TIDMAPP

RNS Number : 2459G

Appreciate Group PLC

24 November 2020

24 November 2020

Appreciate Group plc

Half Year Results for the six months ended 30 September 2020

A resilient performance as the Group benefits from accelerated strategy

Performing ahead of mid-range scenario for the impact of COVID-19

Summary

Appreciate Group plc, the UK's leading multi-redemption product provider to corporate and consumer markets, is pleased to announce its half year results for the six months ended 30 September 2020.

Appreciate Group's business is highly seasonal - the first half of the year typically sees a loss, which has been exacerbated this year following the impact of COVID-19, particularly early in the period when lockdown measures were first introduced. The majority of annual revenues and profit is typically generated in the second half of the Group's financial year and the Group has seen a seasonal month on month rise in billings in October and November.

Financial Highlights

   --     Performance remains ahead of original mid-range scenario for potential impact of COVID-19 
   --     Dividend reinstated - proposed interim dividend of 0.4p (H1 2019: 1.05p) 

-- Billings declined by 17.8% to GBP98.8m (H1 2019: GBP120.2m) - recovering from a 64% reduction in April a t the height of the lockdown

   --     Revenue reduced by 17.6% to GBP27.4m (H1 2019: GBP33.2m) 

-- Adjusted pre-tax loss of GBP4.6m (H1 2019: GBP1.2m loss) excluding GBP0.6m of exceptional closure costs, GBP0.6m trading losses and GBP0.4m impairments of stock as a result of hamper and contract packing business wind down; reported pre-tax loss of GBP6.2m (H1 2019: GBP1.3m loss) including these items.

-- Cash balances, including cash held in trust, at 30 September 2020, were GBP227.3m (H1 2019: GBP213.1m)

   --     Free cash of GBP24.9m (H1 2019: GBP7.7m) 

Operational highlights

Corporate

-- Business from new clients up 87% to GBP3.1m, excluding Iceland free school meals partnership, driven by demand from clients seeking to thank hard working employee efforts during pandemic

   --     Billings down 16.9% to GBP66.6m (H1 2019: GBP80.1m) 
   --     Revenue reduced 21.7% to GBP19.0m (H1 2019: GBP24.3m) 
   --     Successfully enabled summer free school meals through digital vouchers for use at Iceland 

-- Continued to expand redemption partners with online and essential retail, adding new brands such as Schuh and Foot Locker

Consumer

   --     Billings down by 19.6% to GBP32.3m (H1 2019: GBP40.1m) 
   --     Revenue decreased 6.5% to GBP8.3m (H1 2019: GBP8.9m) 

-- Christmas Savings order book now completed - down 8%, ahead of previous expected levels of 10% due to fewer cancellations over the year

Further progress in our strategy - shift to digital continues

-- Digital billings almost tripled (+186%) to GBP24.2m (H1 2019: GBP8.5m), boosted by Iceland partnership.

   --     Paper billings down from 39% to 19% in overall product mix enhancing margin mix. 

-- Completed sale of Budworth Properties Limited, a Group subsidiary which owned the land and buildings located at Valley Road, Birkenhead, for GBP3.2m.

-- GBP15m revolving credit facility with Santander UK put in place providing additional financial flexibility, supporting marketing of higher margin products and investments in shift to digital.

-- B2B business rebranded as 'Appreciate: The home of Love2shop' as part of growth plans and repositioning of the business as experts in rewards and recognition, whilst retaining the well-recognised Love2shop brand.

-- Launched Love2shop Contactless Gift Card to Corporate clients in September, an in-wallet digital gift card building on insight from consumer launch of digital gift card. Billings were GBP0.6m at 30 September.

-- Introduced new agency commission structure to help retain and recruit new agents as part of plans to help grow the Christmas Savings business.

-- Ambitious 2021 Park Christmas Savings marketing campaign launches this month, with an integrated marketing approach encompassing digital and social media alongside traditional channels including TV.

-- Implementation of the Enterprise Resource Planning (ERP) programme continues with the next phase on track to complete in summer 2021.

   Current trading -   significant progress so far in the Group's critical key Q3 trading period 

-- Billings continue to show significant month on month improvement and are running closer to levels seen last year.

-- In light of the Group's resilient performance through the crisis, we intend to repay all of the GBP0.3m received under the UK Government's Coronavirus Job Retention Scheme. The Group prudently utilised the scheme given the high level of uncertainty at the outset of the crisis. However, the majority of furloughed colleagues had returned to work by June, and all have now returned.

-- The last two months of the calendar year are traditionally the busiest for the Corporate business. Early signs for November are that the growth seen so far this year is set to continue as companies seek alternatives to staff Christmas parties.

-- Lockdown measures in November 2020 are having far less impact than earlier in the year following the evolution of the business in recent months and no restrictions on the ability to dispatch physical products at this time.

Focusing on our core business - simplification continues

-- Hamper production ceased and exit now complete with the majority of customers migrating to alternative Group products.

-- Contract packing business to close on 18 December 2020; costs of closure included in these results.

Ian O'Doherty, Chief Executive Officer, at Appreciate Group plc, said:

"I am pleased that trading during our critical Q3 trading period is progressing well with Christmas savings orders now fully completed, and that we are in a position to reinstate the dividend for shareholders.

"The decisive actions we took to intensify the focus on digital and accelerate parts of our strategy have led to a steady recovery and now improvement in performance, following the initial shock when lockdown measures were first introduced in March. The first two months of the second half have seen us trade closer to 2019 levels, with a continued recovery expected to enable the significant swing in profitability the Group typically sees in its important second half trading period.

