Equity attributable to equity holders of the Parent
Retained earnings (34,959) - (1,579) 1,217 (1,969) - - (37,290)
Retained earnings in year 5,271 3,612 (3,126) 187 3,963 (543) - 9,364
Other reserves 31,342 - - - - - - 31,342
Total equity 1,654 3,612 (4,705) 1,404 1,994 (543) - 3,416
Summarised consolidated statement of changes in equity
Share Share Merger Share-based Hedging Retained Total
capital premium reserve payment reserve (1) earnings equity
£000 £000 £000 reserve £000 £000 £000
£000
Reported balance at 30 April 2023 625 28,322 (54) 2,780 (331) (29,688) 1,654
Cumulative adjustment - - - - - 1,762 1,762
Restated balance at 30 April 2023 625 28,322 (54) 2,780 (331) (27,926) 3,416
13. Deferred tax assets
Recognised deferred tax assets
Deferred tax assets are attributable to the following:
Assets Liabilities
FY24 FY23 FY24 FY23
£000 (Restated(1)) £000 (Restated(1))
£000 £000
Property, plant and equipment 2,785 2,866 - -
Leases 980 1,362 - -
Temporary timing differences 332 354 - -
Financial assets/(liabilities) - 262 (61) -
Tax assets/(liabilities) 4,097 4,844 (61) -
Movement in deferred tax during the year
Fixed assets Leases Temporary Financial Total
£000 £000 timing assets/ £000
differences (liabilities)
£000 £000
At 30 April 2023 (Restated(1)) 2,866 1,362 354 262 4,844
Adjustment in respect of prior years 785 16 - - 801
Deferred tax charge to profit and loss (866) (398) (22) - (1,286)
Deferred tax credit in equity profit and loss - - - (323) (323)
At 5 May 2024 2,785 980 332 (61) 4,036
(1) The FY23 deferred tax asset has been restated to reflect the tax impact of
the restatements documented in Note 12.
Movement in deferred tax during the prior year
Fixed assets Leases Temporary Financial Total
£000 £000 timing assets/ £000
differences (liabilities)
£000 £000
At 1 May 2022 2,728 1,645 195 - 4,568
Adjustment in respect of prior years (369) - - (598) (967)
Deferred tax credit/ (charge) to profit and loss (Restated(1)) 507 (283) 159 - 383
Deferred tax credit in equity profit and loss - - - 860 860
At 30 April 2023 2,866 1,362 354 262 4,844
(1) The FY23 deferred tax asset has been restated to reflect the tax impact of
the restatements documented in Note 12.
Tax losses carried forward for which no deferred tax asset has been recognised
are £nil (FY23: £9,273k).
14. Inventories
Accounting policy
Inventories comprise stocks of finished goods for resale and are valued on a
weighted average cost basis and carried at the lower of cost and net
realisable value. Cost includes all direct expenditure and other attributable
costs incurred in bringing inventories to their present location and
condition.
The process of purchasing inventories may include the use of cash flow hedges
to manage foreign exchange risk. Where hedge accounting applies, an adjustment
is applied such that the cost of stock reflects the hedged exchange rate.
FY24 FY23
£000 £000
Gross stock value 28,401 31,278
Less: stock provisions for shrinkage and obsolescence (1,932) (1,037)
Goods for resale net of provisions 26,469 30,241
Stock in transit 4,885 3,200
Inventory 31,354 33,441
The cost of inventories recognised as an expense during the period was
£120.5m (FY23: £119.1m).
Stock was valued at £31.4m at the end of the period (FY23: £33.4m), a
decrease of £2.0m. Tighter stock management supported a planned reduction in
our period end closing forward cover and supports lower markdown activity in
FY25. The stock value reflects higher stock on water than we would have
expected because of the extra transit time from China due to the Red Sea
challenges.
Stock provisions
The Group makes provisions in relation to stock quantities, due to potential
stock losses not yet reflected in the accounting records, commonly referred to
as unrecognised shrinkage, and in relation to stock value, where the net
realisable value of an item is expected to be lower than its cost, due to
obsolescence.
