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Studio Retail Group PLC

30 June 2021

30 June 2021

Studio Retail Group plc ("SRG" or "the Group")

Results for the 52 weeks ended 26 March 2021

A transformational year for the Group

SRG, the digital value retail business, today announces its full year results for the 52-week period ended 26 March 2021.

 
                                                    2021      2020 (restated**)   Change 
 Revenue                                          GBP578.6m       GBP434.9m        33% 
                                                 ----------  ------------------  ------- 
 Profit before tax                                GBP41.7m         GBP6.8m         513% 
                                                 ----------  ------------------  ------- 
 Adjusted profit before tax*                      GBP48.8m        GBP27.3m         79% 
                                                 ----------  ------------------  ------- 
 Adjusted earnings per share from continuing 
  operations*                                       44.9p           12.1p          271% 
                                                 ----------  ------------------  ------- 
 Earnings per share from continuing operations      38.2p           8.2p           368% 
                                                 ----------  ------------------  ------- 
 Core net debt*                                   GBP27.6m        GBP51.8m         -47% 
                                                 ----------  ------------------  ------- 
 

Group Summary

   --      Revenue from continuing operations of GBP578.6m, up 33% (FY20: GBP434.9m) 

-- Adjusted profit before tax* from continuing operations of GBP48.8m, up 79% from GBP27.3m in FY20.

   --      Core net debt* reduced by GBP24.3m to GBP27.6m 

-- Undertook a strategic review of the Group which successfully completed with the sale of Findel Education for GBP30m in April 2021.

-- Recently completed a refinancing of the Group's GBP50m core bank facility with a new maturity date of September 2024, which provides a solid medium-term liquidity platform for further growth.

Studio

-- Active customer base at Studio at records levels; up 35% in FY21 to 2.5m at March 2021, including 1.5m with an active credit account (a year on year increase of 14%).

-- Product revenue of GBP445.4m (FY20: GBP311.7m), growth of 43%, achieved alongside a +290bps improvement to product gross margin % to 35.9%. The relative lack of promotional discounting from the high street at points during the year is likely to have contributed to some of this increase.

-- Financial services revenue up 8.2% with no material increase in arrears seen to date. The impairment charge of GBP45.7m reflects management's view that some customers have benefitted from the temporary regulatory support put in place by the Government to protect jobs and incomes and the impairment provision has been kept at a level commensurate to this risk.

-- Eligible Receivables at the year-end were GBP315.3m, approximately 20% up against prior year. To facilitate further receivables growth, a further increase in the securitisation facility from GBP225m to GBP250m was agreed in April 2021. Drawings at the year-end were GBP225m (March 2020: GBP197.6m).

-- Adjusted operating profit* for the business of GBP61.7m (FY20 restated**: GBP39.1m) after investment in upgraded systems and processes.

Current trading & outlook

The first quarter of the new financial year has seen Studio's product sales in line with the same period at the start of the pandemic last year, which in turn represents an increase of 51% on the first quarter of FY20. Product margin rates are c.340bp higher than last year due to the non-recurrence of Studio's significant discounting of clothing and footwear ranges seen at this point last year.

We expect that there will be a resumption of more competitive market conditions later in the year, alongside inflationary impacts on some raw material and shipping costs.

Financial services revenue is up 15% in Q1, although this is expected to moderate later in the year. Studio is implementing changes to some elements of its financial services products this year to improve outcomes for customers. At this early stage of the new financial year, we anticipate that Group adjusted profit before tax for the 52 weeks to 25 March 2022 will be in the range of GBP42m-45m.

Paul Kendrick, Group Chief Executive, commented:

"The Covid-19 pandemic showed the resilience and agility of Studio, and we emerge from it a much stronger business.

"The changes over the last few years, to transform Studio into a digital value retailer with integrated financial services, meant we could react quickly to changing market conditions, and deliver record levels of growth in sales, profit and customer numbers. The success of the last year could not have been achieved without the commitment and hard work of all our colleagues and I am proud of how they have strived through the year to deliver for our customers.

"With the strong performance last year, and having sold the Findel Education business, Studio is in a stronger financial position and is now focused on pushing forward with a well-defined purpose that delivers great value, affordable products for our customers. The business has a clear growth strategy, fuelled by its digital capabilities, service enhancements, and ability to utilise data to drive better customer targeting, credit underwriting and product offers. All of this bodes well as we emerge from the pandemic and I am confident Studio can go from strength to strength and benefit all stakeholders."

Enquiries

Studio Retail Group plc

Paul Kendrick, Group CEO

Stuart Caldwell, Group CFO

0161 303 3465

Tulchan Communications

Sunni Chauhan

Will Palfreyman

020 7353 4200

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

** balances have been restated as set out in note 1 to the Group Financial Information below.

Chairman's Statement

The Covid-19 pandemic has produced both challenges and opportunities for the Group. The multi-year transformation of Studio's business model into a digital-first value retailer means that it is ideally positioned to serve the increasing number of customers who choose to shop online; a trend which was evident before the pandemic, but which has accelerated over the last year. The Group's sales, profit and customer numbers all grew substantially during FY21 and we start the new financial year with a strong trading and financial position. This performance was achieved without reliance on government or external support (a small amount was initially claimed under the Government's Coronavirus Job Retention Scheme along with a short-term payment deferral of employment taxes but these amounts were repaid before the year-end) and we did not make any employees redundant as a result of the Covid-19 pandemic.

This performance would not have been possible without the contribution of all our colleagues across the business. The upgrading of key systems over the last few years allowed the majority of our head-office colleagues to work effectively from home, and we see a hybrid approach to home/office working continuing into the future. Our frontline colleagues in our warehouses were protected through ensuring that our facilities were quickly upgraded with the appropriate social distancing and hygiene measures, by introducing onsite testing facilities as soon as these became available, by protecting colleagues' incomes where they needed to self-isolate, and by rewarding them for their efforts with additional vouchers and cash bonuses during the year. On behalf of the Board, I would like to thank all our colleagues for their hard work, which has ensured that we have been able to serve our customers throughout the year despite lockdown disruptions.

Financial performance

A record number of more than 2.5m customers shopped with Studio in FY21, an increase of 35% in the year. Within that, the number of customers with a credit account, who typically exhibit far greater shopping loyalty, increased by 14% to just over 1.5m. Total revenue from Studio increased by 33% to GBP578.6m (FY20: GBP434.9m), which led to adjusted profit before tax* increasing by 79% to GBP48.8m (FY20: GBP27.3m). The statutory profit before tax from continuing operations was GBP41.7m (FY20: GBP6.8m). Adjusted EPS increased by 271% to 44.9p (FY20: 12.1p).

Strategic Review

In December 2020, following the abandonment of the proposed sale of Education to YPO, the Board of Directors announced a review of all strategic options available to it to maximise value for all its shareholders (the "Strategic Review"). Having reviewed a number of options, including the disposal of a division and seeking offers for the Group as a whole pursuant to a formal sale process, the Strategic Review concluded in April 2021 with the sale of Findel Education to a newly-formed company owned by funds managed by Endless LLP for a gross consideration of GBP30m. That transaction completed after the year end on 16 April 2021 and we wish the team at Findel Education well for the future.

Balance sheet and dividends

Core net debt* ended the year at GBP27.6m (March 2020: GBP51.8m), a position which improved in April 2021 following the receipt of the proceeds from the sale of Findel Education and additional drawings from an increase to the securitisation facility.

We have recently completed a refinancing of the Group's GBP50m core bank facility with a new maturity date of September 2024, which provides a solid medium-term liquidity platform for further growth.

The Group is working with the trustees of the legacy defined benefit pension scheme to explore ways of removing any residual pension liabilities, for example by potentially acquiring insurance cover for some or all of its sections.

The Board will continue to prioritise investment in improving Studio's digital capabilities and in further strengthening its financial position in light of the broader economic environment. Although it does not have plans to reinstate dividend payments at this stage, the strong trading performance of Studio during FY21 enabled intra-group dividends to be made that brought the financial position of the parent company into accumulated profits of GBP9.9m (FY20: accumulated losses of GBP73.3m).

The Company intends to buy back the former convertible shares issued in 2011, which have now automatically become deferred shares following the expiration of the conversion period, for a nominal sum later in the year.

Management and Board

Paul Kendrick, who has been Managing Director of Studio since April 2017, was appointed as Group CEO upon the retirement of Phil Maudsley on 26 March 2021 as the culmination of a planned succession process. Francois Coumau will retire from the Board at the end of the AGM in September having completed seven years, the last two of which as Chairman of the Remuneration Committee. Elaine O'Donnell has also indicated that she does not intend to stand for re-election at the AGM. I would like to thank Francois and Elaine for their contributions and to Phil for his long service to the Group.

Current trading and outlook

The first quarter of the new financial year has seen Studio's product sales in line with the same period at the start of the pandemic last year, which in turn represents an increase of 51% on the first quarter of FY20. Margin rates are c.340bp higher than last year due to the non-recurrence of Studio's significant discounting of clothing and footwear ranges seen at this point last year. We expect that there will be a resumption of more competitive market conditions later in the year, alongside inflationary impacts on some raw material and shipping costs.

Financial services revenue is up 15% in Q1, although this is expected to moderate later in the year.

Studio is implementing changes to some elements of its financial services products this year to improve outcomes for customers. At this early stage of the new financial year, we anticipate that Group adjusted profit before tax for the 52 weeks to 25 March 2022 will be in the range of GBP42m-45m.

While the emergence of potential new variants of the virus and the prospect of higher transmission levels as the UK continues to unlock mean the external environment remains uncertain in the near term, our digital value retail model remains robust, and the changes we have made to our business enable us to continue providing our services to our customers with minimal disruption.

We have set out strategic plans to grow the Studio business towards achieving revenue of GBP1bn in the medium-term. The encouraging start of our current financial year against last year's challenging comparator gives us confidence in those plans.

Ian Burke

Chairman

29 June 2021

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

** balances have been restated as set out in note 1 to the Group Financial Information below.

STUDIO

Studio is a digital value retailer with a broad product offer of clothing and footwear alongside home and electrical products plus more seasonal ranges, many of which can be personalised for free. Underpinning all this, is the drive to amaze our customers with value and provide them with a range of payment options, including our flexible credit facility.

Our medium-term ambition is to achieve over GBP1 billion of revenue, through the following three levers for growth:

-- Attracting more of our core customers who appreciate the affordability of Studio's VALUE proposition through building brand awareness and through enhanced use of data analytics for customer targeting and credit decisioning;

-- Extending the product range providing greater CHOICE for customers alongside a personalised financial service proposition, and digital CRM programmes to build spend per customer; and

-- Broadening the appeal of Studio to a wider customer base who are still seeking great value and flexible PAYMENT OPTIONS.

Summary income statement

 
                                      2021        2020      Change 
                                   ----------  ---------- 
                                     GBP'000     GBP'000 
 Product revenue                      445,361     311,697    42.9% 
 Other financial services 
  revenue                              16,922      18,617    -9.1% 
 Credit account interest              116,303     104,542    11.3% 
 Financial services revenue           133,225     123,159     8.2% 
 Sourcing revenue                          15          38   -60.5% 
 Reportable segment revenue           578,601     434,894    33.0% 
                                   ----------  ---------- 
 
 Product cost of sales              (285,556)   (208,924)   -36.7% 
 Financial services cost 
  of sales                           (45,689)    (37,605)   -21.5% 
 Total cost of sales                (331,245)   (246,529)   -34.4% 
                                   ----------  ---------- 
 
 Gross profit                         247,356     188,365    31.3% 
                                   ----------  ---------- 
 
 Marketing costs                     (34,457)    (31,661)    -8.8% 
 Distribution costs                  (49,397)    (37,372)   -32.2% 
 Administrative costs                (90,763)    (70,508)   -28.7% 
 EBITDA                                72,739      48,824    49.0% 
                                   ----------  ---------- 
 
 Depreciation and amortisation       (10,995)     (9,773)   -12.5% 
 
 Adjusted operating profit*            61,744      39,051    58.1% 
                                               ---------- 
 
 Estimated impact of COVID-19 
  on 2020 impairment charge                 -    (20,000) 
 Change in impairment accounting 
  estimate in 2020                          -       3,675 
 Individually significant 
  items                                     -     (5,648) 
 
 Operating profit                      61,744      17,078   261.5% 
---------------------------------  ----------  ----------  ------- 
 Product margin %                       35.9%       33.0%   +290bp 
                                               ---------- 
 Bad debt charge as % of 
  revenue                                7.9%        8.6%    -70bp 
                                               ---------- 
 Adjusted operating profit 
  %                                     10.7%        9.0%   +170bp 
---------------------------------  ----------  ----------  ------- 
 

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

** balances have been restated as set out in note 1 to the Group Financial Information below.

Our purpose and culture

Our purpose at Studio shapes our culture, policies and processes and given it is socially driven, it naturally forms the basis of our wider ESG agenda, which at Studio is our newly created "Sustainable, Responsible, and Good" plan. We strive to make more affordable, make more possible for our customers and we will do that in the most sustainable and responsible way whilst maintaining our value proposition and operating our unique business model.

We will balance our profits with protecting our planet whilst doing right by our customers, colleagues and wider stakeholders. We are putting our focus and emphasis on the areas where we can make the most positive difference, which is about helping people to thrive.

Following an extensive assessment, reviewing over 500 potential areas, engaging with colleagues, customers and shareholders, we aligned on 19 key material issues to tackle as a priority in the years ahead. These issues are represented by a five- pillar plan which will be set out in the Annual Report.

Our business model

Over the last few years, Studio has completed the first phase of its digital transformation, moving Studio from a traditional catalogue retailer to an online pureplay. The transformation now continues to become truly digital, utilising data and technology in all aspects of the business to improve customer experience and engagement.

