TIDMSTU
RNS Number : 8942W
Studio Retail Group PLC
24 August 2020
24 August 2020
Studio Retail Group plc ("SRG" or "the Group")
Results for the 52 weeks ended 27 March 2020
A year of transition and further operational progress for the
Group
SRG, the online value retail and Education business, today
announces its full year results for the 52-week period ended 27
March 2020.
Group summary
-- Total group revenue* of GBP514.8m, up 2.2% (FY19 restated**: GBP503.7m)
-- Revenue from continuing operations of GBP434.9m, up 3.1% (FY19 restated**: GBP421.7m)
-- Adjusted operating profit* for the total group measured on a
constant-GAAP basis up by 3.9% to GBP39.9m
-- Operating profit from continuing operations was down by 52.7%
to GBP14.7m, largely as a result of the GBP20m estimated impact of
COVID-19 on the bad debt charge and the adoption of IFRS 16
-- Adjusted profit before tax* for the total group measured on a
constant-GAAP basis up by 8.6% to GBP31.2m
-- Profit before tax from continuing operations of GBP6.8m (FY19 restated**: GBP26.2m)
-- Core net debt* reduced by GBP5.6m to GBP51.8m
Studio
-- Studio, our online value retail business, reported revenue of
GBP434.9m, up 3.1% (FY19 restated**: GBP421.7m)
o Product revenue of GBP311.7m (FY19 restated**: GBP304.2m),
growth of 2.5%, with a strong performance during its peak trading
period offset by a less consistent performance at other times.
o Competitive market conditions and a disappointing retail
trading performance during Q4 resulted in product margins reducing
slightly to 33.0% (FY19 restated**: 33.4%), although gross profit
from retail increased by 1.0% to GBP102.8m (FY19 restated**:
GBP101.7m).
o Financial services revenue increased by 4.9% to GBP123.2m.
-- Adjusted operating profit* for the business of GBP39.0m (FY19
restated**: GBP39.4m) after investment in upgraded systems and
processes.
-- Individually significant items reported in respect of
incremental PPI costs in August 2019 of GBP5.6m.
-- Statutory divisional operating profit of GBP17.1m (FY19
restated**: GBP36.5m) largely as a result of GBP20m estimated
impact of COVID-19 on the bad debt charge.
Education
-- Conditional sale to YPO agreed in December 2019 for headline
consideration of GBP50m. Awaiting clearance from the Competition
& Markets Authority.
COVID-19
We would like to thank our colleagues for their continued
support and understanding throughout the recent trading period.
During this time, their health, safety, and wellbeing has remained
our clear priority. In response to COVID-19, we have acted to
further strengthen health and safety protocols across our sites,
including enhanced cleaning protocols and clear social distancing
measures. We have also encouraged colleagues to work from home
wherever possible. We continue to regularly review and update the
measures we have in place, in line with any changes in government
guidance.
Current trading
Studio's trading performance in the first 20 weeks of the new
financial year has been exceptional, with product sales up 42% on
prior year and financial services revenue, which inherently lags
behind product sales growth, up 6.4%. The business passed the
milestone of having over 2 million active customers in June, which
positions the business ideally as it heads into its traditional
peak trading period up to Christmas. We expect that more
competitive market conditions will return in the coming months,
alongside additional costs associated with new working practices.
Our planning assumes that sales growth for the remainder of FY21
will moderate to nearer the levels seen in recent years. Our
intention would be to reinvest any benefits from exceptional growth
into further growing the customer base and accelerating our digital
transformation. We are not yet in a position to provide a detailed
assessment of how the rest of FY21 will develop and we will aim to
provide greater clarity in due course.
Outlook
Whilst Covid-19 is likely to present material challenges for the
UK economy and the broader retail landscape for several years,
Studio is well positioned with its digital-first strategy focussed
upon delivering great value to its customers. Our overall strategy
to grow the Studio customer base and increase our customers' spend
with us, supported by our flexible credit offer, is essentially
unchanged by the pandemic. Whilst it is too early to restore
detailed guidance for FY21, we continue to believe that Studio's
recent performance provides the basis for sustainable medium-term
profit growth.
Phil Maudsley, Group Chief Executive, commented:
"The year FY20 seems a world away now, but it was a year in
which we made operational progress as a Group, ensuring we were
ready to face COVID-19 from a position of strength.
"Over the past five months I would like to thank each and every
one of my colleagues for their commitment and hard work. It is down
to them, our improved infrastructure, and our strengthened online
customer offer that we have been able to meet the significant
increase in customer demand.
"As the public have remained at home, more and more customers
have been attracted to, and become aware of, our phenomenal online
value offer. It is now up to us to keep up the momentum and make
sure our proposition continues to resonate at a time when shopping
habits are moving online and consumers are valuing the pound in
their pocket more than ever before.
"While wider economic uncertainty exists, we are in a digital
sweet spot. We are a business on a strong footing, with the correct
strategy, and we are confident of the long-term opportunities open
to us."
Enquiries
Studio Retail Group plc
Phil Maudsley, Group CEO
Stuart Caldwell, Group CFO
0161 303 3465
Tulchan Communications
Will Smith
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.