"The repositioning of the business will ensure it is more resilient during the current November lockdown, whilst putting us in the strongest competitive position to deliver growth when life returns to normal."

Appreciate Group will host a webcast presentation for analysts at 9.00am this morning.

If you would like to attend, please contact MHP on 020 3128 8193 or appreciategroup@mhpc.com

 
    Appreciate Group           Liberum                   MHP Communications 
     plc                        (NOMAD and broker) 
    Andy Hammerton, Head       Richard Crawley           Reg Hoare 
     of Corporate Affairs       Jamie Richards            Katie Hunt 
     Ian O'Doherty, CEO                                   Charles Hirst 
     Tim Clancy, CFO 
 
      Tel: 0151 653 1700         Tel: 020 3100 2222        Tel: 020 3128 8193 
                                                           Email: appreciategroup@mhpc.com 
 

The information contained within this announcement is deemed by Appreciate Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

Notes to Editors:

Appreciate Group is one of the UK's leading gifting, pre-payment and engagement companies, and experts at creating joyful experiences and connecting people to the things in life they enjoy the most.

Everything Appreciate Group does is focused on creating more joy in the world, and it is proud to be trusted to help its customers create moments they can treasure and remember, whether they are giving, celebrating or rewarding.

Appreciate Group is a financial services business with a wide portfolio of brands which provide solutions for its consumer and business customers. Its consumer-facing brands meet a range of prepayment and gifting needs, while its business products help corporate customers reward and recognise their employees and clients.

Appreciate Group is home to many of the country's most-loved gifting, pre-payment and engagement solutions including Park Christmas Savings, Highstreetvouchers.com and Love2shop, and we are fast-becoming the home of digital innovation in gifting.

Whether it's saving towards the perfect family Christmas or celebrating with gift cards and vouchers, we create and supply products that millions of people trust when it comes to giving and receiving with family, friends or colleagues.

Park Christmas Savings: As the UK's largest family Christmas savings club, Park Christmas Savings has helped over 2.7 million families budget for Christmas on a short-term or year-round basis.

Love2shop: Love2shop offers gift cards and gift vouchers available to spend at stores and attractions across the UK. They are also used through our Love2shop Business Services providing corporate partners with incentives and rewards for their employees and clients.

Love2shop Contactless Gift Card: The UK's first fully digital multi-retailer gift card, available to spend online or in-store through your mobile wallet.

Appreciate Group plc's shares are traded on AIM, a market operated by the London Stock Exchange.

The Park Prepayments Protection Trust is designed to increase protection for customers' prepayments. The Trust has three directors, two of whom are independent of Appreciate. Details of the trust are set out here: https://www.getpark.co.uk/CORPORATE/declaration.pdf

Business review for the six months ended 30 September 2020

Introduction

Appreciate Group is one of the UK's leading gifting, pre-payment and engagement companies with a wide portfolio of brands which provide solutions for its consumer and business customers. It is home to many of the country's most-loved gifting, pre-payment and engagement solutions including Park Christmas Savings, Highstreetvouchers.com and Love2shop.

As a seasonal business we traditionally expect to report a loss for the first half of the year. Given the significant impact of lockdown, particularly in the early period of the financial year, this loss has increased compared to the prior year. However, the Group is performing ahead of its mid-range scenario for the impact of COVID-19 and has continued to see a seasonal month on month improvement in billings in its important Q3 trading period to date and November trading continues to reflect this trend.

 
            Billings                 Apr                 May                 June                July                Aug                 Sept                Oct                YTD 
            GBPm                                                                                                                                                                 31/10 
            Corporate 
            and HSV 
            only 
=======================  ==================  ==================  ==================  ==================  ==================  ==================  =================  ================== 
            2020/21                  5.0                 7.4                 8.6                 11.8                10.2                14.9                24.0               81.9 
                         ------------------  ------------------  ------------------  ------------------  ------------------  ------------------  -----------------  ------------------ 
            2019/20                  14.0                13.7                13.8                14.4                12.4                13.0                26.4               107.6 
                         ------------------  ------------------  ------------------  ------------------  ------------------  ------------------  -----------------  ------------------ 
            Variance %               -63.9%              -46.5%              -37.5%              -17.6%              -17.7%              +14.8%              -9.3%              -23.9% 
                         ------------------  ------------------  ------------------  ------------------  ------------------  ------------------  -----------------  ------------------ 
 

The Group is delivering a strategy to modernise its business, proposition and infrastructure with the aim of building a robust, scalable platform on which to drive future growth. Decisive action was taken to adapt to the new environment, accelerating our focus on digital during lockdown, which has helped mitigate the impacts of the pandemic, whilst positioning the business for future growth.

Resilient performance in H1 2020

The Group's reported a seasonal operating loss before exceptional items, as in prior years and reflecting the impact of COVID-19. We typically see about a quarter of our income in the first half of the financial year and around three quarters coming in the second half of the year. Adjusted pre-tax loss rose to GBP4.6m (H1 2019: GBP1.2m loss) excluding GBP0.6m of exceptional closure costs, GBP0.6m trading losses and GBP0.4m impairments of stock as a result of the hamper and contract packing business wind down. Including these items, reported pre-tax loss was GBP6.2m (H1 2019: GBP1.3m loss).