Customer shopping patterns have been gradually shifting away from the high street and towards online digital retailers for some time. The Covid pandemic has accelerated this pre-existing trend and Studio has seen a very rapid level of sales growth over the last year as customers browse online, including using our new app, to find products that help make family life that bit easier. New customers have found the combination of a broad, value product range and integrated financial services creates a point of difference to other retailers. The business has no physical stores to service and virtually all orders received online (a small minority still being phone and postal orders).

We believe that Studio has a valuable and arguably unique position in the market being digital, value and with integrated credit. Many successful value retailers struggle with the move to trading online as the economics of the business model do not generally work on low price point, low margin ranges. At Studio we achieve this by having the additional income stream from financial services, but also from how the credit account drives customer loyalty. The increased number of customer touchpoints with our credit account customers drives order frequency and spend over time. Our focus on lifetime value means we can invest upfront in customer acquisition and then, through high levels of retention, drive longer term returns. When we then compare to others who have an integrated credit proposition, they do not generally market themselves as having unbeatable value, or are not pureplay in the way Studio now is. New entrants to the retail credit market have emerged in recent years. However, the key

difference with our model is that Studio owns the data on both retail and financial services, allowing us to make better informed credit underwriting decisions.

Our routes to growth #1 - VALUE

The VALUE growth pillar is all about increasing our current core customer base which are attracted to Studio through the unbeatable value we offer. Market studies suggest our current base of 2.5m active customers has a penetration of less than a quarter of our target market, so there is plenty of scope to grow.

Our own research tells us that one of the main reasons that customers don't choose Studio today is a lack of awareness of the brand. In today's digital world, Studio's adverts appear alongside other brands and awareness becomes important to build trust and confidence with customers. We have been building awareness over the last two years through increased TV advertising and developing partnerships with popular ITV programmes such as "I'm a Celebrity, Get Me Out of Here", "This Morning" and "In For a Penny". We have also extended our focus on having our products displayed in press features displaying our value credentials.

We can then harvest the interest generated by using data-driven customer acquisition, with better targeting driving marketing efficiencies. Once a customer comes to us, we then promote the benefits of the credit proposition.

With more customers aware of Studio, attracted to our value product offer and with the ability to responsibly accept more applicants, we will drive up the number of new credit customers who shop with Studio each year.

Our routes to growth #2 - CHOICE

Our second route to growth is around driving up our share of the customer's wallet and the annual spend per customer through broader product CHOICE. This growth route is likely to be the most significant over the short to medium term, as we have identified that our customers' current average spend benchmarks at around half that of other large integrated online retailers. Studio's current annual spend per customer is around GBP180 based upon the overall base of 2.5m customers. However, we know that the spend from our credit customers is higher than that at approximately GBP250 due to the greater frequency of shopping from that cohort.

Much of Studio's new customer recruitment is driven by our own-brand, great value products, such as our personalised nightwear and wooden toy ranges. An opportunity exists to broaden sales in future through a gradual widening and depth of product ranges . In particular, we see a significant opportunity in clothing and footwear, which makes up only around a quarter of our total sales today, as this category tends to see greater order frequency.

Our research suggests that we have also historically underperformed against our peers in higher-value ranges like electricals, furniture and garden. Some progress has been made in these ranges through the pandemic, but an opportunity still exists which we expect will feed through to push up order values over time. Our ambition through greater frequency, and greater order value, is to increase spend per customer by around 20-25% over time. We believe this to be a credible ambition as, even at this level, it is still lower than competitor benchmarks.

This range extension, much of which can be sent direct to customer by the supplier so that we do not stock the product, is supported again by the use of data-driven marketing, predominately through digital activity, to engage customers and offer tailored financial services offers to further add to retention and spend.

Our routes to growth #3 - PAYMENT OPTIONS

The third route to growth, by expanding our range of flexible PAYMENT OPTIONS, is likely to be less visible in the short term, but may create a strong longer-term opportunity. Our research indicates that some customers or potential customers with better credit profiles are attracted by Studio's great value products. However, they do not need the current credit proposition that we offer, which in turn leads to a lower frequency of product shopping because they do not see the increased level of customer touchpoints such as those generated by monthly account statements.

Recent changes to the technology used by Studio to underwrite and responsibly oversee our credit accounts have allowed Studio to vary the APR at the point of application using a tailored rate-for-risk approach. This reduces the level of drop-out for better-quality customers through the application process, as data allows us to accept that profile of applicant with less friction in the customer journey. It may also increase the proportion of seemingly higher-risk customers that can be responsibly accepted by asking supplementary questions and taking additional steps such as the use of Open Banking to validate they can afford the credit offered.

Recruiting a greater number of customers with a slightly nearer-prime profile onto a relevant financial services product is likely to increase the second income stream from interest, but also increase the frequency of product shopping from this segment of the population.

Digital Transformation

Studio has made progress over the last few years in gradually replacing its legacy mainframe systems and IT architecture through the development of a clear IT strategy built around data, application and infrastructure architecture. Notable improvements to the CRM, marketing and financial services underwriting systems have created the flexibility for many of our colleagues to work effectively from home during the pandemic.

The introduction of the Studio App in late 2019 has been a significant contributor to the success of the business during FY21, with over 1 million customers downloading the App. As well as now accounting for over 20% of product sales in FY21, it has introduced a virtually cost-free marketing channel via push notifications which have been enabled by around two-thirds of its users.

There remains much still to do to achieve our ambition of becoming a truly digital business, utilising data and technology in all aspects of the business to improve customer experience and engagement. We have therefore organised our ongoing transformation activity around four workstreams:

-- Retail Transformation - delivering an upgraded real-time experience for customers to improve retention; equipping colleagues to better serve our customers; and encouraging our direct to customer partners to provide better stock security and a better delivery experience. This programme of activity will address most of our existing customer pain points;

-- Data Strategy - this programme aims to deliver value-creating insight that will drive the whole business, specifically supporting product ranging decisions to increase choice and enabling us to target our existing and new customers with the right offers more cost-effectively;

-- Continuous improvement - an ongoing portfolio and programme of continual improvement of our existing systems, delivering a rhythm of incremental gains across the business enabling us to underpin our value proposition;

-- IT Strategy - our programme to ensure our systems are built on secure, reliable and scalable environments, including the gradual retirement of the legacy mainframe environment.

Performance and Progress

FY21 represented a step-change in the level of performance for Studio. The growth in its active customer base from 1.8m to 2.5m customers included a number of cash-paying customers who found Studio for the first time during the pandemic when the high-street alternatives were closed. The number of customers within this total who now have a credit account increased by 14% to 1.5m. The average annual spend per customer increased by around 5% to GBP180, which led to product revenue increasing by 43% over the year to GBP445.4m (FY20: GBP311.7m).

The product margin rate increased by 290bp during the year to end at 35.9%. The relative lack of promotional discounting from the high street at points during the year is likely to have contributed to some of this increase. However, the pandemic also led to factors that reduced the overall margin, such as lower sales of "going out" clothing and footwear which are normally higher-margin ranges, and higher sales of electricals such as TVs, laptops and gaming consoles which are normally lower-margin ranges. Management estimate that mix effect to have been around -20bp, meaning that the underlying increase in the margin rate through pricing and better buying practices increased by 310bp.

The increase in the number of credit account customers led to growth in the closing Eligible Receivables* book of 20%. Revenue from financial services during the year grew at 8.2% to GBP133.2m, due to lower fees being charged to customers who missed payments due to the greater level of forbearance and payment holidays offered to those most affected by the pandemic. Studio also significantly increased the level of new customer recruitment undertaken in the final quarter of the year, including via its "Interest Saver" product that allows customers to repay over either 3 or 6 months without accruing any interest.

Studio estimated that the increase in its bad debt provision required at the end of March 2020 by the sudden deterioration in future economic prospects caused by the start of the pandemic to be around GBP20m. There are too many competing factors to allow us to identify reliably how much of this increase now remains within the closing provision at March 2021. The book has grown significantly during FY21, there are a higher proportion of new customers within the portfolio at the year-end although the overall quality of new recruits during the year has improved, and the future economic outlook is less pessimistic than a year ago. However, management's analysis of the arrears profile of the portfolio indicates that some customers have benefitted from the temporary regulatory support put in place by the government to protect jobs and incomes. We therefore believe that some of these customers are in a better, lower-provision state than will ultimately be appropriate. Judgement has therefore been applied in determining the year-end provision, which has increased it by approximately GBP13m from the central level derived from the normal forecasting model. That in turn leads to a bad debt charge for the year of GBP45.7m, compared to the underlying level of GBP37.6m in FY20 (or GBP53.9m including the GBP20m additional Covid estimate offset by the GBP3.7m change to model estimate reported in FY20).

The gross profit for Studio therefore increased to GBP247.4m, up by 31.3% using the underlying measure of bad debt. Marketing costs increased by 8.8% to GBP34.5m, a much lower rate than the growth in customers and revenue, due to lower tariffs being available on certain channels at various times during FY20. Normal tariffs appear to have returned by the start of FY22.

Distribution costs have inherently increased alongside the growth in product revenue. Admin costs have also increased with the Group incurring additional payroll costs, higher variable overheads through increased alongside activity and high costs through the investment in both people and IT systems.

The adjusted operating profit* was therefore GBP61.7m, an increase of 58.1% on the GBP39.1m seen in FY20.

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

FINANCE REVIEW

Adjusted profit before tax*

The Group reported an adjusted profit before tax from continuing operations of GBP48.8m, as set out in the table below. Full reconciliations between the adjusted figures presented below and their statutory equivalents are shown in the Alternative Performance Measures section below.

 
                                                      2020 
                                       2021   (Restated**)   Change 
                                     GBP000         GBP000   GBP000 
----------------------------------  -------  -------------  ------- 
Continuing operations 
Studio                               61,744         39,051   22,693 
Central                             (3,757)        (1,235)  (2,522) 
----------------------------------  -------  -------------  ------- 
Adjusted operating profit*           57,987         37,816   20,171 
Net finance costs                   (9,175)       (10,491)    1,316 
Adjusted profit before tax*          48,812         27,325   21,487 
Individually significant costs      (1,053)        (6,807)    5,754 
Estimated impact of COVID-19 
 on 2020 impairment charge                -       (20,000)   20,000 
Change in impairment accounting 
 estimate in 2020                         -          3,675  (3,675) 
Fair value movement on derivative 
 financial instruments              (6,085)          2,608  (8,693) 
----------------------------------  -------  -------------  ------- 
Profit before tax                    41,674          6,801   34,873 
----------------------------------  -------  -------------  ------- 
 

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

** balances have been restated as set out in note 1 to the Group Financial Information below .

The key elements of this improved performance are discussed above.

Individually significant items totalling GBP1.1m (FY20: GBP6.8m) were incurred, as discussed in more detail below and set out in Note 3 to the Group Financial Information below. The fair value movement on derivative financial instruments was a charge of GBP6.1m (FY20: credit of GBP2.6m). This is presented below the adjusted profit before tax* on the income statement as it relates to the reversal of prior year fair value movements net of the revaluation of hedging contracts that will unwind during FY22.

Individually significant items

The Strategic Review announced in December 2020 included a formal sale process for the Group as a whole, in addition to the successful sale of Education. Professional fees incurred in relation to that former element, totalling GBP0.8m have been recorded as an individual significant item. Fees relating to the sale of Education are included within discontinued operations.

A further High Court decision relating to the historical treatment of Guaranteed Minimum Pensions was issued during the second half of the year and builds on similar previous decisions on this topic. The impact of the court's findings when applied to Studio's legacy defined benefit pension scheme is an additional charge of GBP0.8m which has been recorded as an increase to past-service benefits and therefore taken through the income statement. However, due to its nature, and in line with the approach taken in the past, the item has been recorded as an individually significant item.

A review of the ongoing use of the Group's former head office property in Hyde has been undertaken in light of the sale of Education and planned changes to the use of this property as we emerge from the pandemic into more hybrid working. That has led to a reduction in the level of impairment previously recorded against this the right-of-use property asset of GBP0.5m, which has been recorded within individually significant items to be consistent with the previous impairment treatment.

Discontinued Operation - Education

Education reported an adjusted operating loss* for the year of GBP0.4m (FY20 profit restated: GBP2.4m). An impairment charge of GBP11.1m was recorded against the carrying value of its intangible assets to align with the value achieved upon the subsequent sale of the business in April 2021. Associated disposal costs totalling GBP2.5m have also been recorded within discontinued operations.

Pensions

The net valuation on the Group's legacy defined benefit scheme at the end of FY21, measured in accordance with IAS 19, reduced from a surplus of GBP31.7m at March 2020 to GBP20.8m at March 2021 due to reductions in the assumed level of future returns.

The IAS 19 valuation has no bearing on the contributions made by the Group to the scheme, which is instead derived from the triennial valuation of the scheme. The most recent valuation measured as at April 2019 concluded during the year leading to a continuation of contributions totalling GBP5.0m p.a. until September 2023. The lump-sum contribution of GBP13m and lower contributions noted in the FY20 accounts relating to the proposed sale of Education to YPO did not occur as they were contingent upon completion of that sale, which did not occur.

As part of the subsequent agreement to sell Education to Endless LLP, the Group made an additional contribution of GBP9m into the scheme in May 2021. This has brought the valuation of the scheme measured by reference to the actuarial targets into surplus. The Company is therefore working with the scheme's trustees to explore options to remove this potentially volatile liability from the balance sheet, including the potential use of insurance.

Taxation

The Group posted a charge of GBP8.6 m in the year in respect of taxation for continuing operations (FY20: credit of GBP0.2m). The underlying effective tax rate* for the year was 20.6% (FY20 restated: 18.2%).

Earnings per share

The adjusted earnings per share* for the year from continuing operations was 44.9p in FY20 (FY20 restated: 12.1p). The basic earnings per share from continuing operations was 38.2p per share (FY20 restated: 8.2p).