FINANCIAL highlights
2020 2019 Change
(restated**)
Revenue from continuing operations GBP434.9m GBP421.7m +3.1%
---------- -------------- -------
Revenue from total group* GBP514.8m GBP503.7m +2.2%
---------- -------------- -------
Adjusted operating profit* from
total group GBP39.9m GBP38.4m +3.9%
---------- -------------- -------
Adjusted operating profit* from
continuing operations GBP36.6m GBP35.2m +4.1%
---------- -------------- -------
Adjusted operating profit margin%*
from total group 7.8% 7.6% +20bps
---------- -------------- -------
Operating profit from total
group* GBP17.2m GBP34.3m -49.8%
---------- -------------- -------
Operating profit margin from
total group* 3.3% 6.8% -350bps
---------- -------------- -------
Operating profit margin from
continuing operations 3.4% 7.4% -400bps
---------- -------------- -------
Adjusted profit before tax*
from total group GBP31.2m GBP28.8m +8.6%
---------- -------------- -------
Adjusted profit before tax*
from continuing operations GBP27.4m GBP25.6m +7.1%
---------- -------------- -------
Profit before tax from continuing
operations GBP6.8m GBP26.2m -74.0%
---------- -------------- -------
Profit for the year GBP8.8m GBP23.3m -62.4%
---------- -------------- -------
Adjusted free cash flow generation* GBP23.7m GBP28.9m -17.8%
---------- -------------- -------
Cash generated from operating
activities before interest and
tax paid GBP16.5m GBP22.4m -26.1%
---------- -------------- -------
Core net debt * GBP51.8m GBP57.4m -9.7%
---------- -------------- -------
Overall net debt* (including
IFRS 16) GBP292.9m GBP233.4m +25.5%
---------- -------------- -------
* 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
FY20 was a year of transition and further operational progress
for the Group. During the period, we continued to focus on
strengthening our online value offer at our core Studio retail
business, which continues to resonate with customers, while we also
reached an agreement to dispose of our Education business.
Since our March year end, the impact of COVID-19 has continued
to have a significant impact on people's everyday lives and on the
way that the business operates. With this in mind, I would like to
take this opportunity to thank each and every one of our colleagues
for their hard work and dedication during this period. We have kept
their health and safety as our clear priority throughout, and it is
thanks to them that we have been able to continue to serve our
customers and handle the disruption during lockdown.
Change of name
The Group changed its name from Findel plc to Studio Retail
Group plc at its AGM in July 2019 to strengthen the Group's
identity and align it with our primary trading brand. This follows
the change in the trading subsidiary name from Express Gifts to
Studio Retail at the start of 2019, and a modernisation of the
Studio brand designed to make it more appealing in an increasingly
digital marketplace for our customers' shopping preferences.
Disposal of Findel Education
Our ambition to focus our resources around the Studio business
was the primary reason behind our decision to sell Education in
December 2019 to YPO for headline consideration of GBP50m. We are
continuing to work with YPO to obtain clearance from the
Competition and Markets Authority for the transaction, which we
anticipate will be granted in December 2020. The results for
Education are generally presented within our FY20 results as a
discontinued operation, although as analysts and management
incentive schemes for FY20 were focussed upon the results of the
Group including Education, we have also presented an adjusted
profit before tax on a like-for-like basis* for the year with
Education's results included within it.
Financial performance
Total revenue from Studio increased by 3.1% to GBP434.9m (FY19
restated**: GBP421.7m), with a strong performance in the period
leading up to Christmas but a more inconsistent retail performance
during typically quieter periods given the challenging UK retail
market and Brexit-related uncertainties. Adjusted profit before tax
on a like-for-like basis* from the total group, which was the
measure of profit most closely monitored by management during the
year, increased by 8.6% from GBP28.8m to GBP31.2m. The statutory
profit before tax from continuing operations was GBP6.8m (FY19
restated**: GBP26.2m).
The accounting standard for bad debt provisioning, IFRS 9,
requires the business to use external economic forecasts to
estimate the likely level of future credit losses, using only the
information that was available at the balance sheet date. The UK
lockdown, which was a consequence of Covid-19, came into force
shortly before the year-end. The resulting deterioration in the
economic outlook, particularly in relation to unemployment,
increased the level of provision indicated by our modelling by
approximately GBP20m.
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. It should therefore be noted that that
GBP20m figure quoted represents our best estimate of the
incremental impact of the Covid-19 on the bad debt provision based
on the information available at the end of March. At the time of
writing, we have not seen a significant increase in the level of
customer arrears resulting from the pandemic, nor have we seen a
material reduction in customer payment rates.
Impact of Covid-19
The investments in modernising Studio's warehouse facilities and
its supporting digital infrastructure enabled the business to react
to the challenges of lockdown at the end of March 2020 from a
position of strength. A significant number of colleagues were able
to work effectively from home and Covid-19-safe processes and
working conditions were implemented across our premises. The
business has therefore been able to operate effectively throughout
the lockdown period.
The Group initially took a very cautious approach to liquidity
management, reducing stock intake, deferring discretionary capital
projects and marketing expenditure whilst the position became
clearer. As people remained at home during lockdown, it quickly
emerged that Studio was seeing particularly strong demand for
ranges such as toys, games, electricals, fitness and garden as
consumers moved the majority of their purchasing online. This
improved the Group's liquidity position, and enabled the reversal
of the precautionary measures put in place in response to the
introduction of lockdown.
We continue to retain a cautious stance in respect of customer
repayments as, despite a modest number of requests for forbearance
caused by disruption to household incomes, we anticipate that the
level of customer arrears may worsen later in the year if
unemployment levels increase materially.
Education's business experienced a greater reduction in demand
due to the closure of UK and international schools, although the
position has started to return towards normal seasonal
patterns.
Dividends
The Board continues to prioritise investment in improving
digital capabilities and in strengthening its financial position in
light of the broader economic environment. In addition, the parent
company has accumulated losses of GBP73.3m and, as such, the
Company does not have plans to reinstate dividend payments at this
stage.
Management and Board
Paul Kendrick, who has been Managing Director of Studio since
April 2017, was appointed to the Board in December 2019. We
subsequently announced that Paul would be appointed as Group CEO
upon the retirement of Phil Maudsley in March 2021.
By then, Phil will have spent more than 33 years with the Group,
overseeing the development of the Studio brand as Managing Director
and, since 2017, driving the Group's significant progress as CEO.
He will leave the Group with our thanks and best wishes for the
future. I look forward to working more closely with Paul in his new
role.
Colleagues
This has been an unprecedented period in which our colleagues'
hard work and commitment has shone through. As a token of the
Board's appreciation and recognition of our front-line colleagues
who came into work during the challenging early period of lockdown,
we introduced a temporary scheme giving those colleagues shopping
vouchers between April 2020 and June 2020. On behalf of the Board,
I would like to extend our thanks to them for their outstanding
efforts.