Shrinkage provision
During FY24, full four wall counts were performed in 518 stores during two
waves of counts - 199 stores were counted between August and September with a
further 335 stores counted (including 23 recounted stores) between March and
May. Through these counts, the Group established that its accounting records
reflected the actual quantities of stock in stores. This process also provides
the Group with an indication of the typical percentage of stock loss, which is
used to calculate, by extrapolation, unrecognised shrinkage at the balance
sheet date. The stock records were updated to reflect the results of the stock
counts, however, due to the estate being counted throughout the year compared
to FY23 where all stores were counted near the year end, the unrecognised
shrinkage provision has increased to £1.1m (FY23: £0.4m). The provision
relates to store stock with a value of £20.6m (FY23: £20.9m).
Obsolescence provision
The Group's inventory does not comprise a large proportion of stock with a
'shelf life'. Stock lines which are slow selling because they have been less
successful than planned, or which have sold successfully and become fragmented
as they reach the natural end of their planned selling period, are usually
discounted and sold during 'sale' events, for example the January sale. This
stock is referred to as terminal stock.
During FY24 the Group held slightly more terminal stock than the prior period.
Consequently, the obsolescence provision has increased to £0.8m (FY23:
£0.6m).
The Group has also considered the impact of customer preferences and ESG
considerations on potential stock obsolescence, and these factors are not
deemed to have a material impact on the level of provision required.
15. Trade and other receivables
FY24 FY23
£000 £000
Current
Trade receivables 2,626 2,864
Other receivables 506 359
Prepayments 5,252 4,284
Trade and other receivables 8,384 7,507
Trade receivables are attributable to sales which have been paid for by credit
card pending receipt into the Company's bank account and are classified as
finance assets at amortised cost. The trade receivables balance is primarily
made up of aforementioned pending credit card receipts of £2.3m (FY23:
£2.4m). No credit is provided to customers. The individual value and nature
of trade receivables is such that no material credit losses occur; therefore,
no loss allowance has been recorded at the period end (FY23: £nil).
Other receivables relate to stock on water deposits paid and other accounts
payable debit balances. Prepayments relate to prepaid property costs and other
expenses.
16. Cash and cash equivalents
FY24 FY23
£000 £000
Cash and cash equivalents 1,619 10,196
Total 1,619 10,196
The Group's cash and cash equivalents are denominated in the following
currencies:
FY24 FY23
£000 £000
Sterling 1,142 8,208
Euro 397 1,949
US dollar 80 39
Cash and cash equivalents 1,619 10,196
At 5 May 2024, the Group held net cash (excluding lease liabilities) of £1.6m
(FY23: £10.2m). This comprised cash of £1.6m (FY23: £10.2m).
17. Borrowings
Accounting policy
Interest-bearing bank loans and overdrafts, loan notes and other loans are
recognised in the balance sheet at amortised cost. Finance charges associated
with arranging non-equity funding are recognised in the income statement over
the life of the facility. All other borrowing costs are recognised in the
income statement in accordance with the effective interest rate method. A
summary of the Group's objectives, policies, procedures and strategies with
regard to financial instruments and capital management can be found in Note 25
to the Annual Report and Accounts. At 5 May 2024 and 30 April 2023 all
borrowings were denominated in Sterling.
For the period ended 5 May 2024, the Group's bank facilities comprised of a
revolving credit facility of £20.0m (FY23: £30.0m) expiring on 30 November
2025. During the period, the facility was extended by a year and reduced in
size by £10.0m on the request of the Directors.
The nature of the covenants associated with the facility remained consistent
throughout both periods presented. The levels of the covenant measures were
amended on 18 March 2024 (see Note 1).
None of the Group's cash and cash equivalents (FY23: £nil) are held by the
trustee of the Group's Employee Benefit Trust in relation to the share schemes
for employees.