Summary balance sheet

 
                                                      2020 
                                         2021   (restated)    Change 
                                       GBP000       GBP000    GBP000 
----------------------------------  ---------  -----------  -------- 
Intangible fixed assets                22,761       41,837  (19,076) 
Tangible fixed assets                  58,188       68,144   (9,956) 
Net working capital                   250,189      222,787    27,402 
Net debt*                           (293,006)    (298,573)     5,567 
Net assets of disposal group held 
 for sale                              26,572            -    26,572 
Other net assets                       20,214       39,801  (19,587) 
Net assets                             84,918       73,996    10,922 
----------------------------------  ---------  -----------  -------- 
 

Consolidated net assets amounted to GBP84.9m at the period end (FY20 restated: GBP74.0m) as summarised above, reflecting the net profit reported and the actuarial remeasurements in respect of the pension deficit. The net assets are equivalent to 98p per ordinary share (FY20 restated: 86p per ordinary share).

Cash flow and borrowings

After taking account of interest and the net impact of finance leases, the Group's core net debt reduced by GBP24.3m to GBP27.3m (FY20: GBP51.8m ), as summarised below.

Total net debt* at the year-end was as follows:

 
                                                       2020 
                                          2021   (restated)    Change 
                                        GBP000       GBP000    GBP000 
------------------------------------  --------  -----------  -------- 
External bank borrowings (excluding 
 securitisation facility)               65,000       85,000  (20,000) 
Less total cash                       (37,443)     (33,163)   (4,280) 
------------------------------------  --------  -----------  -------- 
Core net debt*                          27,557       51,837  (24,280) 
Securitisation drawings                225,000      197,591    27,409 
Lease liabilities                       40,449       49,145   (8,696) 
Net debt*                              293,006      298,573   (5,567) 
------------------------------------  --------  -----------  -------- 
 

The Group's revolving credit facility was refinanced in June 2021, with the available level of facilities now scheduled to be GBP50m until the end of September 2024. The securitisation facility was increased from GBP200m to GBP225m during the year, and then subsequently increased further to GBP250m in April 2021 to cater for the continued growth in Studio's trade receivables. The final maturity date of the securitisation facility is the earlier of 30 December 2028 or the date on which drawings in respect of eligible receivables in place at 30 December 2022 are repaid. Under the current agreement, the Group cannot make additional drawings on the facility after 30 December 2022.

Dividends and capital structure

Dividends totalling GBP110m were received by the Company from its subsidiaries during the period and its balance sheet as at 26 March 2021 shows a surplus of GBP9.9m on its retained reserves (FY20: deficiency of GBP73.3m).

The 166.9m convertible ordinary shares in the Company automatically converted to become non-voting deferred shares on 23 March 2021. The Company is able to repurchase and cancel these shares for a nominal sum, which it plans to do later in FY22.

Our ambition over the next few years is to invest in our digital capabilities in order to increase the level of potentially distributable reserves within the primary operating subsidiary, Studio Retail Limited, to enable it to remit dividends to Studio Retail Group plc. Studio Retail Group plc does not have plans to reinstate dividend payments at this stage. The Directors have determined that no interim dividend will be paid (FY20: GBPnil) and are not recommending the payment of a final dividend (FY20: GBPnil).

Treasury and risk management

The Group's central treasury function seeks to reduce or eliminate exposure to foreign exchange, interest rate and other financial risks, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. It does not engage in speculative transactions and transacts only in relation to underlying business requirements in accordance with approved policies.

Interest rate risk management

The Group's interest rate exposure is managed by the use of derivative arrangements as appropriate. The Group has purchased interest rate caps covering the period to July 2021 to protect against the risk of unforeseen increases to LIBOR rates.

Net interest costs for the year for continuing operations were GBP9.2m, (FY20: GBP10.5m), with a reduction being largely caused by the significant increase in the opening pension scheme surplus of GBP31.7m, together with lower LIBOR and a lower borrowing margin. Finance charges were covered 6.3 times by adjusted operating profit* (FY20 restated: 3.6 times).

Currency risk management

A significant proportion of the products sold by Studio are procured through the Group's Far-East buying operations and beyond. The currency of purchase for these goods is principally the US dollar.

The Group's hedging policy aims to cover anticipated future exposures on a rolling 12-month basis. As at the balance sheet date, the Group had forward contracts with an outstanding principal of $104m (FY20: $91m) and an average rate of GBP1/$1.33 (FY20: $1.286). The market value and unrealised loss on those contracts as at the balance sheet date, less the reversal of the equivalent valuation as at the end of March 2020, was a charge of GBP6.1m (FY20: gain of GBP2.6m). This is presented separately on the Income Statement as it represents an element of product costs to be realised in FY22 as the contracts unwind. The Group currently has forward contracts in place with an outstanding principal of $91.5m covering the 12 months to June 2022.

In addition to this direct exposure, the divisions face a significant level of indirect exposure from supplies made by UK suppliers who in turn source goods from overseas. That risk is normally mitigated through a combination of supplier agreements and fixed term pricing, although from time to time there may be a requirement to increase prices to customers to maintain margins.

Borrowing and counterparty risk

The Group's exposure to borrowing and cash investment risk is managed by dealing only with banks and financial institutions with strong credit ratings.

Alternative Performance Measures

The Directors use several Alternative Performance Measures ("APMs") that are considered to provide useful information about the performance and underlying trends facing the Group. As these APMs are not defined by IFRS, they may not be comparable with APMs shown in other companies' accounts. They are not intended to be a replacement for, or be superior to, IFRS measures.

The principal APMs used by management are set out below.

Adjusted profit before tax

this measure is used by management to assess the underlying trading performance of the Group from period to period.

In both the current and prior period, the following items have been excluded in arriving at adjusted PBT:

-- Individually significant items are, due to their nature or scale, not reflective of the underlying performance of the Group. The Directors believe that presenting these items separately aids year on year comparability of performance.

-- The Group's foreign exchange hedging policy means that there will be unrealised fair value gains or losses at the period end relating to contracts intended for future periods. Those fair value movements are therefore excluded from the underlying performance of the Group until realised.

In the prior period, owing to the impact of Covid-19, the ongoing disposal process in respect of the sale of Education to YPO and the adoption of IFRS 16 Leases ("IFRS 16), further items were adjusted for to ensure the figures were presented on a consistent basis:

1. The GBP20m estimated impact of Covid-19 on the impairment charge in Studio was excluded in reaching like-for-like adjusted operating profit and profit before tax to enable comparability with the results of the prior periods and to allow a fair (although estimated) assessment of the business' underlying trading performance excluding Covid-19.

2. During the prior period, the Group refined its impairment models to make use of more up to date customer data that was more reflective of current credit policies and operational processes. The availability of this more granular and up to date information enabled management to refine its estimate in respect of the level of impairment provision required and resulted in reduction in the level of provision required by GBP3.8m. Since this change was not reflective of the underlying performance of the receivables portfolio, it was excluded when arriving at like-for-like adjusted operating profit and profit before tax to enable to allow a fair and balanced assessment of the business' underlying trading performance in FY20.

3. IFRS 16 was adopted for the first time in FY20 using the modified retrospective adoption approach. In effect, this meant that the FY20 income statement was presented on an IFRS 16 basis, whilst the FY19 comparative was stated based on the requirements of IAS 17 Leases ("IAS 17"). In order to allow for a like-for-like comparison, and to present results on a consistent basis with that used to formulate market consensus, the impact of IFRS 16 was excluded in reaching like-for-like adjusted operating profit and profit before tax.

4. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations ("IFRS 5"). Since the Group was engaged in an active sale process from September 2019 onwards, Education met the criteria to classified as held for sale and as a result, its FY20 results were presented separately in a single, post-tax "result from discontinued operation" line in the income statement. In addition, the amortisation of intangible assets relating to Education, which arise upon consolidation, and were previously disclosed within Central costs, were included within the result from discontinued operation. IFRS 5 also required that no depreciation or amortisation be recorded against Education once it was classified as held for sale. As such, depreciation and amortisation charged in H2 of FY20 was reversed. In order to make the presentation of results fair, balanced and understandable, and since Education was run as an active part of the Group throughout FY20, all IFRS 5 adjustments were reversed when arriving at the like-for-like adjusted operating profit and profit before tax (i.e. its results were presented as they would have been if the disposal process had not taken place).

In order to allow for a fair comparison with the results for FY21, adjustments 1 and 2 will still be made to in arriving at an equivalent adjusted profit before tax measure for FY20.

Since the requirements of IFRS 16 have been applied in both FY21 and FY20, the adjustment set out in 3 is no longer required to aid comparability.

Since the Education business met the criteria to be held for sale at 26 March 2021, its results have been presented separately in the consolidated income statement in both the 52-week period ended 26 March 2021 and the 52-week period ended 27 March 2020. Since the business was involved in two disposal processes during FY21 and was sold in April 2021, management have concluded that the results of Education are no longer relevant when assessing the underlying performance of the Group and have therefore focused on the results from continuing operations.

A reconciliation from adjusted profit before tax to profit before tax is shown below:

 
                                                2021       2020 
                                              GBP000     GBP000 
------------------------------------------  --------  --------- 
 
 Adjusted profit before tax                   48,812     27,325 
 Individually significant items              (1,053)    (6,807) 
 MTM on derivatives                          (6,085)      2,608 
 Estimated impact of COVID-19 on 2020 
  impairment charge                                -   (20,000) 
 Change in impairment accounting estimate 
  in 2020                                          -      3,675 
------------------------------------------  --------  --------- 
 Profit before tax                            41,674      6,801 
------------------------------------------  --------  --------- 
 

EBITDA before individually significant items and adjusted operating before individually significant items

The calculation EBITDA before individually significant items and adjusted operating before individually significant items is set out in note 2 to the Group Financial Information.

Studio Product Gross Margin %

This is used as a measure of the gross profit made by Studio on the sale of products only, which shows progress against one of Studio's strategic pillars. It is derived as follows:

 
                                      2021        2020 
                                    GBP000      GBP000 
 Product revenue                   445,361     311,697 
 Less product cost of sales      (285,556)   (208,924) 
------------------------------  ----------  ---------- 
 Gross product margin              159,805     102,773 
------------------------------  ----------  ---------- 
 Gross product gross margin %        35.9%       33.0% 
------------------------------  ----------  ---------- 
 

Studio underlying impairment loss as a % of revenue

This is an assessment of the underlying impairment loss incurred in respect of Studio's trade receivables, which enables management to assess the quality and performance of its trade receivables from period to period. The estimated impact of COVID-19 and the change in accounting estimate (detailed above) in the prior period are excluded from the reported impairment loss when calculating this measure, as they are not reflective of the underlying performance of the receivables portfolio.

 
                                    2021       2020 
                                  GBP000     GBP000 
 Reported impairment loss         45,689     53,930 
 Exclude estimated impact of 
  COVID-19 on 2020 impairment 
  charge                               -   (20,000) 
 Exclude change in impairment 
  accounting estimate in 2020          -      3,675 
------------------------------  --------  --------- 
 Underlying impairment loss       45,689     37,605 
------------------------------  --------  --------- 
 Studio total revenue            578,601    434,894 
------------------------------  --------  --------- 
 Studio underlying impairment 
  loss as a % of revenue            7.9%       8.6% 
------------------------------  --------  --------- 
 

Studio marketing costs to sales ratio

This measure allows management to assess the efficiency of our marketing spend as we pursue our stated strategy of increasing the profile of the Studio brand. It is calculated by dividing marketing costs by product revenue.

 
                                      2021      2020 
                                    GBP000    GBP000 
 Marketing costs                    34,457    31,661 
 Product revenue                   445,361   311,697 
--------------------------------  --------  -------- 
 Marketing costs to sales ratio       7.7%     10.2% 
--------------------------------  --------  -------- 
 

Overall net debt

This measure takes account of total borrowings less cash held by the Group and represents our total indebtedness. Management use this measure for assessing overall gearing.

It is calculated as follows:

 
                                            2021           2020 
                                                    (Restated*) 
                                          GBP000         GBP000 
-------------------------------------  ---------  ------------- 
 Total bank loans                        290,000        282,591 
 Lease liabilities                        40,449         49,145 
 Less cash and cash equivalents         (37,443)       (33,163) 
-------------------------------------  ---------  ------------- 
 Overall net debt                        293,006        298,573 
-------------------------------------  ---------  ------------- 
 Exclude impact of IFRS 16              (38,676)       (47,882) 
-------------------------------------  ---------  ------------- 
 Overall net debt on a like-for-like 
  basis                                  254,330        250,691 
-------------------------------------  ---------  ------------- 
 

* balances have been restated as set out in note 1 to the Group Financial Information.

Core net debt

This measure excludes lease liabilities and securitisation borrowings from net debt to show borrowings under the revolving credit facility net of cash held by the Group. This is our preferred measure of the indebtedness of the Group and is relevant for covenant purposes.

It is calculated as follows:

 
                                          2021           2020 
                                                  (Restated*) 
                                        GBP000         GBP000 
 Net Debt                              293,006        298,573 
 Lease liabilities                    (40,449)       (49,145) 
 Less securitisation borrowings**    (225,000)      (197,591) 
 Core net debt                          27,557         51,837 
----------------------------------  ----------  ------------- 
 

** Disclosed within bank loans.

* balances have been restated as set out in note 1 to the Group Financial Information.

Debt funding consumer receivables

The majority of Studio's trade receivables are eligible to be funded in part from the securitisation facility, with the remainder being funded from working capital. This measure indicates the face value of trade receivables (before any impairment provision) capable of being funded from the securitisation facility. It is useful to management as it demonstrates the proportion of net debt that is supported by paying customer receivables.