Current trading
Studio's trading performance in the first 20 weeks of the year
has been exceptional, with product sales up 42 % on prior year and
financial services revenue, which inherently lags behind product
sales growth, up 6.4%. The business passed the milestone of having
over 2 million active customers in June, which positions the
business ideally as it heads into its traditional peak trading
period up to Christmas. We expect that more competitive market
conditions will return in the coming months, alongside additional
costs associated with new working practices. Our planning assumes
that sales growth for the remainder of FY21 will moderate to nearer
the levels seen in recent years. Our intention would be to reinvest
any benefits from exceptional growth into further growing the
customer base and accelerating our digital transformation. We are
not yet in a position to provide a detailed assessment of how the
rest of FY21 will develop and we will aim to provide greater
clarity in due course.
Outlook
Whilst Covid-19 is likely to present material challenges for the
UK economy and the broader retail landscape for several years,
Studio is well positioned with its digital-first strategy focussed
upon delivering great value to its customers. Our overall strategy
to grow the Studio customer base and increase our customers' spend
with us, supported by our flexible credit offer, is essentially
unchanged by the pandemic. Whilst it is too early to restore
detailed guidance for FY21, we continue to believe that Studio's
recent performance provides the basis for sustainable medium-term
profit growth.
Ian Burke
Chairman
22 August 2020
* 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.
Chief Executive's review
The majority of the financial information within this annual
report relates to the financial year ended 27 March 2020 - the end
of the first week of the UK's general lockdown caused by Covid-19
and the start of an overnight transformation of what we see as
"normality". At the time of writing, without an effective vaccine,
it looks like the necessary changes to our day-to-day lives caused
by the virus will be with us for some time, and the longer-term
impacts on how we shop, how we work and how prosperous we all are
will be substantially different from anything we've seen
before.
Back at the beginning of March before the start of lockdown, as
I was looking back on my 33-year career with the Group, it was
almost unbelievable to think that so many aspects of the Studio we
know today didn't exist when I first joined back in 1987. The
internet hadn't been developed, the flexible credit account had yet
to be introduced, our main warehouse in Accrington was still
focussed on picking Christmas cards and wrapping, and the Group
contained a very broad array of operational interests both in the
UK and overseas including a range of physical shops for its
greetings card operation.
Today's Group is tightly focused upon developing Studio as a
substantial digital value retailer, building on the new
opportunities in the marketplace. Since becoming CEO in 2017, I
have often commented that Studio is in a digital sweet-spot in the
retail market. Our medium-term ambition remains to increase
Studio's customer base beyond 3 million customers and to see
revenue in excess of GBP1bn. In a post-Covid-19 world, that
opportunity is greater than ever, but continued change and agility
will be needed too.
Studio has thrived in the period since lockdown. Its digital
offering of great value products appeals to families who truly know
the value of the pound in their pocket. We have attracted more new
customers, bringing our active customer base beyond 2 million. We
have also successfully adapted our warehousing and support
facilities to ensure our colleagues can work in a Covid-19-secure
environment, with many able to work from home.
However there are key parts of the business that will require
investment over the next few years to realise the medium to
long-term ambition for Studio. The ability to fully utilise the
information available to join up our marketing, trading and
financial services activities and optimise performance to offer
customers an even better shopping experience. We can improve our
customer journey with improved stock availability and better
integration where we ship products direct from third party
suppliers giving even more opportunity for an enhanced range. And
by improving the delivery options for our customers by updating our
warehouse capabilities.
At the same time, the competitive landscape has undoubtedly
changed in Studio's favour. The traditional high-street shopping
model was already under sustained pressure well before Covid-19
but, as others have commented, online shopping is now the default
option for the majority of people. Families often respond to
periods of financial uncertainty by seeking great value and welcome
the opportunity to spread the cost of their shopping over a number
of months. We have seen these advantages come to the fore during
lockdown, with product sales in the first 20 weeks of the year up
42 % on last year. That has left us in a strong liquidity position
to build on as we move into our peak trading period in the run up
to Black Friday and Christmas.
This will be my last report as Group CEO and it has been a
privilege to work with so many talented colleagues over the years.
Paul Kendrick joined the business in 2016 as my deputy in the
Studio division, before taking charge of the division in April
2017. He has shown his strengths over the last three years in
delivering Studio's growth, building a largely new and very capable
executive team around him. I wish him every success as I hand over
to him as CEO in the coming months. I have thoroughly enjoyed my
long career at Fine Art Developments, Findel and now Studio Retail
Group and look forward to seeing it reach its medium-term ambitions
as soon as possible.
Phil Maudsley
Chief Executive Officer
22 August 2020
DIVISIONAL OVERVIEW
Studio
Summary income statement
2020 2019 Change
(restated**)
---------- ---------------
GBP'000 GBP'000
Product revenue 311,697 304,176 2.5%
Other financial services revenue 18,617 19,332
Credit account interest 104,542 98,119
Financial services revenue 123,159 117,451 4.9%
Sourcing revenue 38 26
Reportable segment revenue 434,894 421,653 3.1%
---------- ---------------
Product cost of sales (208,924) (202,435) -3.2%
Financial services cost of
sales (37,605) (36,623) -2.7%
Sourcing costs of sales - (18)
Total cost of sales (246,529) (239,076) -3.1%
---------- ---------------
Gross profit 188,365 182,577 3.2%
---------- ---------------
Marketing costs (31,661) (31,693) 0.1%
Distribution costs (37,372) (36,423) -2.6%
Administrative costs (71,361) (66,533) -7.3%
EBITDA 47,971 47,928 -0.1%
---------- ---------------
Depreciation and amortisation (8,975) (8,480) -5.8%
Operating profit stated on
a like-for-like basis 38,996 39,448 -1.1%
---------------
Estimated COVID-19 bad debt
impact (20,000) -
Change in bad debt accounting
estimate 3,675 -
Impact of IFRS 16 55 -
Adjusted operating profit* 22,726 39,448 -42.4%
---------------
Product margin % 33.0% 33.4% -40bp
---------------
Underlying impairment charge
as % of revenue 8.6% 8.7% -10bp
---------------
Operating profit stated on
a like-for-like basis % 9.0% 9.4% -40bp
---------------------------------- ---------- --------------- -------
Adjusted operating profit
% 5.2% 9.4% -410bp
---------------------------------- ---------- --------------- -------
* 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 is becoming a leading digital value retailer with a broad
product offer of clothing and footwear alongside home and
electrical products plus the more seasonal ranges, many of which
can be personalised for free. Over 90% of sales are generated
online and, although catalogues are still used, they are just a
part of the wider marketing activity which includes growing
investment into broadcast and digital media. Underpinning all this,
is the drive to hunt for the best value so our customers don't have
to, whilst providing them with a range of payment options.