Billings decreased 17.8% in the six months to 30 September to GBP98.8m (H1 2019: GBP120.2m). This represents a gradual recovery in billings from the first months of lockdown - April having been down as much as 64% and May down 47%. The recovery was in part driven by management actions to intensify our focus on digital solutions and expand e-gift card products on highstreetvouchers.com, particularly those attractive to customers in lockdown such as food outlets, streaming services and gaming.

Group revenue was down by 17.6% at GBP27.4m (H1 2019: GBP33.2m) heavily impacted by customers having less options to redeem products when non-essential outlets were forced to close during lockdown.

Our financial position remains strong, with cash balances, including cash held in trust, increasing to GBP227.3m (H1 2019: GBP213.1m) as at 30 September 2020. Free cash as at the 30 September 2020 stood at GBP24.9m (H1 2019: GBP7.7m). Additional financial flexibility is provided from the five year revolving credit facility (RCF) of GBP15m with Santander UK that was announced in August 2020 - this facility also has an additional uncommitted accordion of GBP10m.

Interest income reduced from GBP0.8m to GBP0.1m due to the cut in interest rates as part of the Bank of England's package of measures to support the economy and the additional costs of the new revolving credit facility.

Paper billings reduced considerably from 39% of the product mix to 19% or GBP18.5m (H1 2019: GBP45.2m) as a consequence of the greater focus on digital products combined with our inability to dispatch physical products when our operations were closed during lockdown. Digital represented a quarter (25%) of total billings, rising more than three-fold from 7% in the prior year, although this has been partly helped by the success of the free school meals partnership with Iceland. Overall, the switch to digital and away from paper is expected to enhance the Group's margin mix.

Card sales as a percentage of the total went up slightly from 54% to 56%. Paper redemptions were down by more than half partly due to lockdown measures preventing customers from redeeming vouchers in store.

The product mix shift towards the more profitable multi-redemption product is continuing with billings up from 83% in 2019 to 87% at GBP85.7m (H1 2019: GBP99.8m), as the flexibility of being able to choose from a range of providers is proving more appealing to customers. This was also helped by redemptions made through our partnership with Iceland. Single store products fell from 14% to 11%, a reduction from GBP16.8m to GBP10.9m of total billings.

Although Corporate billings reduced by 16.9%, the business has seen a rise in demand from new clients, up 87% in the financial year to GBP3.1m (H1 2019: GBP1.7m). It is also benefiting from the streamlining of its onboarding process, cutting the time taken down from several weeks to a few days, enabling us to move swiftly to support new customer demand. We expect to benefit from these enhancements in the second half and beyond.

A partnership with BP has seen our product feature prominently in advertising of its nationwide rewards programme, whilst we have supported other well-known clients. We anticipate that the trend in companies seeking to reward employees for their efforts during lockdown will continue throughout November and December 2020, and this will be bolstered as companies look for alternatives to traditional Christmas parties.

Consumer billings were down 19.6%. We have continued to prioritise digital offerings via highstreetvouchers.com to support customers through the pandemic by adding e--codes and e--cards to our proposition. We are also focusing on adding brands that are relevant to our current customer base and future target audience with greater online presence.

Our Park Christmas Savings 2021 marketing campaign gets underway this month and will be our most integrated campaign ever, combining increased social and digital focus with traditional media including our usual TV advertising.

We have also continued to focus on expanding the range of redemption partners to offer the UK's most diverse multi-redemption product providing customers with a broad choice of online, retail, leisure and entertainment providers. Heron Foods was an important addition and we have seen a positive response from its customers; its discounted frozen foods will appeal to Christmas savings customers looking to shop for their Christmas groceries on a budget. New brands such as Schuh, and Foot Locker have also been added.

Strategy and business plan

Since December 2018 we have been implementing our strategic business plan under four principal pillars set out below. We have made further progress in each of these during this reporting period:

Productivity: we will be more efficient and effective

-- In October, we were accredited as a Great Place To Work following completion of our first Great Place To Work survey in September. The survey was taken by 89% of colleagues with a Trust Index rating of 67% putting us above the average UK company for engagement. It has also helped us identify areas to focus on that will make the organisation an even better workplace.

-- We have also been named as a finalist in the Business Culture Awards 2020 for the category for 'Best Working Environment & Workplace Design Approach.' This recognises our innovative approach following our office relocation to Liverpool.

   --     As part of our commitment to diversity, we signed up to the Women in Finance Charter. 
   --     We continue to maintain a seamless remote working 

-- Successfully fulfilled the Peak season for Park Christmas Savings and are well on track for the remainder of the season.

Appeal: we will broaden our customer appeal

-- Rebranded our B2B business as 'Appreciate: The home of Love2shop' to support growth plans and position us as experts in rewards and recognition.

-- Launched the Love2shop Contactless Gift Card to Corporate clients, our in wallet digital gift card.

   --     Significantly expanded e--codes and e--cards within our proposition. 

-- Implemented the successful partnership with Iceland, working at pace when the scheme was extended to ensure relevant consumers could shop at the supermarket.

Clarity: we will focus on our multi-retailer r edemption proposition

-- Exited hampers and contract packing ensuring we are fully focused on driving the Core business.

-- Exiting the Republic of Ireland market and are in talks to sell FMI, our brand engagement agency.

-- Alongside this, we have rebranded our B2B arm to better position the business to be successful in the market.

Experience: we will be easier to work with for all of our customers

-- Further improvements to the resilience and reliability of our service through replacement of new state of the art servers.