It is calculated as follows:

 
                                        2021      2020 
                                      GBP000    GBP000 
----------------------------------  --------  -------- 
 Funded from securitisation loans    225,000   197,591 
 Funded from working capital          90,345    65,864 
----------------------------------  --------  -------- 
 Eligible receivables                315,345   263,455 
----------------------------------  --------  -------- 
 Securitisation %                        71%       75% 
----------------------------------  --------  -------- 
 

The drawings under the securitisation facility at the end of March 2021 stood at the prevailing facility limit of GBP225m. The lenders and the Group mutually agreed a variation to the facility in April 2021 to increase the facility limit to GBP250m. If that higher limit had been in place at the period end, then an advance rate of 75% totalling GBP236.5m could theoretically have been drawn.

Adjusted earnings per share

This measure shows the earnings per share given when individually significant items and fair value movements on derivative financial instruments are excluded from the profit after tax figure. Details of how the adjusted earnings per share are calculated can be found in note 6 to the to the Group Financial Information.

Underlying effective tax rate

This measure shows the Group's effective tax rate when the tax impact of individually significant items and other non-recurring items are adjusted for. This measure allows management to assess underlying trends in the Group's tax rate. It is calculated as follows:

 
                                          2021      2020 
                                        GBP000    GBP000 
------------------------------------  --------  -------- 
 Tax (charge)/credit                   (8,604)       241 
 Exclude tax impact of individually 
  significant items                      (200)   (1,293) 
 Exclude impact of change in 
  corporation tax rate on deferred 
  tax assets & liabilities                   -   (1,427) 
 Adjusted tax charge                   (8,804)   (2,479) 
------------------------------------  --------  -------- 
 Profit before tax and individually 
  significant items                     42,727    13,608 
------------------------------------  --------  -------- 
 Underlying effective tax rate           20.6%     18.2% 
------------------------------------  --------  -------- 
 

Principal risks and uncertainties

 
 Risk                              Root cause                         Key mitigating controls 
 Socio-economic 
  Pressures on the levels            The economic outlook               The expansion of our 
  of disposable income               is uncertain, particularly         digital activity and 
  available to lower                 in relation to the impact          a shift in customer 
  socio-economic groups,             of Covid-19, Brexit                acquisition strategy 
  who form a core part               and more broadly changes           has broadened the overall 
  of Studio's customer               in unemployment, interest          customer footprint and 
  base.                              rates and inflation                reduced our dependency 
                                     and wage restraint.                on older, lower socio-economic 
                                                                        customer segments. 
 
                                                                        Successful implementation 
                                                                        of our strategies to 
                                                                        recruit and retain customers, 
                                                                        thereby increasing our 
                                                                        customer base, will 
                                                                        dilute this impact. 
 
                                                                        Management information 
                                                                        tools, alongside Studio's 
                                                                        governance framework, 
                                                                        identify trends within 
                                                                        the receivables portfolio 
                                                                        enabling strategic changes 
                                                                        to be proposed and implemented 
                                                                        promptly. 
 Financial Crime 
  The risk of financial              Increasing cyber activity          Continuing to embed, 
  crime being attempted              and fraud rings makes              develop and improve 
  or committed against               this an area of higher             our Business Incident 
  Studio, its customers              potential risk.                    Management Process. 
  or employees. 
                                                                        The introduction of 
                                                                        enhanced fraud detection 
                                                                        capability and cyber 
                                                                        security protection, 
                                                                        including enhancements 
                                                                        to process and governance. 
 Technology                        The business remains               The Business Continuity 
  Potential disruption              highly dependent upon              Framework continues 
  to the business due               legacy systems both                to evolve, with a continuation 
  to the instability                in the support of running          of resilience testing 
  of Studio's legacy                the business on a daily            and a review of recovery 
  IT systems and infrastructure.    basis and the storage              plans. 
                                    and protection of customer 
                                    data.                              The business has continued 
                                                                       to invest to update 
                                                                       its technology solutions 
                                                                       as it seeks to lower 
                                                                       its dependency on legacy 
                                                                       systems. 
 Financial 
  Execution and liquidity            Funding growth within              Appropriate debt facilities 
  risks from a substantial           our integrated retail              are in place for the 
  multi-year plan of                 and credit business                medium term and regular 
  transformation and                 model is dependent on              and rigorous viability 
  growth at Studio.                  the continued availability         exercises are undertaken. 
                                     of debt facilities.                The main debt facility 
                                                                        has recently been extended 
                                                                        to mature in September 
                                                                        2024 following the sale 
                                                                        of Findel Education 
 
                                     Any weakness in project            Fiscal controls, including 
                                     and change management              business forecasting 
                                     in the delivery of key             in support of stock 
                                     priorities.                        and cash flow management. 
 
                                                                        A Change Committee operates 
                                     High level of demand               within Studio to scrutinise, 
                                     on planning and resource           prioritise and oversee 
                                     management to ensure               resourcing and delivery 
                                     timely and on budget               of transformation projects. 
                                     delivery. 
                                                                        There continues to be 
                                                                        a detailed process of 
                                                                        integrated cash management 
                                                                        to meet the demands 
                                                                        of (i) change and capital 
                                                                        deployment within the 
                                                                        business; alongside 
                                                                        (ii) daily operational 
                                                                        requirements. 
 People 
  Attracting and retaining           Limited available experienced      Significant progress 
  the right talent in                staff in key business              has been made in attracting 
  the business, particularly         and technical areas                new talent to the business 
  in the highly competitive          and high demand for                resulting in the renewal 
  areas of digital marketing,        those people,                      of the senior management 
  IT development and                                                    teams throughout the 
  cyber security, to                                                    Group. 
  support the deployment 
  of our high growth                                                    Developing the business 
  digital strategy.                                                     as a regional employer 
                                                                        of choice is a key objective 
                                                                        and as such, enhanced 
                                                                        personnel frameworks 
                                                                        and reward strategies 
                                                                        are being developed. 
 Legal and Regulatory              An ever-changing legal             Policies, procedures 
  Failure to comply with            and regulatory landscape           and training are in 
  legal and regulatory              which impacts the ways             place for employees 
  developments could                in which Studio currently          whose role is impacted 
  result in significant             operates, particularly             by financial regulation 
  financial penalties,              in respect of the consumer         and Studio keeps these 
  including fines or                credit aspect of Studio's          under review. 
  sanctions and could               business. 
  also leader to reputational                                          A range of assurance 
  damage and/or restrictions                                           activity is undertaken 
  on Studio's ability                                                  by Studio's three lines 
  to trade.                                                            of defence in order 
                                                                       to ensure compliance 
                                                                       to legal and regulatory 
                                                                       requirements. 
 
                                                                       Creation of a first 
                                                                       line risk team and planned 
                                                                       enhancement of the second 
                                                                       line Risk and Compliance 
                                                                       function to respond 
                                                                       to changing requirements. 
                                  ---------------------------------  --------------------------------- 
 Supply chain disruption 
  A material interruption            Brexit could lead to              Studio's Shanghai sourcing 
  to the product supply              new barriers to trade             office is actively seeking 
  chain could reduce                 with some overseas countries.     to widen the number 
  the level of retail                                                  of countries that it 
  trading                            In particular, Studio             sources products from, 
                                     imports a relatively              whilst retaining appropriate 
                                     high proportion of its            quality standards. 
                                     retail products from 
                                     China, either sourced             Studio has recently 
                                     directly or indirectly.           changed its shipping 
                                     A further rise in geopolitical    partner which has helped 
                                     tensions with China               to increase the level 
                                     could lead to legislative         of visibility of stock 
                                     or economic barriers              in transit. 
                                     to trade being introduced. 
                                  ---------------------------------  --------------------------------- 
 Warehousing 
  Any inability to operate           While Studio has a number          Appropriate disaster 
  from one of our key                of warehouse facilities,           recovery plans have 
  warehouse facilities               there is a high dependency         been developed and are 
  centres                            on its main facility               periodically reviewed 
                                     in Accrington.                     and upgraded. The key 
                                                                        systems were last tested 
                                                                        successfully for recovery 
                                                                        in June 2021. 
                                  ---------------------------------  --------------------------------- 
 

Studio Retail Group plc

Group Financial Information

Consolidated Income Statement

52-week period ended 26 March 2021

 
                                            Before 
                                      individually  Individually 
                                       significant   significant 
                                             items         items      Total 
                                            GBP000        GBP000     GBP000 
-----------------------------------   ------------  ------------  --------- 
Continuing operations 
Revenue                                    462,298             -    462,298 
Credit account interest                    116,303                  116,303 
------------------------------------  ------------  ------------  --------- 
Total revenue (including credit 
 interest)                                 578,601             -    578,601 
------------------------------------  ------------  ------------  --------- 
Cost of sales                            (285,556)             -  (285,556) 
Impairment losses on customer 
 receivables                              (45,689)             -   (45,689) 
------------------------------------  ------------  ------------  --------- 
Gross profit                               247,356             -    247,356 
------------------------------------  ------------  ------------  --------- 
Trading costs                            (189,369)       (1,053)  (190,422) 
Analysis of operating profit: 
- EBITDA*                                   72,968       (1,575)     71,393 
- Depreciation, amortisation and 
 impairment reversal                      (14,981)           522   (14,459) 
Operating profit                            57,987       (1,053)     56,934 
Net finance costs                          (9,175)             -    (9,175) 
------------------------------------  ------------  ------------  --------- 
Profit before tax and fair value 
 movements on derivative financial 
 instruments                                48,812       (1,053)     47,759 
------------------------------------  ------------  ------------  --------- 
Fair value movements on derivative 
 financial instruments                     (6,085)             -    (6,085) 
------------------------------------  ------------  ------------  --------- 
Profit before tax                           42,727       (1,053)     41,674 
Tax (expense)/credit                       (8,804)           200    (8,604) 
Profit from continuing operations           33,923         (853)     33,070 
------------------------------------  ------------  ------------  --------- 
 
Discontinued operation 
Loss from discontinued operation, 
 net of tax                                  (311)      (10,984)   (11,295) 
------------------------------------  ------------  ------------  --------- 
Profit for the period                       33,612      (11,837)     21,775 
------------------------------------  ------------  ------------  --------- 
 
Profit attributable to owners 
 of the parent                              33,612      (11,837)     21,775 
 
Earnings/(loss) per ordinary share 
from continuing operations 
Basic                                                                 38.22 
Diluted                                                               37.38 
from discontinued operation 
Basic                                                               (13.06) 
Diluted                                                             (12.77) 
total attributable to ordinary 
 shareholders 
Basic                                                                 25.16 
Diluted                                                               24.61 
 

The accompanying notes are an integral part of this consolidated income statement.

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

52-week period ended 27 March 2020 (restated)

 
                                             Before 
                                       individually  Individually 
                                        significant   significant 
                                              items         items      Total 
                                             GBP000        GBP000     GBP000 
------------------------------------   ------------  ------------  --------- 
Continuing operations 
Revenue                                     330,352             -    330,352 
Credit account interest                     104,542             -    104,542 
-------------------------------------  ------------  ------------  --------- 
Total revenue (including credit 
 interest)                                  434,894             -    434,894 
-------------------------------------  ------------  ------------  --------- 
Cost of sales                             (208,924)             -  (208,924) 
Impairment losses on customer 
 receivables                               (53,930)             -   (53,930) 
-------------------------------------  ------------  ------------  --------- 
Gross profit                                172,040             -    172,040 
-------------------------------------  ------------  ------------  --------- 
Trading costs                             (150,549)       (6,807)  (157,356) 
Analysis of operating profit: 
- EBITDA*                                    35,037       (5,648)     29,389 
- Depreciation, amortisation and 
 impairment                                (13,546)       (1,159)   (14,705) 
Operating profit                             21,491       (6,807)     14,684 
Net finance costs                          (10,491)             -   (10,491) 
-------------------------------------  ------------  ------------  --------- 
Profit before tax and fair value 
 movements on derivative financial 
 instruments                                 11,000       (6,807)      4,193 
-------------------------------------  ------------  ------------  --------- 
Fair value movements on derivative 
 financial instruments                        2,608             -      2,608 
-------------------------------------  ------------  ------------  --------- 
Profit before tax                            13,608       (6,807)      6,801 
Tax (expense)/credit                        (1,052)         1,293        241 
Profit from continuing operations            12,556       (5,514)      7,042 
-------------------------------------  ------------  ------------  --------- 
 
Discontinued operation 
Profit from discontinued operation, 
 net of tax                                   1,571       (1,243)        328 
-------------------------------------  ------------  ------------  --------- 
Profit for the period                        14,127       (6,757)      7,370 
-------------------------------------  ------------  ------------  --------- 
 
Profit attributable to owners 
 of the parent                               14,127       (6,757)      7,370 
-------------------------------------  ------------  ------------  --------- 
 
Earnings per ordinary share 
from continuing operations 
Basic                                                                   8.16 
Diluted                                                                 8.12 
from discontinued operation 
Basic                                                                   0.38 
Diluted                                                                 0.38 
total attributable to ordinary 
 shareholders 
Basic                                                                   8.54 
Diluted                                                                 8.50 
 

The accompanying notes are an integral part of this consolidated income statement. A restated Consolidated Income Statement has been presented in note 1.

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments

Consolidated Statement of Comprehensive Income

week period ended 26 March 2021

 
                                                        2021  2020 (restated) 
                                                      GBP000           GBP000 
--------------------------------------------------  --------  --------------- 
Profit for the period                                 21,775            7,370 
Other Comprehensive Income 
Items that may be reclassified to profit 
 or loss 
Cash flow hedges                                          20               28 
Currency translation gain/(loss) arising 
 on consolidation                                        615            (443) 
--------------------------------------------------  --------  --------------- 
                                                         635            (415) 
--------------------------------------------------  --------  --------------- 
Items that will not subsequently be reclassified 
 to profit or loss 
Remeasurements of defined benefit pension 
 scheme                                             (15,877)           26,915 
Tax relating to components of other comprehensive 
 income                                                3,017          (4,043) 
--------------------------------------------------  --------  --------------- 
                                                    (12,860)           22,872 
--------------------------------------------------  --------  --------------- 
Total comprehensive income for period                  9,550           29,827 
--------------------------------------------------  --------  --------------- 
 

The total comprehensive income for the period is attributable to the equity shareholders of the parent company Studio Retail Group plc.