Following the start of the lockdown in March 2020, Studio has
seen very rapid sales growth 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 driven product range and financial services creates a point
of difference to other retailers. With no physical stores to
service and virtually all orders now coming online (a small
minority still being phone and postal orders), it is now striving
to utilise data and technology across all aspects of the business
to improve decision making, becoming a truly digital retailer. With
the Customer at the Heart of the business, ongoing improvements to
customer experience and service means our 2 million customers love
the Studio offer and continue to shop with us more frequently.
Our medium-term ambition is to increase the customer base to
over 3 million and achieve over GBP1 billion of revenue. By
continuing to increase our market share whilst also increasing the
annual spend per customer to peer-equivalent levels, we believe
this is an achievable ambition and so continue with a strategy
built around three key pillars:
- Improve Retail Profitability
- Maximise Financial Services Opportunity
- Build Strong Foundations
We will be reviewing these pillars in the coming months to
ensure that they continue to be focussed on our customers' needs.
The plans and priorities underpinning them have been sharpened over
two years with many initiatives delivered or in flight and serving
us well during the pandemic, combined with our clearly defined
values to our customers and colleagues to deliver on our brand line
We Do WoW:
These values came through customer research and by involving 700
colleagues across the business:
v Inclusive (We) - the broad product range has wide customer
appeal, and the flexible payment option opens up our retail offer
to customers who may prefer to spread the cost of purchases. To
deliver this we act as one team, with no departmental silos.
v Trusted (Do) - customers have to be able to trust us to
deliver the value and quality they expect, to deliver for those
important family moments, like Christmas, and also that we make
responsible decisions when we lend money. We do this by being
positive and delivering against our promises.
v Amazing (Wow) - we amaze customers with our value and product
range, along with targeted offers and service. To do this we are
innovative, think big and are creative.
v Savvy (Wow) - for customers, shopping with Studio is clever -
with its great range and value, there is no reason to buy
elsewhere. For colleagues it means we are commercial, we hunt for
great value and use the tools available to be even better at our
jobs and deliver for our customers.
The strategic pillars frame the business plans and a
transformation programme to invest in new technology, process
change and enhancing the capabilities of our people to enable
Studio to continue to grow into the future.
Retail Profitability
Increasing retail profitability will be achieved by growing
sales through having more customers, who shop more frequently, and
by improving how we plan and source our ranges to improve product
margins.
The actions we are taking to deliver this are:
-- Build the Studio brand as the online destination for value
and raise its profile within our target audience of value-conscious
families.
-- Focus on Customer Experience with a single view of the
customer to improve how we target and service them, alongside a
programme to continually make Studio easier, faster and more
trusted to shop with.
-- Product development -changing our buying processes to improve
product planning and sourcing to in turn improve margins, with
particular focus on attracting customers with great value own-brand
clothing and household products, our Wow ranges (larger volume
lines, offering exceptional value) and gift offer - especially
where we can add value through free personalisation.
During FY20 1.8 million customers shopped with Studio. That base
has since grown beyond 2.0 million during lockdown and builds upon
the success in recent years where new customers have been recruited
through increased use of TV advertising and digital marketing, with
customers then being retained through data-driven CRM programmes
utilising catalogue mailings and targeted digital activity. Over
the last two years, we have updated the creative look and feel of
Studio for customers with a revamped website, new advertising
creative and a new Studio App featuring "shop the look" ideas.
Our business model is built around customer lifetime value, with
initial acquisition costs taking time to pay back. The credit
account acts as a loyalty mechanic, even for customers who pay in
full when they get a statement and retention is further enabled by
range development, targeted marketing and improving service levels
to deliver a better overall experience. Our net promoter score
(NPS) reduced at the start of lockdown as processes were adapted to
new ways of working. Our customer experience colleagues and
partners in the Philippines and in South Africa saw significantly
tighter lockdown restrictions than we saw in the UK, which took
longer to overcome. Restoring the NPS to pre-Covid-19 levels will
be an important objective for the coming months.
Some recruitment channels have become less profitable in recent
years, with the use of targeted marketing lists in particular
becoming less prominent following the introduction of GDPR in 2018.
The decision to move away from unprofitable routes, combined with
lower level of credit account applicants discussed below, was the
key driver behind product sales during H1 being 2.1% below the
first half of FY19. Within that, sales from online channels in the
Studio brand increased strongly, up by 12.8%, with average spend
per customer - particularly from the app channel - up by 3.1% which
reflects the changing customer base and targeting. Orders from
legacy channels (phone and written) declined in the period, whilst
orders from the secondary Ace brand were also weaker, down 23%,
representing around 8% of total sales. Within both groups, there
are a high number of non-credit taking customers who have tended to
shop for highly-promotional items with lower levels of loyalty.