-- Enterprise Resource Planning (ERP) programme continues with next phase of implementation on track to complete in summer 2021. This will boost efficiency and underpin the Group's plans to build a more robust and scalable business model. This phase involves replacing current back office systems for Highstreetvouchers.com with Microsoft Dynamics 365, leading to enhanced efficiencies and improvements in the customer experience. Total costs of implementation are now expected to be in the range of GBP5.0m to GBP5.5m, of which GBP4.1m have been incurred as at 30 September 2020.

   --    We have seen a positive shift in how customers are experiencing our products. 
   --    Including the Iceland volume, digital billings have almost tripled from 9% to 25%. 

-- In parallel, paper redemption volumes have dropped from 39% to 19% of overall product mix, exaggerated because of lockdown.

-- For convenience during lockdown, we made our products and solutions more flexible online, including food outlets, gaming and entertainment, whilst also increasing access to essential retail.

Interim dividend

In our Full Year Results on 12 August 2020 we outlined our decision not to pay a dividend for the last financial year and said we would review our position for this year in light of the Q3 trading period and operational risk associated with this activity.

We now have a clearer view of performance through this period and we are pleased to confirm that we will reinstate the dividend.

The Board has declared an interim dividend of 0.4p per share. The dividend will be paid on 6 April 2021 to shareholders on the register on 26 February 2021, with an ex-dividend date of 25 February 2021. Appreciate Group's dividend policy seeks to reflect the Group's strong underlying cash flow and profit generation, whilst retaining sufficient capital to fund investment in the business. Reinstating the dividend in a period of continued uncertainty reflects the Board's confidence in the Group's recovery in trading.

Outlook

The investments made in recent years as part of the strategic business plan put the business in a much stronger position to respond to the challenges when the pandemic hit. By accelerating our plans and bringing forward the focus on digital products we have been able to drive a significant recovery in performance whilst putting us on a firm footing on which to drive long term growth.

Nevertheless, significant uncertainties for the second half of the year remain, not least the disruption from the second lockdown that began in November 2020. However, we are in a much better position this time given the investments we have made, the evolution of the business, and because we are able to continue to dispatch physical products unlike earlier in the year.

Although the second half of the financial year will therefore remain challenging, we are optimistic that we can sustain the recent recovery in our performance, enabling the significant swing in profitability the Group typically sees in its important second half trading period. This optimism is based around our belief in the potential for strong demand for our products over the Christmas period as consumers look to gift digitally, and corporate clients look to reward their employees and is evidenced by the continuing momentum of recovery.

Laura Carstensen

Chairman

24 November 2020

APPRECIATE GROUP PLC

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE HALF YEAR TO 30 SEPTEMBER 2020

 
                                                                       Half Year      Half Year     Year to 
                                                           Notes     to 30.09.20    to 30.09.19    31.03.20 
                                                                         GBP'000        GBP'000     GBP'000 
 
 Billings                                                                 98,839        120,213     419,857 
                                                                  --------------  -------------  ---------- 
 
 Revenue 
 
   *    Goods - Single retailer redemption products                       16,996         19,904      62,142 
 
   *    Other goods                                                          177             67       6,240 
 
   *    Services - Multi-retailer redemption products                      8,100         10,083      37,870 
 
   *    Other services                                                     2,058          3,106       6,371 
 
   *    Other                                                                 58             70         101 
                                                                  --------------  -------------  ---------- 
                                                                          27,389         33,230     112,724 
 
 Cost of sales excluding exceptional 
  items                                                                 (22,388)       (24,988)    (79,778) 
 Impairment of obsolete stock                                              (400)              -       (124) 
                                                                  --------------  -------------  ---------- 
 
 Gross profit                                                              4,601          8,242      32,822 
 Distribution costs                                                        (366)          (709)     (2,838) 
 Administrative expenses                                                 (9,946)        (9,577)    (20,036) 
                                                                  --------------  -------------  ---------- 
 Operating (loss)/profit before 
  exceptional item                                                       (5,711)        (2,044)       9,948 
 
 Impairment of property, plant 
  and equipment                                             3                  -              -       (163) 
 Impairment of assets held for 
  sale                                                      3                  -              -     (1,650) 
 Impairment of goodwill                                     3                  -              -     (1,316) 
 Redundancy costs                                           3              (630)              -       (423) 
 
 Operating (loss)/profit                                                 (6,341)        (2,044)       6,396 
 
 Finance income                                                              459            789       1,481 
 
 Finance costs                                                             (382)           (25)       (177) 
 Profit on sale of assets held 
  for sale                                                                    41              -           - 
                                                                  --------------  -------------  ---------- 
 (Loss)/profit before taxation                                           (6,223)        (1,280)       7,700 
 
 Taxation                                                   4              1,182            243     (2,189) 
                                                                  --------------  -------------  ---------- 
 
 (Loss)/profit for the period 
  attributable to equity holders 
  of the parent                                                          (5,041)        (1,037)       5,511 
                                                                  --------------  -------------  ---------- 
 
 (Loss)/earnings per share                                  5 
 - basic (p)                                                              (2.71)         (0.56)        2.96 
 - diluted (p)                                                            (2.71)         (0.56)        2.96 
 

All activities derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE HALF YEAR TO 30 SEPTEMBER 2020

 
                                                  Half Year     Half Year    Year to 
                                                to 30.09.20   to 30.09.19   31.03.20 
                                                    GBP'000       GBP'000    GBP'000 
 