FY24 FY23
£000 (Restated)
£000
Non-current liabilities
Lease liabilities 57,817 74,766
Non-current liabilities 57,817 74,766
Current liabilities
Lease liabilities 19,943 19,626
Current liabilities 19,943 19,626
Reconciliation of borrowings to cash flows arising from financing activities
FY23
£000 (Restated)
£000
Borrowings at start of the period 94,392 107,891
Changes from financing cash flows
Payment of lease liabilities (capital) (22,471) (23,250)
Payment of lease liabilities (interest) (3,984) (4,130)
Proceeds from loans and borrowings(1) 6,000 4,000
Repayment of bank borrowings(1) (6,000) (4,000)
Total changes from financing cash flows (26,455) (27,380)
Other changes
Addition of lease liabilities 9,988 10,991
Disposal of lease liabilities (4,080) (1,402)
The effect of changes in foreign exchange rates (69) 152
Interest expense 3,984 4,140
Total other changes 9,823 13,881
Borrowings at end of the period (excluding overdrafts) 77,760 94,392
(1)£6.0m was drawn under the Group's RCF from 28 June 2023 to 29 November
2023.
Net debt reconciliation
FY24 FY23
£000 (Restated)
£000
Net debt (excluding unamortised debt costs)
Cash and cash equivalents (1,619) (10,196)
Net bank cash (1,619) (10,196)
Non-IFRS 16 lease liabilities 89 268
Non-IFRS 16 net cash (1,530) (9,928)
IFRS 16 lease liabilities 77,760 94,392
Net debt including IFRS 16 lease liabilities 76,230 84,464
18. Trade and other payables
FY24 FY23
£000 £000
Current
Trade payables 18,081 22,960
Other tax and social security 3,525 2,610
Accrued expenses 8,280 8,909
Trade and other payables 29,886 34,479
Trade payables principally comprise amounts outstanding for trade purchases
and operating costs.
The Directors consider that the carrying amount of trade payables approximates
to their fair value.
Accrued expenses comprise various accrued property costs, payroll costs and
other expenses, including £166k (FY23: £484k) of deferred income in relation
to the customer loyalty scheme. The Group's loyalty scheme was closed to new
members on 30 March 2024 with loyalty vouchers (and thus liability) expiring
on 30 June 2024.
The Group has net US dollar denominated trade and other payables of £7.0m
(FY23: £6.6m).
19. Provisions
Accounting policy
Provisions are recognised when the Group has a present obligation as a result
of a past event, and it is probable that the Group will be required to settle
that obligation. Provisions are the best estimate of the expenditure required
to settle the obligation at the end of the reporting period and are discounted
to present value where the effect is material.
HMRC VAT Property Total
£000 £000 £000
At 30 April 2023 514 1,349 1,863
Released (367) (24) (391)
Utilised - (453) (453)
At 5 May 2024 147 872 1,019
Maturity analysis of cash flows:
HMRC VAT Property Total
£000 £000 £000
Due in less than one year 147 396 543
Due between one and five years - 476 476
Due in more than five years - - -
Total 147 872 1,019
Property provision
A dilapidation provision is recognised when there is a future obligation
relating to the maintenance of leasehold property. The provision is based on
management's best estimate of the obligation which forms part of the Group's
unavoidable cost of meeting its obligations under the lease contracts. Key
uncertainties are estimates of amounts due.
HMRC VAT provision
HMRC initiated a VAT review in August 2022 in respect of a four-year period
(FY19 to FY22). The review is ongoing and therefore a provision of £147k
(FY23: £514k) is recognised in respect of the potential liability.
20. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note.
Transactions with key management personnel
The key management personnel of the Group comprise The Works.co.uk plc Board
of Directors and the Group's Operational Board. Further details of Director's
remuneration are set out in the Directors' remuneration report on pages 57 to
66 of the Annual Report and Accounts.
The compensation of key management personnel (including the Directors) is as
follows:
FY24 FY23
£000 £000
Key management remuneration - including social security costs 2,982 3,132
Pension contributions 116 184
LTIP - including social security costs (351) 313
Total 2,747 3,629
Further details on the compensation of key management personnel who are
Directors are provided in the Group's Directors' remuneration report.
21. Subsidiary undertakings
The results of all subsidiary undertakings are included in the consolidated
financial statements. The principal place of business and the registered
office addresses for the subsidiaries are the same as for the Company.
Company Active/ Direct/ Registered Class of Ownership
dormant indirect control number shares held
The Works Investments Limited Active Direct 09073458 Ordinary 100%
The Works Stores Limited Active Indirect 06557400 Ordinary 100%
The Works Online Limited Active Indirect 08040244 Ordinary 100%
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