As we moved into the peak trading season of Black Friday and
Christmas, the digital performance of Studio was particularly
strong, with an improved performance from the legacy channels. This
contributed to record levels of online orders and dispatches during
the key Q3 period. However, retail market conditions particularly
for high-street stores were very competitive during the second half
of December. As a result, the margins achieved at the very end of
Q3 were disappointing. Conditions in the final quarter of the year
remained challenging and so product sales growth of just 2.5% for
the year as a whole was considered to be disappointing.
In sharp contrast, the retail performance of Studio since the
start of lockdown has been exceptional and was enabled by much of
the strategic investment that has been made to date both in our
digital transformation and market positioning as a leading online
value retailer. For a period, we operated as a pureplay digital
retailer. The challenge to the business remains to harness the
positive trends seen during lockdown and to ensure that we use
these as a base to drive growth in future years.
Financial Services
The second of our strategic pillars is maximising the financial
services opportunity, whilst ensuring the credit offered is
relevant, appropriate and affordable for our customers, and meets
regulatory guidelines. The majority of Studio customers have a
revolving credit account that allows them to either pay for their
purchases within a month when their statement arrives, or to roll
their balance and spread payments to help with their household
budgeting.
The benefit to Studio of the credit proposition is not just an
additional revenue stream through financial income when customers
choose to roll a balance, but also in that the account facility
drives higher loyalty for the retail part of the business and acts
as a regular prompt for the customer to revisit the website and app
to service their accounts . As we move forward, we will continue to
deliver actions to underpin:
-- Payment proposition - provide a range of repayment options to
make shopping with Studio easy, and to enhance the benefits of the
credit account to be an ideal option for all customers
-- Lending approach - ensure that when we lend money to our
customers it is done in a responsible way, with appropriate credit
limits and that customers are treated fairly should they
subsequently find they have repayment issues
-- Operational efficiency - to utilise new technologies to
improve efficiency and how we service customer accounts
Studio's consumer credit activity is regulated by the Financial
Conduct Authority (FCA), and there are a number of guidelines which
they have issued to ensure firms treat customers fairly, and that
lenders take responsible steps to ensure loans are affordable and
avoid any customer harm. Studio constantly reviews its processes to
ensure it remains aligned with the FCA guidelines and is utilising
new robust systems, datasets and risk management tools to help in
this area. Credit limit strategies are regularly reviewed and more
detailed information is now captured where relevant on income to
assess whether our customer can afford to take on new or additional
credit from us.
Some of these processes have led to a higher level of both
declined and withdrawn applications over the last couple of years,
in part due to some elements of the process being seen as excessive
to some applicants. The new application and decision platform that
we introduced in November 2019 is more bespoke to customers'
circumstances and has led to a good recovery in applications being
accepted in recent months. We have also tightened our acceptance
criteria to riskier applicants, leading to a reduction in the
overall average interest rate applied but a consequential
improvement in the overall level of arrears and bad debt, producing
a better outcome for customers and improved profitability for the
business. Several further phases of system enhancement are due to
be implemented later this year, including the introduction of open
banking data into our decisioning.
Customer balances typically move in line with the seasonal
patterns of product purchases. It is normal for balances to peak at
Christmas before gradually reducing from then until the following
summer. Customers receive a monthly statement and can then choose
whether to repay their balance in full each month, in which case
they do not incur any interest charges, or whether to pay an amount
they choose between a minimum level and the outstanding
balance.
Financial income in the year was up by 4.9%, below the 9.9%
growth in live customer balances due to the reduction in average
interest rate charged and also the more pronounced peak in product
sales during the year compared to FY19. Improvements in the quality
of the receivables book and continued strong recoveries from the
sale of defaulted receivables led to underlying bad debt charges
only increasing by 2.7%, slower than the level of income and
balance growth. This underlying position retained a cautious level
of judgement on future recovery rates, even before the onset of the
pandemic.
IFRS 9 requires the bad debt provision to incorporate future
macroeconomic conditions using a variety of possible scenarios,
based on information that is available at the balance sheet date.
The deterioration in the economic outlook caused by Covid-19,
particularly in relation to unemployment, increased the level of
provision indicated by our modelling by approximately GBP20m. 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. It should therefore be noted that that
GBP20m figure quoted represents our best estimate of the
incremental impact of the Covid-19 on the bad debt provision based
on the information available at the end of March.
Whilst we have not yet seen a significant increase in the level
of customer arrears resulting from the pandemic, nor have we seen a
material reduction in customer payment rates, we expect that the
Coronavirus Job Retention Scheme and other support from government
have delayed any deterioration in performance. We anticipate that
arrears will increase when these schemes are phased out in the
coming months.
During the period, the Group refined its impairment models to
make use of more up to date customer data that is more reflective
of current credit policies and operational processes. The
availability of this more granular and up to date information has
enabled management to refine its estimate in respect of the level
of impairment provision required and has resulted in reduction in
the provision required by GBP3.8m.
The FCA set a deadline of 29 August 2019 for customers to lodge
enquiries and complaints about historic sales of PPI. In common
with other institutions, Studio experienced a large and sudden
inflow of enquiries in the weeks leading up to that deadline,
having only received a nominal stream of new enquiries in the
previous months. We have now substantially completed our evaluation
of those enquiries, which required an incremental charge of GBP5.6m
to be recorded during FY20, a reduction of GBP2.3m vs. the GBP7.9m
estimated cost included in our half-year results. This charge was
recorded as an individually significant item.
Strong Foundations
The third strategic pillar is Strong Foundations, where we are
investing in the infrastructure to support our future growth,
improve processes and how we manage the business and develop our
people and culture for the future. Key action areas here are:
-- Warehouse development - ensure our current operations are
robust and create a clear plan to improve service and scale to
manage our sales ambitions
-- Data and technology - data is one of our most valuable assets
and we will ensure it is kept safe and secure as well as building
new capabilities to drive greater business intelligence. We will
also modernise our technology architecture to be agile and
scalable
-- Cost efficiency - continually look at ways to be more
efficient and keep costs down so we can deliver on our value
promise
-- People and culture - we need to have people with the right
skills to deliver our plans and a culture that makes Studio a great
place to work.