 (Loss)/profit for the period                       (5,041)       (1,037)      5,511 
 Other comprehensive (expense)/income 
 Items that will not be reclassified to 
  profit or loss: 
  Remeasurement of defined benefit pension 
  schemes                                                 -             -      2,235 
 Deferred tax on defined benefit pension 
  schemes                                                 -             -      (383) 
                                                          -             -      1,852 
 Items that may be reclassified subsequently 
  to profit or loss: 
 Foreign exchange translation differences               (5)            13         18 
 
 Other comprehensive income/(expense) for 
  the period net of tax                                 (5)            13      1,870 
                                               ------------  ------------  --------- 
 
 Total comprehensive (expense)/income for 
  the period attributable to equity holders 
  of the parent                                     (5,046)       (1,024)      7,381 
                                               ------------  ------------  --------- 
 
 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2020

 
                                                              Notes    30.09.20    30.09.19    31.03.20 
                                                                        GBP'000     GBP'000     GBP'000 
 Assets 
 Non-current assets 
 Goodwill                                                                   800       2,168         800 
 Other intangible assets                                        6         6,917       2,617       4,757 
 Property, plant and equipment                                            2,742       2,105       2,662 
 Right of use asset                                                       4,009       5,202       3,799 
 Retirement benefit asset                                                 4,206       1,923       4,206 
                                                                         18,674      14,015      16,224 
                                                                     ----------  ----------  ---------- 
 Current assets 
  Inventories                                                            10,566      20,452       2,840 
 Trade and other receivables                                              8,540      10,790       9,457 
 Tax receivable                                                           1,831       1,269         266 
 Monies held in trust                                                   202,315     205,448     102,693 
 Cash and cash equivalents                                               24,944       7,679      29,632 
                                                                     ----------  ----------  ---------- 
                                                                        248,196     245,638     144,888 
 Assets held for sale                                           7         1,024       4,966       3,153 
                                                                        249,220     250,604     148,041 
                                                                     ----------  ----------  ---------- 
 Total assets                                                           267,894     264,619     164,265 
                                                                     ----------  ----------  ---------- 
 Liabilities 
 Current liabilities 
 Bank overdraft                                                               -     (1,362)           - 
 Trade payables                                                       (144,132)   (142.411)    (57.150) 
 Payables in respect of cards and vouchers                             (23,425)    (20,799)    (17,060) 
 Deferred income                                                        (8,231)     (7,195)     (7,359) 
 Other payables                                                         (3,549)    (10,828)     (5,294) 
 Provisions                                                            (68,598)    (66,357)    (53,802) 
 
 Liabilities directly associated with assets held for sale       7      (1,077)           -           - 
                                                                     ----------  ----------  ---------- 
                                                                      (249,012)   (248,952)   (140,665) 
                                                                     ----------  ----------  ---------- 
 Non-current liabilities 
 Lease liabilities                                                      (4,445)     (5,266)     (4,132) 
 Deferred tax liability                                                 (1,011)       (553)     (1,121) 
                                                                     ----------  ----------  ---------- 
                                                                        (5,456)     (5,819)     (5,253) 
                                                                     ----------  ----------  ---------- 
 Total liabilities                                                    (254,468)   (254,771)   (145,918) 
                                                                     ----------  ----------  ---------- 
 Net assets                                                              13,426       9,848      18,347 
                                                                     ----------  ----------  ---------- 
 Equity attributable to equity holders of the parent 
 Share capital                                                            3,727       3,727       3,727 
 Share premium                                                            6,470       6,470       6,470 
 Retained earnings                                                        3,540        (38)       8,461 
 Other reserves                                                           (311)       (311)       (311) 
                                                                     ----------  ----------  ---------- 
 Total equity                                                            13,426       9,848      18,347 
                                                                     ----------  ----------  ---------- 
 
   CONSOLIDATED STATEMENT OF   CHANGES IN EQUITY 
 
                                         Share      Share       Other    Retained       Total 
                                       capital    premium    reserves    earnings      equity 
                                       GBP'000    GBP'000     GBP'000     GBP'000     GBP'000 
 
 Balance at 1 April 2020                 3,727      6,470       (311)       8,461      18,347 
 
 Total comprehensive expense 
  for the period 
 Loss for the period                         -          -           -     (5,041)     (5,041) 
 
 Other comprehensive income 
 Foreign exchange translation 
  adjustments                                -          -           -         (5)         (5) 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total other comprehensive 
  income                                     -          -           -         (5)         (5) 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total comprehensive expense 
  for the period                             -          -           -     (5,046)     (5,046) 
                                     ---------  ---------  ----------  ----------  ---------- 
 
 Transactions with owners, 
  recorded directly in equity 
 Equity settled share-based 
  payment transactions                       -          -           -         125         125 
 Total contributions by and 
  distribution to owners                     -          -           -         125         125 
                                     ---------  ---------  ----------  ----------  ---------- 
 
   Balance at 30 September 2020          3,727      6,470       (311)       3,540      13,426 
                                     ---------  ---------  ----------  ----------  ---------- 
 
 
   Balance at 1 April 2019               3,727      6,470       (311)       6,824      16,710 
 
 Total comprehensive expense 
  for the period 
 Loss for the period                         -          -           -     (1,037)     (1,037) 
 
 Other comprehensive income 
 Foreign exchange translation 
  adjustments                                -          -           -          13          13 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total other comprehensive 
  income                                     -          -           -          13          13 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total comprehensive expense 
  for the period                             -          -           -     (1,024)     (1,024) 
                                     ---------  ---------  ----------  ----------  ---------- 
 