The accompanying notes are an integral part of this consolidated statement of comprehensive income.

Consolidated Balance Sheet Company Number: 549034

at 26 March 2021

 
                                                       2021  2020 (restated) 
                                                     GBP000           GBP000 
-------------------------------------------       ---------  --------------- 
Non-current assets 
Intangible assets                                    22,761           41,837 
Property, plant and equipment                        58,188           68,144 
Derivative financial instruments                          -                2 
Retirement benefit surplus                           20,837           31,695 
Deferred tax assets                                   1,742            3,172 
                                                    103,528          144,850 
-------------------------------------------       ---------  --------------- 
Current assets 
Inventories                                          37,769           58,825 
Trade and other receivables                         291,225          245,240 
Derivative financial instruments                         55            3,250 
Cash and cash equivalents                            37,443           33,163 
Current tax assets                                      507            1,718 
-------------------------------------------       ---------  --------------- 
Current assets excluding assets 
 held for sale                                      366,999          342,196 
------------------------------------------------  ---------  --------------- 
Assets classified as held for sale                   45,287                - 
Total current assets                                412,286          342,196 
-------------------------------------------       ---------  --------------- 
Total assets                                        515,814          487,046 
-------------------------------------------       ---------  --------------- 
Current liabilities 
Trade and other payables                           (73,266)         (76,943) 
Lease liabilities                                   (6,275)          (6,853) 
Derivative financial instruments                    (2,927)             (36) 
Provisions                                          (5,185)          (4,335) 
Bank loans                                         (65,000)                - 
-------------------------------------------       ---------  --------------- 
Current liabilities excluding liabilities 
 held for sale                                    (152,653)         (88,167) 
-------------------------------------------       ---------  --------------- 
Liabilities directly associated 
 with the assets 
 held for sale                                     (18,715)                - 
Total current liabilities                         (171,368)         (88,167) 
-------------------------------------------       ---------  --------------- 
Non-current liabilities 
Bank loans                                        (225,000)        (282,591) 
Lease liabilities                                  (34,174)         (42,292) 
Provisions                                            (354)                - 
                                                  (259,528)        (324,883) 
-------------------------------------------       ---------  --------------- 
Total liabilities                                 (430,896)        (413,050) 
-------------------------------------------       ---------  --------------- 
Net assets                                           84,918           73,996 
-------------------------------------------       ---------  --------------- 
Equity 
Share capital                                        48,687           48,644 
Translation reserve                                     936              321 
Hedging reserve                                         (6)             (26) 
Retained earnings                                    35,301           25,057 
Total equity                                         84,918           73,996 
-------------------------------------------       ---------  --------------- 
 
 

The accompanying notes are an integral part of this consolidated balance sheet.

Consolidated Cash Flow Statement

week period ended 26 March 2021

 
                                                                2021  2020 (restated) 
                                                              GBP000           GBP000 
---------------------------------------------------------   --------  --------------- 
Profit for the period                                         21,775            7,370 
Adjustments for: 
Income tax charge/(credit)                                     5,625            (271) 
Finance costs                                                  9,447           10,998 
Depreciation of property, plant and equipment                 12,724           14,953 
Impairment of property, plant and equipment                      630            1,300 
Impairment of intangible assets                               11,075                - 
Amortisation of intangible assets                              5,489            2,313 
Share-based payment expense                                    1,372              649 
Fair value movements on financial instruments net of 
 premiums paid                                                 6,085          (2,621) 
Pension contributions less income statement charge           (4,175)          (4,792) 
Operating cash flows before movements in working capital      70,047           29,899 
Decrease/(increase) in inventories                             9,600         (10,068) 
Increase in receivables                                     (57,871)          (9,317) 
Increase in payables                                          10,737            4,442 
Increase in provisions                                         1,204            1,558 
----------------------------------------------------------  --------  --------------- 
Cash generated from operations before interest and 
 tax paid                                                     33,717           16,514 
Income taxes paid                                            (5,482)          (3,717) 
Interest paid                                               (10,453)          (8,495) 
Net cash from operating activities                            17,782            4,302 
----------------------------------------------------------  --------  --------------- 
Investing activities 
Proceeds on disposal of property, plant and equipment             23                - 
Purchases of property, plant and equipment                   (6,812)         (14,292) 
Purchases of software and IT development costs and 
 other intangible assets                                     (8,500)            (530) 
Net cash used in investing activities                         15,289         (14,822) 
----------------------------------------------------------  --------  --------------- 
Financing activities 
Payments of lease liabilities                                (5,615)          (5,966) 
Bank loans repaid                                           (20,000)         (10,000) 
Securitisation loan drawn                                     27,409           22,046 
Net cash from financing activities                             1,794            6,080 
----------------------------------------------------------  --------  --------------- 
Net on increase/(decrease) in cash and cash equivalents        4,287          (4,440) 
Cash and cash equivalents at the beginning of the period      33,163           37,603 
Effect of foreign exchange rate changes on cash held             (7)                - 
Cash and cash equivalents at the end of the period            37,443           33,163 
----------------------------------------------------------  --------  --------------- 
 

The accompanying notes are an integral part of this consolidated cash flow statement.

Consolidated Statement of Changes in Equity

52-week period ended 26 March 2021

 
                                                   Translation                 (Accumulated 
                                                       reserve   Hedging   losses)/retained 
                                    Share capital                reserve           earnings  Total equity 
                                           GBP000       GBP000    GBP000             GBP000        GBP000 
----------------------------------  -------------  -----------  --------  -----------------  ------------ 
As at 29 March 2019                        48,644          764      (54)            (5,834)        43,520 
Profit for the period 
 - as reported                                  -            -         -              8,755         8,755 
Reversal of IFRS 5 adjustment                   -            -         -            (1,385)       (1,385) 
----------------------------------  -------------  -----------  --------  -----------------  ------------ 
Profit for the period 
 - restated                                     -            -         -              7,370         7,370 
Other Comprehensive income/(loss)               -        (443)        28             22,872        22,457 
Transactions with owners 
Share-based payments                            -            -         -                649           649 
As at 27 March 2020 (restated)             48,644          321      (26)             25,057        73,996 
Profit for the period                           -            -         -             21,775        21,775 
Other Comprehensive income/(loss)               -          615        20           (12,860)      (12,225) 
Transactions with owners 
Issue of shares                                43            -         -               (43)             - 
Share-based payments                            -            -         -              1,372         1,372 
----------------------------------  -------------  -----------  --------  -----------------  ------------ 
 As at 26 March 2021                       48,687          936       (6)             35,301        84,918 
----------------------------------  -------------  -----------  --------  -----------------  ------------ 
 

The total equity is attributable to the equity shareholders of the parent company Studio Retail Group plc.

The accompanying notes are an integral part of this consolidated statement of changes in equity.

Studio Retail Group plc

Notes to the Group Financial Information

1 Basis of preparation of consolidated financial information

The financial information set out herein does not constitute the Company's statutory financial statements for the periods ended 26 March 2021 or 27 March 2020, but is derived from those financial statements. Statutory financial statements for 2020 have been delivered to the Registrar of Companies, and those for 2021 will be delivered in due course. The financial statements were approved by the Board of directors on 29 June 2021. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Copies of the Company's statutory financial statements will be available on the Group's corporate website. Additional copies will be available upon request from Studio Retail Group plc, Church Bridge House, Accrington, BB5 4EE.

The Group financial information has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the group financial statements, International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with the accounting policies included in the Annual Report for the period ended 27 March 2020 except as stated below.

Going concern

The directors have adopted the going concern basis in preparing these financial statements after assessing the principal risks and having considered the impact of severe but plausible downside scenarios for COVID-19. The Group is financed by a securitisation facility and a Revolving Credit Facility ("RCF"). The directors considered the impact of the current COVID-19 environment on the business, as disclosed in the strategic report, for the next 12 months, the viability period and the longer term. Whilst there is inherent uncertainty in forecasts caused by COVID-19, the directors have considered a number of impacts on sales, profits and cash flows.

The directors have assumed that the Group's operations remain open and that we will continue to be able to serve our customers in the event of any further national lockdowns, as we have done since March 2020. The downside sensitivities considered include a reduction in new customer growth and existing customer spend, the level of future forecast revenue and gross margin growth as well the impact of economic factors (particularly unemployment rates) on the ability of the Group's customer base to continue to shop with us and to service their credit accounts. The directors also considered the impact of these sensitivities occurring in combination. In the event that one of or a number of these downside scenario arise at the same time the directors consider they are able to take reasonable mitigating actions, which include but are not limited to, a reduction in discretionary capital expenditure and a reduction in discretionary marketing spend. Implementing these mitigating actions would enable the Group to continue to operate within its existing facilities during the forecast period.

The directors believe that the Group is well placed to manage its financing and other business risks satisfactorily, noting that further agreement would be required to make fresh drawings on the securitisation facility after 30 December 2022 and its RCF matures on 30 September 2024, and have a reasonable expectation that the Group will have adequate resources to continue in operation for at least 12 months from the signing date of these consolidated financial statements. They therefore consider it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.

Non-current assets classified as held for sale and discontinued operations

A non-current asset or a group of assets containing a non-current asset (a disposal group) is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year.

On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of previous carrying amount and fair value less costs to sell with any adjustments taken to profit or loss. The same applies to gains and losses on subsequent remeasurement although gains are not recognised in excess of any cumulative impairment loss. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets and investment property, which continue to be measured in accordance with the Group's accounting policies. Intangible assets and property, plant and equipment once classified as held for sale or distribution are not amortised or depreciated.

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is restated as if the operation has been discontinued from the start of the comparative period.

Findel Education

As at 27 March 2020 the Group's Education business was classified as a discontinued operation as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Due to the CMA's provisional findings, the planned transaction did not proceed to completion and therefore we have restated the comparative consolidated income statement for the 52-week period to 27 March 2020 and the consolidated balance sheet as at 27 March 2020 to present the results of Findel Education as a continuing operation. An adjustment has also been made to opening equity to reinstate GBP1,710,000 of depreciation and amortisation that was not charged for the 26-week period to 27 March 2020 (i.e. the period during which Findel Education was classified as held for sale). This adjustment carries a deferred tax impact of GBP325,000, therefore the net impact to opening reserves is GBP1,385,000.

On 16 April 2021 the Group's Education business was sold to West Moorland 221 Limited, a newly formed company owned by investment funds managed by Endless LLP. At 26 March 2021 the business met the criteria to be accounted for as held for sale and as a discontinued operation as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations . Education's results have therefore been separated out in the consolidated income statement for the 52-week period ended 26 March 2021, and its assets and liabilities have been classified as held for sale in the consolidated balance sheet at 26 March 2021. In addition, the comparative figures given in the consolidated income statement for the 52-week period ended 27 March 2020 has been restated to show the results from this discontinued operation separately, in order to enhance the comparability of the results of the Group's ongoing businesses.

The restated Consolidated Income Statement and Consolidated Balance Sheet shown below summarise the restatements made.

Reclassification of software

During the period, management performed a review of the Group's accounting policies and identified that software that had previously been disclosed within property, plant and equipment and should been disclosed within intangible assets. Consequently, software with a net book value GBP18,668,000 at 27 March 2020 has been reclassified from property plant and equipment to intangible assets. This is a balance sheet reclassification only and has no impact on the income statement or net assets. A third balance sheet has not been presented as management consider that this reclassification does not have material effect on the information in the statement of financial position at the beginning of the preceding period, since the impact on net assets is GBPnil and the total value of non-current assets remains unchanged. The group have considered the tax consequences of this adjustment and have conclude that there is no impact.

The restated Consolidated Balance Sheet shown below summarises the restatement made.