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 around data, application and
infrastructure architectures. This is aligned to the projects we
are delivering, and new ways of working have been introduced,
Our governance structures were enhanced during FY20 as we
completed the work to introduce the Senior Manager &
Certification Regime from the FCA in December 2019, designed to
improve individual accountability in key areas to protect against
customer harm.
Since the start of 2020, we have appointed a new Trading
Director to improve the consistency of our retail performance, a
new Director of HR, and a Transformation Director to drive through
our investment plans. We have also expanded our procurement
function and appointed specialist advisors to review our overhead
base and identify opportunities for future efficiency.
Brexit
The Group has continued to prepare for the end of the Brexit
transition period at the end of 2020. The majority of Studio's
supplies are sourced, either directly or indirectly, from outside
the European Union. All of Studio's customers are based in the UK
and therefore, any imposition of customs tariffs or import duties
is not anticipated to have a material impact on our operations.
There is a broader risk that consumer confidence suffers if there
continues to be a lack of clarity over Brexit, but we believe that
more customers will seek Studio's value offer if economic
conditions weaken further from these grounds. Our foreign exchange
hedging policy has locked in the buying price of our US$ imports
for the next 12 months, which should allow time for market
conditions to stabilise.
Performance and Progress
As noted above, product sales were strong in the weeks leading
up to Black Friday and Christmas 2019, but disappointed at other
times of the year. In part this was due to tough market conditions
for retailers. However, there were also aspects of the pricing and
marketing strategies that were less successful than we anticipated
and response levels from some of our older customers fell as we
migrated activity from paper to digital channels and shifted our
target customer younger. We have introduced strategies to better
balance these for FY21. Product margins at the end of the Christmas
season and then into the final quarter were particularly
disappointing. As a result, product revenue for the full year of
GBP311.7m was only 2.5% ahead of the prior year, compared to growth
rates of 8-9% in the two previous years. Gross profit from product
sales increased by 1.0% to GBP102.8m (FY19 restated**:
GBP101.7m).
Adjusted financial services gross profit increased by 5.8%,
leading to the total adjusted gross profit for the business
increasing by 3.2% to GBP188.4m (FY19 restated**: GBP182.6m).
Continued marketing efficiencies, as we moved investment from
print/paper into TV and Digital advertising meant that marketing
costs for the year were unchanged at GBP31.7m. Distribution costs
moved in line with product sales. We have continued to invest
resource particularly within our IT functions to modernise the
business, resulting in administrative costs increasing at a faster
rate than activity.
Adjusted operating profit on like-for-like basis* for the year
was GBP39.0m, down from GBP39.4m in FY19. Individually significant
costs totalling GBP5.6m related to the increase to the provision
for PPI redress as noted above (FY19: GBP2.9m). Operating profit
was GBP17.1m (FY19: GBP36.5m)
FINANCE REVIEW
Adjusted profit before tax on a like-for-like basis
The Group has been focussed throughout the year upon delivering
an adjusted profit before tax for the total group* including
Education. This is because the decision to sell Education was only
made partway through the year, and then with an expectation that
completion would take place after the year-end. In addition, IFRS
16 has been applied for the first time this year using the modified
retrospective transition approach that makes comparability with
prior year figures challenging.
The decision to sell Education in December 2019 means that its
results for the year are presented as a discontinued operation.
Having also presented the operation in this way with our interim
results, IFRS 5 requires that the fixed assets of the discontinued
operation are not subjected to depreciation or amortisation beyond
the end of H1. However, for internal purposes and in the interests
of consistency, we continued to accrue such charges during H2 in
the adjusted profit figures.
The adjusted profit before tax on a like-for-like basis for the
total group* was GBP31.2m, up from GBP28.8m in FY19 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.
2019
2020 (Restated**) Change
GBP000 GBP000 GBP000
------------------------------------ -------- ------------- --------
Adjusted operating profit on
a like-for-like basis*:
Studio 38,996 39,448 (452)
Central (2,370) (4,248) 1,878
------------------------------------ -------- ------------- --------
Total continuing operations 36,626 35,200 1,426
Education (discontinued operation) 3,287 3,217 70
Adjusted operating profit* from
total group 39,913 38,417 1,496
Net finance costs* (8,679) (9,656) 977
Adjusted profit before tax* from
total group 31,234 28,761 2,473
Impact of adopting IFRS16 (1,759) - (1,759)
Impact of discontinued operation
on depreciation in H2 1,393 - 1,393
Individually significant costs (8,342) (4,158) (4,184)
Exclude estimated COVID-19 bad
debt impact (20,000) - (20,000)
Exclude change in bad debt estimate 3,675 - 3,675
Fair value movement on derivative
financial instruments 2,608 4,750 (2,142)
------------------------------------ -------- ------------- --------
Profit before tax 8,809 29,353 (20,544)
------------------------------------ -------- ------------- --------
* 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 GBP8.3m (FY19: GBP4.2m)
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 credit of
GBP2.6m (FY19: GBP4.8m). 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 FY21.
Individually significant items
During the year, Studio saw a large and unexpected increase in
the level of PPI claims and enquiries in the days leading up to the
FCA's deadline for claims of 29 August 2019. This included a large
block of previously unseen claims from the Official Receiver acting
on behalf of bankrupt customers. A provision of GBP7.9m was
recognised in H1 as an individually significant item in respect of
these cases with the majority of the provision relating to Plevin
refunds, rather than mis-sold policies, and included the cost of
reviewing and administering the claims. Although the exercise was
not fully completed at the balance sheet date, it has now been
substantially completed and the additional charge required in FY20
has reduced to GBP5.6m.
Covid-19
The impact of Covid-19 upon the Group's operations was
relatively limited until the start of lockdown, as noted in the
Strategic Report. The exception to this was the bad debt charge
which, under IFRS 9 requires the bad debt provision to incorporate
future macroeconomic conditions using a variety of possible
scenarios, based on information that is available at the balance
sheet date. The deterioration in the economic outlook caused by
Covid-19, particularly in relation to unemployment, increased the
level of provision indicated by our modelling by approximately
GBP20m. 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.