 Transactions with owners, 
  recorded directly in equity 
 Equity settled share-based 
  payment transactions                       -          -           -         125         125 
 Dividends                                   -          -           -     (5,963)     (5,963) 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total contributions by and 
  distribution to owners                     -          -           -     (5,838)     (5,838) 
                                     ---------  ---------  ----------  ----------  ---------- 
 
 Balance at 30 September 2019            3,727      6,470       (311)        (38)       9,848 
                                     ---------  ---------  ----------  ----------  ---------- 
 
 
   Balance at 1 April 2019               3,727      6,470       (311)       6,824      16,710 
 
 Total comprehensive income 
  for the year 
 Profit for the year                         -          -           -       5,511       5,511 
 
 Other comprehensive expense 
 Remeasurement of defined 
  benefit pension schemes                    -          -           -       2,235       2,235 
 Tax on defined benefit pension 
  schemes                                    -          -           -       (383)       (383) 
 Foreign exchange translation 
  adjustments                                -          -           -          18          18 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total other comprehensive 
  expense                                    -          -           -       1,870       1,870 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total comprehensive income 
  for the year                               -          -           -       7,381       7,381 
                                     ---------  ---------  ----------  ----------  ---------- 
 
 Transactions with owners, 
  recorded directly in equity 
 Equity settled share-based 
  payment transactions                       -          -           -         233         233 
 Tax on equity settled share-based 
  payment transactions                       -          -           -        (14)        (14) 
 Dividends                                   -          -           -     (5,963)     (5,963) 
                                     ---------  ---------  ----------  ----------  ---------- 
 Total contributions by and 
  distribution to owners                     -          -           -     (5,744)     (5,744) 
                                     ---------  ---------  ----------  ----------  ---------- 
 
 Balance at 31 March 2020                3,727      6,470       (311)       8,461      18,347 
                                     ---------  ---------  ----------  ----------  ---------- 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR TO 30 SEPTEMBER 2020

 
                                                     Half Year      Half Year     Year to 
                                          Notes    to 30.09.20    to 30.09.19    31.03.20 
                                                       GBP'000        GBP'000     GBP'000 
 Cash flows from operating activities 
 Cash (used in)/generated from 
  operations                                8          (4,576)       (20,261)       6,866 
 Interest received                                         647            888       1,648 
 Interest paid                                           (264)              -         (8) 
 Tax paid                                                (399)        (1,606)     (2,864) 
                                                 -------------  -------------  ---------- 
 Net cash (used in)/generated 
  from operating activities                            (4,592)       (20,979)       5,642 
                                                 -------------  -------------  ---------- 
 
 Cash flows from investing activities 
 Proceeds from sale of assets 
  held for sale                                          3,100              -           - 
 Proceeds from sale of property, 
  plant and equipment                                        -              -           1 
 Purchase of intangible assets                         (2,755)          (720)     (3,103) 
 Purchase of property, plant and 
  equipment                                              (364)        (1,101)     (1,927) 
 Net cash used in investing activities                    (19)        (1,821)     (5,029) 
                                                 -------------  -------------  ---------- 
 
 Cash flows from financing activities 
 Lease incentive payment                                     -            360         500 
 Payment of lease liabilities                             (77)           (37)        (81) 
 Dividends paid to shareholders                              -        (5,769)     (5,963) 
                                                 -------------  -------------  ---------- 
 Net cash used in financing activities                    (77)        (5,446)     (5,544) 
                                                 -------------  -------------  ---------- 
 Net (decrease)/increase in cash 
  and cash equivalents                                 (4,688)       (28,246)     (4,931) 
                                                 -------------  -------------  ---------- 
 Cash and cash equivalents at 
  beginning of period                                   29,632         34,563      34,563 
                                                 -------------  -------------  ---------- 
 
 Cash and cash equivalents at 
  end of period                                         24,944          6,317      29,632 
                                                 -------------  -------------  ---------- 
 
 Cash and cash equivalents comprise: 
 Cash                                                   24,944          7,679      29,632 
 Bank overdrafts                                             -        (1,362)           - 
                                                 -------------  -------------  ---------- 
                                                        24,944          6,317      29,632 
                                                 -------------  -------------  ---------- 
 
 

SEGMENTAL REPORTING

FOR THE HALF YEAR TO 30 SEPTEMBER 2020

 
                               Half Year      Half Year     Year to 
                             to 30.09.20    to 30.09.19    31.03.20 
                                 GBP'000        GBP'000     GBP'000 
 Billings 
 Consumer                         32,283         40,126     222,207 
 Corporate                        66,556         80,087     197,650 
                           -------------  -------------  ---------- 
 
 Total billings                   98,839        120,213     419,857 
                           -------------  -------------  ---------- 
 
 
 Revenue 
 Consumer                          8,346          8,926      62,447 
 Corporate                        19,043         24,304      50,277 
                           -------------  -------------  ---------- 
 
 Total revenue                    27,389         33,230     112,724 
                           -------------  -------------  ---------- 
 
 
 Operating (loss)/profit 
 Consumer                        (3,768)        (3,126)       5,327 
 Corporate                         (858)          2,742       6,581 
 All other segments              (1,715)        (1,660)     (5,512) 
                           -------------  -------------  ---------- 
 Operating (loss)/profit         (6,341)        (2,044)       6,396 
                           -------------  -------------  ---------- 
 
 

NOTES TO THE HALF YEAR RESULTS

(1) Basis of preparation

The financial information in this interim report has been prepared in accordance with the International Financial Reporting Standards as adopted by the EU and the AIM rules of the London Stock Exchange and on the basis of the accounting policies described in the Group's annual report and accounts for the year ended 31 March 2020. These accounting policies have been based on the current standards and interpretations expected to be effective at 31 March 2021. The Group does not expect there to be a significant impact on the results from standards, amendments or interpretations which are available for early adoption but which have not yet been adopted.