Restated Consolidated Income Statement

 
                                       As reported       Restatement   As restated 
                                                     of discontinued 
                                                          operations 
                                            GBP000            GBP000        GBP000 
------------------------------------   -----------  ----------------  ------------ 
Continuing operations 
Revenue                                    330,352                 -       330,352 
Credit account interest                    104,542                 -       104,542 
-------------------------------------  -----------  ----------------  ------------ 
Total revenue (including credit 
 interest)                                 434,894                 -       434,894 
-------------------------------------  -----------  ----------------  ------------ 
Cost of sales                            (208,924)                 -     (208,924) 
Impairment losses on customer 
 receivables                              (53,930)                 -      (53,930) 
-------------------------------------  -----------  ----------------  ------------ 
Gross profit                               172,040                 -       172,040 
-------------------------------------  -----------  ----------------  ------------ 
Trading costs                            (157,356)                 -     (157,356) 
Analysis of operating profit: 
- EBITDA*                                   29,389                 -        29,389 
- Depreciation, amortisation and 
 impairment                               (14,705)                 -      (14,705) 
Operating profit                            14,684                 -        14,684 
Finance costs                             (10,491)                 -      (10,491) 
-------------------------------------  -----------  ----------------  ------------ 
Profit before tax and fair value 
 movements on derivative financial 
 instruments                                 4,193                 -         4,193 
-------------------------------------  -----------  ----------------  ------------ 
Fair value movements on derivative 
 financial instruments                       2,608                 -         2,608 
-------------------------------------  -----------  ----------------  ------------ 
Profit before tax                            6,801                 -         6,801 
Tax income                                     241                 -           241 
Profit from continuing operations            7,042                 -         7,042 
-------------------------------------  -----------  ----------------  ------------ 
 
Discontinued operation 
Profit from discontinued operation, 
 net of tax                                  1,713           (1,385)           328 
-------------------------------------  -----------  ----------------  ------------ 
Profit for the period                        8,755           (1,385)         7,370 
-------------------------------------  -----------  ----------------  ------------ 
 
Profit attributable to owners 
 of the parent                               8,755           (1,385)         7,370 
-------------------------------------  -----------  ----------------  ------------ 
 
 
  Earnings per ordinary share 
 
from continuing operations 
Basic                                         8.16                 -          8.16 
Diluted                                       8.12                 -          8.12 
from discontinued operation 
Basic                                         1.98            (1.60)          0.38 
Diluted                                       1.97            (1.59)          0.38 
total attributable to ordinary 
 shareholders 
Basic                                        10.14            (1.60)          8.54 
Diluted                                      10.09            (1.59)          8.50 
 

Restated Consolidated Balance Sheet

at 27 March 2020

 
                                                    As reported     Restatement  Software reclassification   Restated 
                                                                      of assets 
                                                                  held for sale 
 
                                                        GBP'000         GBP'000                    GBP'000    GBP'000 
---------------------------------------------  ---  -----------  --------------  -------------------------  --------- 
Non-current assets 
Intangible assets                                             9          23,160                     18,668     41,837 
Property, plant and equipment                            80,007           6,805                   (18,668)     68,144 
Derivative financial instruments                              2               -                          -          2 
Retirement benefit surplus                               31,695               -                          -     31,695 
Deferred tax assets                                           -           3,172                          -      3,172 
                                                        111,713          33,137                          -    144,850 
 ---                                                -----------  --------------  -------------------------  --------- 
Current assets                                                                                           - 
Inventories                                              42,827          15,998                          -     58,825 
Trade and other receivables                             235,227          10,013                          -    245,240 
Derivative financial instruments                          3,250               -                          -      3,250 
Cash and cash equivalents                                33,163               -                          -     33,163 
Current tax assets                                        1,718               -                          -      1,718 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
Current assets excluding assets held for sale           316,185          26,011                          -    342,196 
----------------------------------------------      -----------  --------------  -------------------------  --------- 
Assets classified as held for sale                       60,570        (60,570)                          -          - 
Total current assets                                    376,755        (34,559)                          -    342,196 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
Total assets                                            488,468         (1,422)                          -    487,046 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
Current liabilities                                                                                      - 
Trade and other payables                               (57,908)        (19,035)                          -   (76,943) 
Lease liabilities                                       (6,035)           (818)                          -    (6,853) 
Derivative financial instruments                           (36)               -                          -       (36) 
Provisions                                              (4,335)               -                          -    (4,335) 
Bank loans                                                    -               -                          -          - 
---------------------------------------------  ---  -----------  --------------  -------------------------  --------- 
Current liabilities excluding liabilities held for 
 sale                                                  (68,314)        (19,853)                          -   (88,167) 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
Liabilities directly associated with the assets 
 held for sale                                         (24,684)          24,684                          -          - 
Total current liabilities                              (92,998)           4,831                          -   (88,167) 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
Non-current liabilities                                                                                  - 
Bank loans                                            (282,591)               -                          -  (282,591) 
Lease liabilities                                      (37,461)         (4,831)                          -   (42,292) 
Provisions                                                    -               -                          -          - 
Deferred tax liabilities                                   (37)              37                          -          - 
                                                      (320,089)         (4,794)                          -  (324,883) 
 ---                                                -----------  --------------  -------------------------  --------- 
Total liabilities                                     (413,087)              37                          -  (413,050) 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
Net assets                                               75,381         (1,385)                          -     73,996 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
Equity                                                                                                   - 
Share capital                                            48,644               -                          -     48,644 
Translation reserve                                         321               -                          -        321 
Hedging reserve                                            (26)               -                          -       (26) 
Retained earnings                                        26,442         (1,385)                          -     25,057 
Total equity                                             75,381         (1,385)                          -     73,996 
--------------------------------------------------  -----------  --------------  -------------------------  --------- 
 
 

Critical accounting judgements and key sources of estimation uncertainty

In the course of preparing the consolidated financial statements, management has made judgements and estimates that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses.

Critical accounting judgements

Recognition of defined benefit pension surplus

At 26 March 2021 the Group's defined benefit pension scheme showed a surplus of GBP20.8m (2020: GBP31.7m). This surplus has been recognised in the Group's consolidated balance sheet. In recognising the surplus, management exercised judgement as to whether the Company (as sponsoring employer) has an unconditional right to benefit from any pension surplus at some point in the future (through refunds of surplus or reductions in future contributions), in accordance with the requirements of IFRIC 14. Management concluded that this was the case.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Studio's trade receivables

Studio's trade receivables are recognised on the balance sheet at amortised cost (i.e. net of provision for expected credit loss). At 26 March 2021 trade receivables with a gross value of GBP385.5m (2020: GBP317.8m) were recorded on the balance sheet, less a provision for impairment of GBP106.8m (2020: GBP101.8m).

An appropriate allowance for expected credit loss in respect of trade receivables is derived from estimates and underlying assumptions such as the Probability of Default and the Loss Given Default, taking into consideration forward looking macro-economic assumptions. Changes in the assumptions applied such as the value and frequency of future debt sales in calculating the Loss Given Default, and the estimation of customer repayments and Probability of Default rates, as well as the weighting of the macro-economic scenarios applied to the impairment model could have a significant impact on the carrying value of trade receivables.

These assumptions are continually assessed for relevance and adjusted appropriately. Revisions to estimates are recognised prospectively.

The macro-economic drivers that impact the bad debt charge are as follows:

   --      Annual changes in unemployment rate; 
   --      Actual unemployment rate; and 
   --      Changes in average weekly earnings. 

The latest economic scenarios are heavily influenced by the impact of Covid-19 on the UK economy, in particular the impact on unemployment.

We consider four economic scenarios, and apply a weighting based on probability. These are:

   --      Upside 

Assumes unemployment would peak at 5.4% in financial Q3/Q4 before falling sharply as the economy returns more-or-less to normal by the March 2022.

   --      Baseline 

The economy is expected to contract in financial Q1 as the economy remains in lockdown for most of the quarter. But once restrictions are lifted, much of normal life would be quickly resumed. The economy is expected to regain the December 2019 level of GDP in mid-2022.

   --      Downside 

A prolonged downturn in the economy, as ongoing consumer choose to retain rather than spend their savings. The unemployment rate peaks at 8% at the start of 2022 as workers leaving furlough struggle to find employment.

   --      Stress 

Assumes a prolonged, deep downturn, with the virus mutating and the vaccine proving less effective than hoped. Most of the country remains restricted through next winter, resulting in higher unemployment and a deterioration in customer payment performance as a result.

The table below summarises the peak employment levels assumed within each scenario, with the weightings we have applied to each.

 
                        March 2021                          March 2020 
 Scenario    Unemployment    Weighting Applied   Unemployment   Weighting Applied 
                  Peak                               Peak 
            --------------  ------------------  -------------  ------------------ 
  Upside         c 5%                5%              c 8%              25% 
            --------------  ------------------  -------------  ------------------ 
 Baseline        c 6%               50%             c 10%              60% 
            --------------  ------------------  -------------  ------------------ 
 Downside        c 8%               35%             c 14%              10% 
            --------------  ------------------  -------------  ------------------ 
  Stress         c 10%              10%             c 20%              5% 
            --------------  ------------------  -------------  ------------------ 
 

We note that the impairment model was not designed to take into account changes to customer payment and default performance arising as a result of the Covid-19 pandemic, and that Covid-19 has inherently impacted the economic inputs of the model. Whilst we have not yet seen a significant increase in the level of customer arrears resulting from the pandemic, nor have we seen a reduction in customer payment rates, management's analysis of the arrears profile of the portfolio indicates that some customers have benefitted from the temporary regulatory support put in place by the government to protect jobs and incomes. We therefore believe that some of these customers are in a better, lower-provision state than will ultimately be appropriate. Judgement has therefore been applied in determining the year-end provision, which has increased it by approximately GBP13m from the central level derived from the normal forecasting model.

We note that the unprecedented level of uncertainty around the impact of Covid-19 on the UK economy as a whole, and subsequently on our customer base, continues to cause challenges in assessing bad debt on a forward-looking basis.

Discount rate for pension scheme liabilities

At 26 March 2021 the Group's defined benefit pension scheme showed a surplus of GBP20.8m (2020: GBP31.7m). Management makes use of the PwC Single Agency corporate bond yield curve to derive the discount rate applied to the scheme's projected cash flows, in the calculation of its liabilities under IAS 19. Changes to the discount rate applied could lead to significant changes in the level of pension obligation recognised..

The carrying amounts of the assets and liabilities detailed above are sensitive to the underlying assumptions used by management in their calculation. It is reasonably possible that the outcomes within the next financial year could differ from the assumptions made, which would impact upon the carrying values assumed.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any of the future periods affected.

Other key accounting estimates which, although important estimates, are not considered to be a significant risk of resulting in a material adjustment within the next financial year are as follows:

Inventory provisioning

The Group carries significant amounts of inventory against which there are provisions for slow moving and delisted products. At 26 March 2021 a provision of GBP3.6m (2020 restated: GBP1.9m) was held against a gross inventory value of GBP41.4m (2020 restated: GBP60.8m).

Provisions are made against inventory based upon its location, the planned method of sale, the age of inventory and the level of holding compared to forecast sales levels. The provisioning calculations require a high degree of judgement in assessing which lines require provisioning against and the use of estimates around historical recovery rates for slow moving and delisted products.

If a further 10% of lines were assessed as being slow moving, then the provision required would increase by approximately GBP150,000. If the recovery rate assumed decreased by 10% then the provision would increase by approximately GBP250,000. These sensitivities reflect management's assessment of reasonably possible changes to key assumptions which could result in adjustments to the level of provision within the next financial year.

Carrying value of right of use assets

The Group has rights of use assets of GBP30.7m as at 26 March 2021 (2020 restated: GBP39.4m) which is primarily made up of property leases. These assets are held at cost less accumulated depreciation and are tested annually for impairment. Tests for impairment are primarily based on the calculation of a value in use for each cash generating unit. This involves the preparation of discounted cash flow projections, which require an estimate of both future operating cash flows and an appropriate discount rate.

In determining the length of lease terms, the Group has made a judgement based on the likelihood of extension, if applicable, based on current and expected usage of the asset.

2 Segmental analysis

52 weeks ended 26 March 2021

 
                                                       Continuing operations        Discontinued operation       Group 
                                                     Studio   Central       Total                Education       Total 
                                                     GBP000    GBP000      GBP000                   GBP000      GBP000 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Product revenue                                    445,361         -     445,361                   71,432     516,793 
 Other financial services revenue                    16,922         -      16,922                        -      16,922 
 Credit account interest                            116,303         -     116,303                        -     116,303 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Financial services revenue                         133,225         -     133,225                        -     133,225 
 Sourcing revenue                                        15         -          15                        -          15 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Reportable segment revenue                         578,601         -     578,601                   71,432     650,033 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Product cost of sales                            (285,556)         -   (285,556)                 (46,686)   (332,242) 
 Financial services cost of sales                  (45,689)         -    (45,689)                        -    (45,689) 
 Sourcing costs of sales                                  -         -           -                        -           - 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Total cost of sales                              (331,245)         -   (331,245)                 (46,686)   (377,931) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Gross profit                                       247,356         -     247,356                   24,746     272,102 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Marketing costs                                   (34,457)         -    (34,457)                  (2,120)    (36,577) 
 Distribution costs                                (49,397)         -    (49,397)                  (4,968)    (54,365) 
 Administrative costs                              (90,763)       229    (90,534)                 (14,867)   (105,401) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 EBITDA*                                             72,739       229      72,968                    2,791      75,759 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Depreciation and amortisation                     (10,995)   (3,986)    (14,981)                  (3,232)    (18,213) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Operating profit before individually 
  significant items                                  61,744   (3,757)      57,987                    (441)      57,546 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Individually significant items                           -   (1,053)     (1,053)                 (13,561)    (14,614) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Operating profit                                    61,744   (4,810)      56,934                 (14,002)      42,932 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Finance costs                                                            (9,175)                    (272)     (9,447) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Profit before tax and fair value movements on 
  derivative financial instruments                                         47,759                 (14,274)      33,485 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Fair value movements on derivative financial 
  instruments                                                             (6,085)                        -     (6,085) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Profit before tax                                                         41,674                 (14,274)      27,400 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 

*Earnings before interest, tax, depreciation, amortisation, fair value movements on derivative financial instruments and individually significant items.