It should therefore be noted that the GBP20m figure quoted
represents our best estimate of the incremental impact of the
Covid-19 on the bad debt provision based on the information
available at the end of March and, as noted in the strategic
report, the business is yet to see any material indications of this
increased provision being converted into cash loss. The GBP20m
estimated impact of Covid-19 has been excluded when arriving at
adjusted operating profit for Studio on a like-for-like basis* to
enable comparability with the results of prior periods and to allow
a fair (although estimated) assessment of the business' underlying
trading performance prior to Covid-19.
It is also important to note that the increase to the bad debt
provision does not represent the full impact of Covid-19 on the
Group as we saw an increase in product sales in Studio in the
aftermath of the lockdown announcement, but lost revenue in
Education. Incremental costs were also incurred in both businesses
as we moved to implement social distancing measures. It is not
possible to quantify the net effect of these impacts reliably in
accordance with IFRS and so separate presentation has not been
made.
Change in accounting estimate
During the period, the Group refined its impairment models to
make use of more up to date customer data that is more reflective
of current credit policies and operational processes. The
availability of this more granular and up to date information has
enabled management to refine its estimate in respect of the level
of impairment provision required and has resulted in a reduction in
the provision required by GBP3.8m. Since this change is not
reflective of the underlying performance of the receivables
portfolio, it has been excluded when arriving at adjusted operating
profit for Studio on a like-for-like basis* to enable a fair and
balanced assessment of the business' underlying trading performance
in FY20.
Discontinued operation - Education
Education reported an adjusted operating profit on a
like-for-like basis* for the year of GBP3.3m, up slightly on the
equivalent result of GBP3.2m from FY19. Revenue for the year fell
by 2.6% to GBP79.9m, due primarily to the gradual closure of
international schools from the second half of February and the
closure of UK schools in mid-March. The business continued to see
encouraging progress in delivering on its strategic objectives to
increase online sales and improve its sourcing processes.
As noted above, the decision to sell the business during the
year means that its segmental profit for the year is increased by
the cancellation of depreciation and amortisation totalling GBP1.4m
during the second half of the year. This has been added back in
arriving at adjusted operating profit on a like-for-like basis* in
order to enable comparability with the results of prior periods and
to allow a fair assessment of the business' underlying trading
performance. Individually significant costs relating to the planned
disposal of GBP1.5m were incurred and recorded against the
discontinued operation. It therefore reported a statutory operating
profit of GBP2.5m for the year.
Pensions
The net valuation of the Group's legacy defined benefit scheme
at the end of FY20, measured in accordance with IAS19, increased
significantly from a small deficit of GBP0.1m at March 2019 to a
surplus of GBP31.7m. The use of hedging within the asset portfolio
alongside a decision by the trustees to de-risk the investment
strategy by reducing the holding of equities in February 2020,
before lockdown, was a key cause of the improved position. There
were also favourable improvements to the liability profile and the
demographic profile of scheme members.
The IAS19 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 is currently in progress. In the
meantime, as previously agreed with the scheme's trustees, the
Group made contributions totalling GBP5.0m in respect of FY20
(FY19: GBP2.5m) and will continue at this level for the time
being.
As part of the agreement to sell Education, the Group has agreed
an alternative level of contributions that will apply once the sale
has completed. The Group will pay GBP13m into the scheme shortly
after completion, with the rate of annual contributions falling
from GBP5.0m to GBP3.75m backdated to the start of FY21.
Taxation
The Group posted a credit of GBP0.2m in the year in respect of
taxation for continuing operations, compared to a GBP5.7m charge
(restated**) seen in FY19. The decrease was the result of the
revaluation of the group's deferred tax assets (principally
relating to capital allowances) from 17% to 19%, and the valuation
of the deferred tax liability on the surplus in the group section
of the pension scheme at the prevailing corporation tax rate of
19%, rather than the 35% rate used in FY19.
Earnings per share
The adjusted earnings per share* for the year from continuing
operations was 12.10p (FY19 restated**: 23.20p). The basic earnings
per share from continuing operations was 8.16p per share (FY19
restated**: 23.70p).
Impact of new accounting standards
IFRS 16 "Leases"
The Group adopted IFRS 16 for FY20 and has decided to adopt the
modified retrospective transition approach. As such the standard's
requirements have been applied only from 30 March 2019, so there
has been no adjustment to opening reserves and the comparative
figures for FY19 have not been restated.
Following the adoption of IFRS 16, lease agreements now give
rise to both a right of use asset and a lease liability for future
lease payables. Whilst the new standard has no effect on the cash
payable or on the total cost recognised over the course of a lease,
under IFRS 16 the lease cost will be higher in the in the early
years of the lease. The lease cost is also now split between
depreciation of the right of use asset and interest on the lease
liability in the income statement, rather than being presented
within trading costs as was the case in previous years. The new
standard does not impact on the Group's cash flows under lease
arrangements but there have been some changes to presentation in
the cash flow statement.
The impacts of adopting IFRS 16 on the consolidated financial
statements are set out in note 1 to the Group Financial
Information. The adoption of IFRS 16 has reduced profit before tax
for the total group* by GBP1.8m.
Summary balance sheet
2020 2019 Change
GBP000 GBP000 GBP000
------------------------ --------- --------- --------
Intangible fixed assets 9 24,952 (24,943)
Tangible fixed assets 80,007 45,511 34,496
Net working capital^ 215,811 201,010 14,801
Net debt* (292,924) (233,440) (59,484)
Assets held for sale 35,886 - 35,886
Other net assets 36,592 5,487 31,105
Net assets 75,381 43,520 31,861
------------------------ --------- --------- --------
^ Net working capital comprises of inventories, trade
receivables and other receivables, trade and other payables and
provisions.