The financial statements have been prepared under the historical cost convention, as modified by the accounting for financial instruments at fair value. In addition, this interim financial report does not comply with IAS34 Interim Financial Reporting, which is not currently required to be applied under AIM rules.

The interim condensed consolidated financial statements do not constitute statutory financial statements as defined in section 435 of the Companies Act 2006 and therefore do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 March 2020. The financial information for the preceding year is based on the statutory financial statements for the year ended 31 March 2020. These financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. These financial statements did not require a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

(2) Going concern

The financial statements are prepared on a going concern basis.

In the Group's annual report and accounts for the year ended 31 March 2020, it was discussed that five scenarios were modelled to assess the impact of the Covid-19 pandemic on the results of the Group going forward. These scenarios focused specifically on the twelve months from the signing of the annual report and accounts. The key variables altered between scenarios were: corporate and HSV demand, Christmas savers order book cancellations and reductions, and paper and card redemptions.

For this interim financial report, the base case and downside scenario were reassessed based on newly available financial information from the six months to 30 September 2020.

Base case scenario reassessment

The reassessment of the base case scenario forecasts a positive impact on results compared to the previous base case, with an 11 per cent increase in billings for the year ending 31 March 2021, and a 1 per cent increase for the year ending 31 March 2022. The key driver behind this is the forecast 25 per cent increase in corporate billings for the year ending 31 March 2021, in part due to the successful partnership with Iceland in the first six months of the year.

From a going concern perspective, the monthly forecasting of the Group's free cash balance is the key area for consideration, as liquidity is the principal going concern risk. The reassessed base case, before usage of the RCF, gives a negative free cash balance in July 2021, recovering by September 2021. When the RCF is taken into account, the Group has significant headroom against the lowest forecast negative free cash position and all covenants are forecast to be complied with.

Downside scenario reassessment

The reassessment of the downside scenario forecasts a positive impact on results compared to the previous downside scenario in the year ending 31 March 2021, with a 4 per cent increase in billings, and a negative impact for the year ending 31 March 2022, with a 4 per cent decrease in billings. The reassessed downside scenario forecasts a negative free cash balance in June 2021, recovering by October 2021. All negative cash balances in this scenario can be covered by usage of the RCF and all covenants are forecast to be complied with.

Mitigating actions

Management have taken the following actions in the six months to 30 September 2020 in order to conserve cash:

-- Furloughing employees - The Group has utilised the Government's Job Retention Scheme with a number of employees being furloughed, whose pay has been topped up to 100%. In the six months to 30 September 2020, the Group has realised GBP287k of savings from this scheme. It is our intention to repay this money in the second half of this year.

-- Dividend cancellation - As noted in the Group's annual report and accounts for the year ended 31 March 2020, the dividend payment for 2020 was cancelled, which conserved GBP6m of cash.

In addition, management have identified the following actions which could be taken to further conserve cash:

   --      Cancellation of the bonus of the year ending 31 March 2021; 
   --      Delaying the implementation of the remaining elements of the new ERP system; and 

-- Further VAT deferral. The Group has deferred GBP936k of VAT payments between March 2020 and June 2020. These are payable by 31 March 2021, however the Group is eligible to apply for a further deferral. Under this further deferral, the payments would be made on a monthly basis up until the end of March 2022, interest free.

Conclusion

The directors have carefully considered the base case, downside scenario and current trading and trends since the period end. In light of the availability of the Group's GBP15m RCF to cover any forecast negative free cash balances, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the interim financial report.

(3) Exceptional items

 
                                   30.09.20   30.09.19   31.03.20 
                                    GBP'000    GBP'000    GBP'000 
 Impairment of obsolete stock         (400)          -      (124) 
  Impairment of property, plant 
   and equipment                          -          -      (163) 
  Impairment of assets held for 
   sale                                   -          -    (1,650) 
  Impairment of goodwill                  -          -    (1,316) 
  Redundancy costs                    (630)          -      (423) 
 

During the period, the Group made the decision to close the hamper and contract packing parts of the business. Exceptional costs have been incurred as a consequence of this decision. GBP400k of impairments have been made to stock bought during the period which is now obsolete. There have also been GBP630k of redundancy costs associated with the closure, this consists of both costs paid as at 30 September 2020 of GBP78k, and a provision for costs that will be paid before the end of the financial year of GBP552k.

(4) Taxation

The taxation credit for the six months to 30 September 2020 has been calculated using an overall effective tax rate of 19.0%, which has been applied to the taxable income (half year to 30 September 2019 - 19.0%).

(5) Earnings per share

Basic earnings per share (EPS) is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.