52 weeks ended 27 March 2020 (restated)

 
                                                       Continuing operations        Discontinued operation       Group 
                                                     Studio   Central       Total                Education       Total 
                                                     GBP000    GBP000      GBP000                   GBP000      GBP000 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Product revenue                                    311,697         -     311,697                   79,940     391,637 
 Other financial services revenue                    18,617         -      18,617                        -      18,617 
 Credit account interest                            104,542         -     104,542                        -     104,542 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Financial services revenue                         123,159         -     123,159                        -     123,159 
 Sourcing revenue                                        38         -          38                        -          38 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Reportable segment revenue                         434,894         -     434,894                   79,940     514,834 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Product cost of sales                            (208,924)         -   (208,924)                 (51,573)   (260,497) 
 Financial services cost of sales                  (53,930)         -    (53,930)                        -    (53,930) 
 Sourcing costs of sales                                  -         -           -                        -           - 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Total cost of sales                              (262,854)         -   (262,854)                 (51,573)   (314,427) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Gross profit                                       172,040         -     172,040                   28,367     200,407 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Marketing costs                                   (31,661)         -    (31,661)                  (3,161)    (34,822) 
 Distribution costs                                (37,372)         -    (37,372)                  (5,121)    (42,493) 
 Administrative costs                              (70,508)     2,538    (67,970)                 (14,025)    (81,995) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 EBITDA*                                             32,499     2,538      35,037                    6,060      41,097 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Depreciation and amortisation                      (9,773)   (3,773)    (13,546)                  (3,720)    (17,266) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Operating profit before individually 
  significant items                                  22,726   (1,235)      21,491                    2,340      23,831 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Individually significant items                     (5,648)   (1,159)     (6,807)                  (1,535)     (8,342) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Operating profit                                    17,078   (2,394)      14,684                      805      15,489 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Finance costs                                                           (10,491)                    (507)    (10,998) 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Profit before tax and fair value movements on 
  derivative financial instruments                                          4,193                      298       4,491 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Fair value movements on derivative financial 
  instruments                                                               2,608                        -       2,608 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 Profit before tax                                                          6,801                      298       7,099 
                                                 ----------  --------  ----------  -----------------------  ---------- 
 

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

3 Individually significant items

An analysis of individually significant items arising during the current and prior periods is as follows:

Continuing operations

 
                                                                    2021     2020 
                                                                  GBP000  GBP'000 
----------------------------------------------------------   -----------  ------- 
Strategic review costs                                             (750)        - 
GMP equalisation adjustment                                        (825)        - 
Reversal of impairment/(impairment) of right of use asset            522  (1,159) 
Studio financial services redress and refund costs                     -  (5,648) 
---------------------------------------------------------------  -------  ------- 
                                                                 (1,053)  (6,807) 
Tax credit in respect of individually significant items              200    1,293 
Total                                                              (853)  (5,514) 
---------------------------------------------------------------  -------  ------- 
 
 

Discontinued operation

 
                                                               2021     2020 
                                                             GBP000  GBP'000 
--------------------------------------------------------   --------  ------- 
Disposal costs                                              (2,486)  (1,535) 
Impairment of intangible assets                            (11,075)        - 
                                                           (13,561)  (1,535) 
Tax credit in respect of individually significant items       2,577      292 
Total                                                      (10,984)  (1,243) 
---------------------------------------------------------  --------  ------- 
 

Costs of GBP750,000 were incurred in respect of the strategic review which was undertaken by the business during the period.

In October 2018, the High Court handed down a judgement involving the Lloyds Banking Group's defined benefit pension schemes. The latest ruling in November 2020, the 'Lloyds III judgment', concluded that schemes will now need to review past transfer values and consider whether any top up would be required to equalise those benefits. There is no limit to the look back period and Trustees will need to consider any transfer values paid where a member has accrued service between 17 May 1990 and 5 April 1997. After discussion with the trustees, actuaries and legal advisors of our fund, a past service cost of GBP825,000 was recognised in the current period to address this historical issue.

During the period the Group reassessed the use of the Hyde property which resulted in an impairment reversal of GBP522,000. A prior period charge of GBP1,159,000 was recorded in respect of the impairment of the right of use asset for the Group's property at Hyde following Education being classified as held for sale from September 2019 onwards. The right of use asset in respect of the Hyde property was assessed for impairment individually rather than part of a cash generating unit.

A charge of GBP5,648,000 was recorded in the prior period in respect of an increase in provisions for redress and refunds for flawed financial services products.

Disposal costs of GBP2,486,000 were incurred during current period (2020: GBP1,535,000) in relation to the aborted sale of Education to YPO and the subsequent sale to West Moorland 221 Limited. These costs have been disclosed within the result from discontinued operation in accordance with IFRS 5.

An impairment of GBP11,075,000 has been recorded against the intangible assets of the Education business. This has been calculated based on the FVLCS following the disposal of the business.

A charge of GBP5,648,000 was recorded in the prior period in respect of an increase in provisions for redress and refunds for flawed financial services products.

4 Discontinued operation

On 16 April 2021, the Group entered into a definitive agreement for the sale of Findel Education Limited to West Moorland 221 Limited, a newly formed company owned by investment funds managed by Endless LLP for a gross consideration of GBP30.0 million on a debt free, cash free basis paid in cash on completion. In addition to the consideration, the Group has made available a working capital facility of GBP2.0 million to Findel Education. The net cash proceeds were used to make a voluntary payment to the Group's defined benefit pension fund of GBP9.0 million with the remainder used to reduce the Group's net debt.

An impairment review was conducted using the fair value less costs to sell (FVLCS) methodology. FVLCS was compared to the carrying value of the assets of the disposal group at 26 March 2021. An impairment of GBP11,075,000 was indicated and was recorded against the brand names allocated to the Education CGU.

Education's results for the 52-week period to 26 March 2021 and the 52-week period to 27 March 2020 have been presented to show the discontinued operation separately from continuing operations and are summarised below:

 
                                 52 weeks              52 weeks 
                                    ended                 ended 
                                 26.03.21   27.03.20 (restated) 
                                   GBP000                GBP000 
-----------------------------   ---------  -------------------- 
Revenue                            71,432                79,940 
Expenses                         (85,706)              (79,642) 
(Loss)/profit before tax         (14,274)                   298 
Tax charge                          2,979                    30 
------------------------------  ---------  -------------------- 
(Loss)/profit for the period     (11,295)                   328 
------------------------------  ---------  -------------------- 
 

The major classes of assets and liabilities as at 26 March 2021 were as follows:

 
                                 26.03.21 
                                   GBP000 
-----------------------------    -------- 
Assets 
Intangible assets                  11,012 
Tangible assets                     5,420 
Deferred tax assets                 5,514 
Inventories                        11,455 
Trade and other receivables        11,886 
-------------------------------  -------- 
                                   45,287 
  -----------------------------  -------- 
 
Liabilities 
Trade and other payables         (13,622) 
Lease liabilities                 (5,093) 
                                 (18,715) 
 
Net assets of disposal group       26,572 
-------------------------------  -------- 
 

The net cash flow used in Education during the period was as follows:

 
                         52 weeks ended 
                               26.03.21 
                                 GBP000 
---------------------    -------------- 
Operating cash flows            (5,259) 
Investing cash flows              (897) 
Financing cash flows              5,028 
-----------------------  -------------- 
Net cash flow                   (1,128) 
-----------------------  -------------- 
 

5 Current taxation

Tax charged/(credited) in the income statement

 
                                                        2021     2020 
                                                      GBP000   GBP000 
----------------------------------------------------  ------  ------- 
Current tax expense: 
Current period (UK tax)                                6,477    1,104 
Current period (overseas tax)                             10      166 
Adjustments in respect of prior periods (UK tax)(2)     (45)    (986) 
                                                       6,442      284 
----------------------------------------------------  ------  ------- 
Deferred tax expense: 
Origination and reversal of temporary differences      1,711     (96) 
Adjustments in respect of prior periods(1)(2)            451      998 
Impact of change in rate of corporation tax                -  (1,427) 
                                                       2,162    (525) 
----------------------------------------------------  ------  ------- 
Tax expense/(credit) from continuing operations        8,604    (241) 
----------------------------------------------------  ------  ------- 
 

(1) The prior period adjustment in FY21 relates to a correction of the current tax relief expected to be obtained in respect of the adjustment made on the adoption of IFRS 9.

(2) The prior period adjustment in FY20 relates to the tax treatment of a post balance sheet event recorded in the statutory accounts of Studio Retail Limited, which resulted in the Group's current tax liability for 2019/20 being lower than the level assumed in the FY20 accounts. This led to a reduction in the level of brought short-term temporary differences, which resulted in a corresponding adjustment to deferred tax.

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. As at 26 March 2021 the Group held current tax assets of GBP507,000 (2020: GBP1,718,000).

(b) Tax recognised directly in other comprehensive income

 
                                          2021    2020 
                                        GBP000  GBP000 
-------------------------------------  -------  ------ 
Deferred tax: 
Tax on defined benefit pension plans   (3,017)   4,043 
-------------------------------------  -------  ------ 
 

(c) Reconciliation of the total tax charge/(income)

The tax expense in the income statement for the period differs from the standard rate of corporation tax in the UK of 19% (2020: 19%).

The differences are reconciled below:

 
                                                                         2021     2020 
                                                                       GBP000   GBP000 
---------------------------------------------------------------------  ------  ------- 
Profit before tax                                                      41,674    6,801 
Tax calculated at standard corporation tax rate of 19% (2020: 19%)      7,918    1,292 
Effects of: 
Expenses not deductible for tax purposes                                  293       21 
(Lower)/higher tax rates on overseas earnings                             (9)      144 
Deferred tax asset not previously recognised                              (4)    (283) 
Impact of change in rate of corporation tax on deferred tax balances        -  (1,427) 
Adjustments in respect of prior periods                                   406       12 
---------------------------------------------------------------------  ------  ------- 
Total tax expense/(credit) for the period                               8,604    (241) 
---------------------------------------------------------------------  ------  ------- 
 

6 Earnings per share

Earnings per share figures for the 52-week period ended 27 March 2020 have been restated to reflect the presentation of the results of Education as a discontinued operation as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations .

 
Weighted average number of shares 
----------------------------------------------------  -------------  ------------- 
                                                               2021           2020 
                                                      No. of shares  No. of shares 
----------------------------------------------------  -------------  ------------- 
Ordinary shares in issue at the start of the period      86,442,534     86,442,534 
Effect of share issue                                       122,596              - 
Effect of own shares held                                  (49,598)      (114,808) 
----------------------------------------------------  -------------  ------------- 
Weighted average number of shares - basic               86,515,53 2     86,327,726 
----------------------------------------------------  -------------  ------------- 
Impact of potentially dilutive share options              1,946,164        412,383 
----------------------------------------------------  -------------  ------------- 
Weighted average number of shares - diluted              88,461,696     86,740,109 
----------------------------------------------------  -------------  ------------- 
 
 

From continuing operations

 
Earnings attributable to ordinary shareholders 
                                                                                                    ------- 
                                                                                              2021     2020 
                                                                                            GBP000   GBP000 
------------------------------------------------------------------------------------------  ------  ------- 
Net profit attributable to equity holders for the purposes of basic earnings per share      33,070    7,042 
------------------------------------------------------------------------------------------  ------  ------- 
Individually significant items (net of tax)                                                    853    5,514 
Fair value movements on derivative financial instruments (net of tax)                        4,929  (2,112) 
------------------------------------------------------------------------------------------  ------  ------- 
Net profit attributable to equity holders for the purposes of adjusted earnings per share   38,852   10,444 
------------------------------------------------------------------------------------------  ------  ------- 
 
Earnings per share 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - basic                                                                   38.22     8.16 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - adjusted* basic                                                         44.91    12.10 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - diluted                                                                 37.38     8.12 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - adjusted* diluted                                                       43.92    12.04 
------------------------------------------------------------------------------------------  ------  ------- 
 

* Adjusted to remove the impact of individually significant items and fair value movements on derivative financial instruments.

From discontinued operation

 
(Loss)/earnings attributable to ordinary shareholders 
                                                                                                          ------ 
                                                                                                    2021    2020 
                                                                                                  GBP000  GBP000 
----------------------------------------------------------------------------------------------  --------  ------ 
Net (loss)/profit attributable to equity holders for the purposes of basic earnings per share   (11,295)     328 
----------------------------------------------------------------------------------------------  --------  ------ 
Individually significant items (net of tax)                                                       10,984   1,243 
Fair value movements on derivative financial instruments (net of tax)                                  -       - 
----------------------------------------------------------------------------------------------  --------  ------ 
Net (loss)/profit attributable to equity holders for the purposes of adjusted earnings per 
 share                                                                                             (311)   1,571 
----------------------------------------------------------------------------------------------  --------  ------ 
 
(Loss)/earnings per share 
----------------------------------------------------------------------------------------------  --------  ------ 
(Loss)/earnings per share - basic                                                                (13.06)    0.38 
----------------------------------------------------------------------------------------------  --------  ------ 
(Loss)/earnings per share - adjusted* basic                                                       (0.36)    1.82 
----------------------------------------------------------------------------------------------  --------  ------ 
(Loss)/earnings - diluted                                                                        (12.77)    0.38 
----------------------------------------------------------------------------------------------  --------  ------ 
(Loss)/earnings per share - adjusted* diluted                                                     (0.35)    1.81 
----------------------------------------------------------------------------------------------  --------  ------ 
 

* Adjusted to remove the impact of individually significant items and fair value movements on derivative financial instruments.

Total attributable to ordinary shareholders

 
Earnings attributable to ordinary shareholders 
                                                                                                    ------- 
                                                                                              2021     2020 
                                                                                            GBP000   GBP000 
------------------------------------------------------------------------------------------  ------  ------- 
Net profit attributable to equity holders for the purposes of basic earnings per share      21,775    7,370 
------------------------------------------------------------------------------------------  ------  ------- 
Individually significant items (net of tax)                                                 11,837    6,757 
Fair value movements on derivative financial instruments (net of tax)                        4,929  (2,112) 
------------------------------------------------------------------------------------------  ------  ------- 
Net profit attributable to equity holders for the purposes of adjusted earnings per share   38,541   12,015 
------------------------------------------------------------------------------------------  ------  ------- 
 
Earnings per share 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - basic                                                                   25.16     8.54 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - adjusted* basic                                                         44.55    13.92 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - diluted                                                                 24.61     8.50 
------------------------------------------------------------------------------------------  ------  ------- 
Earnings per share - adjusted* diluted                                                       43.57    13.85 
------------------------------------------------------------------------------------------  ------  ------- 
 

* Adjusted to remove the impact of individually significant items and fair value movements on derivative financial instruments.

The earnings per share attributable to convertible ordinary shareholders is GBPnil. The convertible shares have not converted at 26 March 2021 or subsequently and are therefore not dilutive from an earnings per share perspective.

7 Trade and other receivables

 
                                          2021  2020 (restated) 
                                        GBP000          GBP'000 
-----------------------------------  ---------  --------------- 
Gross trade receivables                385,537          325,793 
Allowance for expected credit loss   (106,761)        (101,936) 
Trade receivables                      278,776          223,857 
Other debtors                              246            5,804 
Prepayments                             12,203           15,579 
-----------------------------------  ---------  --------------- 
                                       291,225          245,240 
-----------------------------------  ---------  --------------- 
 

Trade receivables are measured at amortised cost. The directors consider that the Group's maximum exposure to credit risk is the carrying value of the trade and other receivables and that their carrying amount approximates their fair value.