The calculation of basic and diluted EPS is based on the following figures:

 
                                          Half Year        Half Year          Year to 
                                        to 30.09.20      to 30.09.19         31.03.20 
                                            GBP'000          GBP'000          GBP'000 
 Earnings 
 (Loss)/profit before exceptional 
  item                                      (4,011)          (1,037)            9,187 
 Exceptional items                          (1,030)                -          (3,676) 
                                    ---------------  ---------------  --------------- 
 Total (loss)/earnings for period           (5,041)          (1,037)            5,511 
                                    ---------------  ---------------  --------------- 
 
                                          Half Year        Half Year          Year to 
                                        to 30.09.20      to 30.09.19         31.03.20 
 Weighted average number of 
  shares 
 Basic EPS - weighted average 
  number of shares                      186,347,228      186,347,228      186,347,228 
 Diluting effect of employee 
  share options                                   -                -                - 
                                    ---------------  ---------------  --------------- 
 Diluted EPS - weighted average 
  number of shares                      186,347,228      186,347,228      186,347,228 
                                    ---------------  ---------------  --------------- 
 
 Basic EPS 
 Weighted average number of 
  ordinary shares in issue              186,347,228      186,347,228      186,347,228 
                                    ---------------  ---------------  --------------- 
 EPS (p)                                     (2.71)           (0.56)             2.96 
                                    ---------------  ---------------  --------------- 
 Underlying basic EPS 
 Weighted average number of 
  ordinary shares in issue              186,347,228      186,347,228      186,347,228 
                                    ---------------  ---------------  --------------- 
 EPS (p)                                     (2.15)           (0.56)             4.93 
                                    ---------------  ---------------  --------------- 
 
 Diluted EPS 
 Weighted average number of 
  ordinary shares                       186,347,228      186,347,228      186,347,228 
                                    ---------------  ---------------  --------------- 
 EPS (p)                                     (2.71)           (0.56)             2.96 
                                    ---------------  ---------------  --------------- 
 Diluted EPS 
 Weighted average number of 
  ordinary shares                       186,347,228      186,347,228      186,347,228 
                                    ---------------  ---------------  --------------- 
 EPS (p)                                     (2.15)           (0.56)             4.93 
                                    ---------------  ---------------  --------------- 
 

(6) Other intangible assets

 
                               Half Year      Half Year     Year to 
                             to 30.09.20    to 30.09.19    31.03.20 
  Other intangible assets        GBP'000        GBP'000     GBP'000 
                                   6,917          2,617       4,757 
 
 

Additions during the period include GBP1,812k related to the new Enterprise Resource Planning (ERP) system. This will be the cornerstone of the business to build on going forward, utilising new, cloud-based technology. It is expected that amortisation will commence in the year ending 31 March 2022, as this is when it is expected the Group will commence deriving an economic benefit from the asset.

(7) Assets held for sale

On initial classification as held for sale, assets are measured at the lower of their present carrying amount and the fair value less costs to sell, with any adjustments taken to the profit or loss account. These assets are not depreciated.

Assets are classified as held for sale when they satisfy the following criteria:

   --      management is committed to a plan to sell 
   --      the asset is available for immediate sale 
   --      an active programme to locate a buyer is initiated 

-- the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)

-- the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value

-- actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn.

 
                                        Half Year      Half Year     Year to 
                                      to 30.09.20    to 30.09.19    31.03.20 
                                          GBP'000        GBP'000     GBP'000 
 Assets held for sale                       1,024          4,966       3,153 
  Liabilities directly associated 
   with the assets held for sale            1,077              -           - 
 

The Group is in discussions with an interested party with regards to the sale of its subsidiary Fisher Moy International Limited, and at the time of assessment at 30 September 2020 the Group believe that a sale is likely within twelve months and that all of the criteria to classify it as an asset held for sale have been met.

The assets held for sale balance as at 30 September 2019 and 31 March 2020 related to the Valley Road property, held by the Group's subsidiary Budworth Properties Limited. This subsidiary was sold during the period, generating a profit on sale of GBP41k.

(8) Reconciliation of net (loss)/profit to cash (used in)/generated from operations

 
                                          Half Year      Half Year           Year 
                                        to 30.09.20    to 30.09.19    to 31.03.20 
                                            GBP'000        GBP'000        GBP'000 
 Net (loss)/profit                          (5,041)        (1,037)          5,511 
 Adjustments for: 
 Tax                                        (1,182)          (243)          2,189 
 Interest income                              (459)          (789)        (1,481) 
 Interest expense                               382             25            177 
 Depreciation and amortisation                  912            734          1,659 
 Impairment of property, plant 
  and equipment                                   -              -          1,813 
 Impairment of other intangibles                  -              -             21 
 Impairment of goodwill                           -              -          1,368 
 Profit on sale of assets held 
  for sale                                     (41)              -              - 
 Loss on sale of property, plant 
  and equipment                                   -              -              4 
 Decrease in other financial 
  assets                                          -            200            200 
 (Increase)/decrease in inventories         (7,727)       (15,878)          1,734 
 Decrease in trade and other 
  receivables                                   394          1,333          2,968 
 Increase/(decrease) in trade 
  and other payables                         92,892         93,378        (1,578) 
 Increase/(decrease) in provisions           14,796          8,071        (4,484) 
 Increase in monies held in 
  trust                                    (99,622)      (106,197)        (3,442) 
 Movement in retirement benefit 
  asset                                           -              4           (44) 
 Translation adjustment                         (5)             13             18 
 Share-based payments                           125            125            233 
 Cash (used in)/generated from 
  operations                                (4,576)       (20,261)          6,866 
                                      -------------  -------------  ------------- 
 

(9) Approval

This statement was approved by the board on 23 November 2020.

(10) Reports

A copy of this announcement will be available on the Group's website from today www.appreciategroup.co.uk and will be mailed to shareholders on or before 18 December 2020. Copies will also be available for members of the public at the Company's registered office - Valley Road, Birkenhead CH41 7ED and also at the offices of the Company's registrars, Computershare Investor Services PLC, P O Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH.

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(END) Dow Jones Newswires

November 24, 2020 02:00 ET (07:00 GMT)