Certain of the Group's trade receivables are funded through a securitisation facility with HSBC Bank plc and is secured against those receivables. The finance provider will seek repayment of the finance, as to both principal and interest, only to the extent that collections from the trade receivables financed allows and the benefit of additional collections remains with the Group. At the period end, receivables of GBP315,345,000 (2020: GBP263,455,000) were eligible to be funded via the securitisation facility, and the facilities utilised were GBP225,000,000 (2020: GBP197,591,000).

Studio

The average credit period taken on sales of goods is 203 days (2020: 222 days). On average, interest is charged at 3.5% (2020: 3.5%) per month on the outstanding balance.

Studio will undertake a reasonable assessment of the creditworthiness of a customer before opening a new credit account or significantly increasing the credit limit on that credit account. Studio will only provide credit for those customers that can reasonably be expected to be able to afford and sustain the repayments in line with the affordability and creditworthiness assessment. Studio will only offer credit limit increases for those customers that can reasonably be expected to be able to afford and sustain the increased repayments in line with the affordability and creditworthiness assessment. There are no customers who represent more than 1% of the total balance of the Group's trade receivables.

Where appropriate, the Group will offer forbearance to allow customers reasonable time to repay the debt. Studio will ensure that the forbearance option deployed is suitable in light of the customer's circumstances (paying due regard to current and future personal and financial circumstances). Where repayment plans are agreed, Studio will ensure that these are affordable to the customer and that unreasonable or unsustainable amounts are not requested. At the balance sheet date there were 16,153 accounts (2020: 11,685) with total gross balances of GBP10,453,000 (2020: GBP7,656,000) on repayment plans. Provisions are assessed as detailed above.

During the current period, overdue receivables with a gross value of GBP52,609,000 (2020: GBP56,586,000) were sold to third party debt collection agencies. As a result of the sales, the contractual rights to receive the cash flows from these assets were transferred to the purchasers. Any gain or loss between actual recovery and expected recovery is reflected within the bad debt charge in the income statement.

The following tables provide information about the exposure to credit risk and ECLs for trade receivables from individual customers as at 26 March 2021:

 
                                                2021                                       2020 
                                           Trade receivables                          Trade receivables 
                                    Trade     on forbearance                   Trade     on forbearance 
                              receivables       arrangements      Total  receivables       arrangements      Total 
Ageing of trade receivables        GBP000             GBP000     GBP000       GBP000             GBP000     GBP000 
----------------------------  -----------  -----------------  ---------  -----------  -----------------  --------- 
Not past due                      305,099              9,433    314,532      236,980              6,524    243,504 
Past due: 
0 - 60 days                        29,733              1,002     30,735       30,972                928     31,900 
60 - 120 days                      16,746                 18     16,764       12,572                204     12,776 
120+ days                          23,502                  -     23,502       29,605                  -     29,605 
----------------------------  -----------  -----------------  ---------  -----------  -----------------  --------- 
Gross trade receivables           375,080             10,453    385,533      310,129              7,656    317,785 
Allowance for expected 
 credit loss                     (99,064)            (7,697)  (106,761)     (96,135)            (5,647)  (101,782) 
----------------------------  -----------  -----------------  ---------  -----------  -----------------  --------- 
Carrying value                    276,016              2,756    278,772      213,994              2,009    216,003 
----------------------------  -----------  -----------------  ---------  -----------  -----------------  --------- 
 
 
                                                      2021                         2020 
                                     ---------------------------------------  --------- 
                                      Stage 1   Stage 2   Stage 3      Total      Total 
-----------------------------------  --------  --------  --------  ---------  --------- 
                                       GBP000    GBP000    GBP000     GBP000     GBP000 
-----------------------------------  --------  --------  --------  ---------  --------- 
Gross trade receivables               265,751    74,441    45,341    385,533    317,785 
-----------------------------------  --------  --------  --------  ---------  --------- 
Allowance for expected credit loss 
-----------------------------------  --------  --------  --------  ---------  --------- 
Opening balance                      (22,093)  (39,174)  (40,515)  (101,782)   (87,906) 
Impairment charge                    (19,081)  (13,087)  (22,799)   (54,967)   (65,564) 
Utilised in the period                 11,463    14,146    24,379     49,988     51,688 
-----------------------------------  --------  --------  --------  ---------  --------- 
Closing balance                      (29,711)  (38,115)  (38,935)  (106,761)  (101,782) 
-----------------------------------  --------  --------  --------  ---------  --------- 
Carrying value                        236,040    36,326     6,406    278,772    216,003 
-----------------------------------  --------  --------  --------  ---------  --------- 
 
 
 Analysis of impairment 
  charge 
                                                 2021       2020 
                                              GBP'000    GBP'000 
------------------------------------------  ---------  --------- 
 Impairment charge impacting on provision    (54,967)   (65,564) 
 Recoveries                                     8,114     12,544 
 Other                                          1,164      (910) 
 Impairment Charge                           (45,689)   (53,930) 
------------------------------------------  ---------  --------- 
 
 

Allowance for expected credit loss

An appropriate allowance for expected credit loss in respect of trade receivables is derived from estimates and underlying assumptions such as the Probability of Default and the Loss Given Default, taking into consideration forward looking macro-economic assumptions. Changes in the assumptions applied such as the value and frequency of future debt sales in calculating the Loss Given Default, and the estimation of customer repayments and Probability of Default rates, as well as the weighting of the macro-economic scenarios applied to the impairment model could have a significant impact on the carrying value of trade receivables.

Sensitivity analysis

Management judgement is required in setting assumptions around probabilities of default, cash recoveries and the weighting of macro-economic scenarios applied to the impairment model, which have a material impact on the results indicated by the model.

A 1% increase/decrease in the probability of default would increase/decrease the provision amount by approximately GBP2.9m.

A 1% increase in the assumed recoveries rate would result in the impairment provision decreasing by approximately GBP1.2m.

Changing the weighting of macro-economic scenarios applied to the impairment model so that the base-case scenario's weighting is halved to 25% (with severe doubling to 20% and the downside being 50%) would result in the impairment provision increasing by approximately GBP0.9m.

A 1% increase in the peak unemployment in base-case scenario would result in the impairment provision increasing by approximately GBP0.4m.

These sensitivities reflect management's assessment of reasonably possible changes to key assumptions which could result in a material adjustment to the level of provision within the next financial year.

Rest of the Group

Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.

Given the nature of the customer base within the rest of the Group , it is not considered necessary to utilise formal credit scoring. However, credit references are sought for all new customers prior to extending credit. There are no customers who represent more than 1% of the total balance of the Group's trade receivables.

Included in the rest of the Group's trade receivables balance in the prior period were debtors with a carrying amount GBP154,000 which were past due at the reporting date and were partially provided against. There had not been a significant change in credit quality and the amounts were still considered recoverable. The Group did not hold any collateral over these balances. There were no other receivables due at the year-end remaining after reclassifying those as held for sale.

The carrying value of not past due trade receivables which are unimpaired is GBPnil (2020 restated: GBP4,495,000).

The aged analysis of the carrying values of past due trade receivables which are unimpaired is as follows:

 
                   2021  2020 (restated) 
                GBP'000          GBP'000 
--------------  -------  --------------- 
0 - 60 days           -            2,121 
60 - 120 days         -              641 
120+ days             4              443 
Total                 4            3,205 
--------------  -------  --------------- 
 

The aged analysis of the carrying values of past due trade receivables which are impaired is as follows:

 
                   2021     2020 
                GBP'000  GBP'000 
--------------  -------  ------- 
0 - 60 days           -        - 
60 - 120 days         -        - 
120+ days             -      154 
Total                 -      154 
--------------  -------  ------- 
 

Movement in allowance for expected credit losses

 
                                              Studio  Rest of 
                                              Retail    Group     Total 
                                              GBP000   GBP000    GBP000 
------------------------------------------  --------  -------  -------- 
Balance at 29 March 2019                      87,906      124    88,030 
Impairment losses recognised                  65,564       56    65,620 
Amounts written off as uncollectible        (51,688)     (26)  (51,714) 
Balance at 27 March 2020 (restated)          101,782      154   101,936 
Impairment losses recognised                  54,967        -    54,967 
Amounts written off as uncollectible        (49,988)        -  (49,988) 
Impact of classification as held for sale          -    (154)     (154) 
Balance at 26 March 2021                     106,761        -   106,761 
------------------------------------------  --------  -------  -------- 
 

8 Provisions

   (a)   Provisions 
 
                                                       Studio financial services redress and 
                                Onerous leases                                       refunds  VAT provision    Total 
                                        GBP000                                        GBP000         GBP000   GBP000 
---------------------------   ----------------  --------------------------------------------  -------------  ------- 
At 29 March 2019                         8,843                                         2,235              -   11,078 
Released during the period             (8,301)                                             -              -  (8,301) 
Provided during the period                   -                                         6,948              -    6,948 
Utilised in the period                   (350)                                       (5,040)              -  (5,390) 
----------------------------  ----------------  --------------------------------------------  -------------  ------- 
At 27 March 2020                           192                                         4,143              -    4,335 
Transfer from accruals                       -                                             -          1,925    1,925 
Provided during the period                 522                                             -          1,927    2,449 
Utilised in the period                   (139)                                       (3,031)              -  (3,170) 
At 26 March 2021                           575                                         1,112          3,852    5,539 
----------------------------  ----------------  --------------------------------------------  -------------  ------- 
 
 
2021 
Analysed as: 
Current         221  1,112  3,852  5,185 
Non-current     354      -      -    354 
--------------  ---  -----  -----  ----- 
                575  1,112  3,852  5,539 
 -------------  ---  -----  -----  ----- 
 
 
2020 
Analysed as: 
Current                192  4,143  -4,335 
Non-current              -      -  -    - 
---------------  ---  ----  -----   ----- 
                       192  4,143  -4,335 
---------------  ---  ----  -----   ----- 
 
 

Onerous Leases

The onerous lease provision at 26 March 2021 relates to (non-rent related) unavoidable costs in respect of the unused areas of the Group's properties at Enfield and Hyde.

Studio financial services redress and refunds

Provisions in excess of GBP30m were built up in previous years in relation to the anticipated refund of premiums and interest to customers in respect of historic flawed credit and insurance products. The refund programmes are now complete and the remaining provision is expected to be utilised within 12 months.

VAT provision

The VAT provision relates to the Group's ongoing discussions with HMRC with regard to agreeing a new Partial Exemption Special Method (the means by which the recovery of input VAT on costs relating the Group financial services activities is restricted). As at 26 March 2021, the Group held a provision of GBP3.9m (2020: GBP1.9m presented within accruals), which represents management's best estimate of the likely increase in the level of restriction on the recovery of input VAT over and above that which has already been restricted in the Group's quarterly VAT returns. We note that management's best estimate is one of a number of different outcomes so the amounts provided may differ to the final cost incurred by the Group in respect of this matter.

During the year, the Group has undertaken a review of the accounting policy and transferred GBP1.9m in respect of this matter from accruals to provisions. The prior year figure has not been restated as management conclude that the quantum of the transfer is not material to the users of the financial statements and note that that both provisions and accruals are presented within current liabilities.

   (b)   Contingent liability 

As a regulated entity, the Group's main trading subsidiary, Studio Retail Limited, is subject to legal and regulatory reviews, challenges, and investigations during the ordinary course of business. All such material matters are periodically reassessed, with the assistance of external professional advisors where appropriate, to determine the likelihood of the Group incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management's best estimate of the amount required at the relevant balance sheet date.

.

9 Related parties

During the current and prior periods, the Group made purchases in the ordinary course of business from Brands Inc Limited, a subsidiary of Frasers Group plc , which is a significant shareholder in the ultimate parent company, Studio Retail Group plc. The value of purchases made and amounts owed at the 26 March 2021 and 27 March 2020 were as follows:

 
 Brands Inc. Limited 
                           2021      2020 
                        GBP'000   GBP'000 
---------------------  --------  -------- 
 Purchases                    6        43 
 Amounts owed                 -        17 
---------------------  --------  -------- 
 
 
 

During the current period, Studio Retail Limited traded with Panther Warehousing Limited, a company owned by Ingelby (2016) Ltd, of which Greg Ball (a non-executive director of the Parent Company) was non-executive chairman until November 2020. The trading relationship was conducted on an arm's length basis. The value of purchases made and amounts owed at the 26 March 2021 were as follows:

 
                    2021 
                 GBP'000 
--------------  -------- 
 Purchases           561 
 Amounts owed         22 
--------------  -------- 
 

Transactions between Studio Retail Group plc and its subsidiaries, which are related parties of Studio Retail Group plc, have been eliminated on consolidation and are not discussed in this note. All transactions and outstanding balances between group companies are priced on an arm's-length basis and are settled in the ordinary course of business.

Compensation of key management personnel

The remuneration of the Directors including consultancy contracts and share-based payments, who are the key management of the Group, is summarised below.

 
                                  2021    2020 
                                GBP000  GBP000 
------------------------------  ------  ------ 
Short-term employee benefits     2,493   1,223 
Company pension contributions      147     131 
Long-term incentives               567     519 
------------------------------  ------  ------ 
                                 3,207   1,873 
Share-based payments charge        707     318 
                                 3,914   2,191 
------------------------------  ------  ------ 
 

By order of the Board

   P R Kendrick                       S M Caldwell 
   Group CEO                           Group CFO 
   29 June 2021                       29 June 2021 

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END

FR SELEEUEFSEIM

(END) Dow Jones Newswires

June 30, 2021 02:00 ET (06:00 GMT)

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