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found below
--
Consolidated net assets amounted to GBP75.4m at the period end
(FY19: GBP43.5m), reflecting the net profit reported and the
actuarial remeasurements in respect of the pension surplus. The net
assets are equivalent to 87p per ordinary share (FY19: 50p per
ordinary share).
Cash flow and borrowings
A part of management's variable incentive plans for FY20 related
to the generation of free cashflow, as defined in the table below.
Free cashflow generation was GBP23.7 m (FY19: GBP28.9m ). After
taking account of interest and the net impact of lease liabilities,
including the adoption of IFRS 16, the Group's core net debt
reduced by GBP5.6m to GBP51.8m (FY19: GBP57.4m ), as summarised
below.
2020 2019 Change
GBP000 GBP000 GBP000
-------------------------------------------- -------- -------- --------
Total group EBITDA^^ 41,097 50,022 (8,925)
Decrease/(increase) in Studio's receivables
net of securitisation inflows 13,610 (6,926) 20,536
(Increase)/decrease in other working
capital (6,615) 10,799 (17,414)
Capital expenditure (14,822) (11,545) (3,277)
Cash flows in respect of individually
significant items (5,390) (11,983) 6,593
Pension scheme contributions (4,792) (2,500) (2,292)
Other 650 1,011 (361)
-------------------------------------------- -------- -------- --------
Adjusted free cashflow* 23,738 28,878 (5,140)
Income tax (3,717) (1,931) (1,786)
Net interest payable (8,495) (10,017) 1,522
Repayment of lease liabilities (5,966) (571) (5,395)
Movement in core net debt 5,560 16,359 (10,799)
Opening core net debt* (57,397) (73,756) 16,359
Closing core net debt* (51,837) (57,397) 5,560
-------------------------------------------- -------- -------- --------
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
^^ for further details on the calculation of total group EBITDA
please refer to note 2 to the Group Financial Information.
Total net debt* at the year-end was as follows:
2020 2019 Change
GBP000 GBP000 GBP000
------------------------------------ -------- -------- ---------
External bank borrowings (excluding
securitisation facility) 85,000 95,000 (10,000)
( 33,163
Less total cash ) (37,603) 4, 440
------------------------------------ -------- -------- ---------
Core net debt* 51,837 57,397 (5, 560 )
Securitisation drawings 197,591 175,545 22,046
Lease liabilities 43,496 498 42,998
Net debt* 292,924 233,440 59, 484
------------------------------------ -------- -------- ---------
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
The Group's revolving credit facility was amended during the
year with the available level of facilities now scheduled to be
GBP85m until the end of December 2020, before reducing to GBP70m
until its new maturity date of 31 December 2021. The securitisation
facility was restructured during the year with its maximum
available amount increasing from GBP185m to GBP200m to cater for
the continued growth in Studio's trade receivables. Its maturity
date was also extended to 31 December 2022.
Dividends and capital structure
The Group restructured its Asian sourcing operations during
2018, moving away from its Hong Kong based subsidiary to a new
Shanghai based entity. The affairs of the Hong Kong entity are in
the process of being wound up and the Company received a first and
final dividend of GBP15.0m (HKD150.5m) during the period (FY19:
GBPnil).
No other dividends were received by the Company from its
subsidiaries during the period and its balance sheet as at 27 March
2020 shows a deficiency of GBP73.3m on its retained reserves (FY19:
deficiency of GBP99.9m).
Studio Retail Group plc is therefore not yet in a position to
declare a dividend and does not have plans to reinstate dividend
payments in the near future since it continues to prioritise
investment in growing its customer base, improving digital
capabilities, and in strengthening its financial position in light
of the broader economic environment. The Directors have determined
that no interim dividend will be paid (FY19: GBPnil) and are not
recommending the payment of a final dividend (FY19: 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.
Finance costs for the year for the total group were GBP11.0m*,
of which GBP2.3m related to the introduction of IFRS 16 (split
GBP1.8m within continuing operations and GBP0.5m in discontinued
operations). Net finance costs* of GBP8.7m are down slightly from
the GBP9.7m seen in FY19 due primarily to a refund of GBP0.6m in
respect of historic overpaid interest from one of the group's
bankers, together with a reduction in the borrowing margin and
lower pension scheme interest. This underlying charge was covered
4.6 times by adjusted operating profit on a like for like basis*
(FY19: 4.0 times).
Currency risk management
A significant proportion of the products sold, principally
through 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 $91m (FY19: $93m) and an average rate of GBP1/$1.286 (FY19:
$1.326). 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 2019, was a gain of GBP2.6m (FY19:
GBP4.8m). This is presented separately on the Income Statement as
it represents an element of product costs to be realised in FY21 as
the contracts unwind. The Group currently has forward contracts in
place with an outstanding principal of $ 82.5m covering the period
to July 2021.
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 in this Annual Report are set out
below.
Adjusted operating profit and adjusted profit before tax on a
like-for-like basis
These measures are 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 these measures:
-- 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 current period, owing to the impact of Covid-19, the
ongoing disposal process in respect of Education and the adoption
of IFRS 16 Leases ("IFRS 16), further items have been adjusted for
to ensure the figures are presented on a consistent basis:
-- The GBP20m estimated impact of Covid-19 on the impairment
charge in Studio has been excluded in reaching like-for-like
adjusted operating profit and profit before tax to enable
comparability with the results of prior periods and to allow a fair
(although estimated) assessment of the business' underlying trading
performance prior to Covid-19. Further details can be found in the
Finance Review.
-- During the period, the group refined its impairment models to
make use of more up to date customer data that is more reflective
of current credit policies and operational processes. The
availability of this more granular and up to date information has
enabled management to refine its estimate in respect of the level
of impairment provision required and has resulted in reduction in
the provision required by GBP3.8m.Since this change is not
reflective of the underlying performance of the receivables
portfolio, it has been 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.
-- IFRS 16 was adopted for the first time in FY20 using the
modified retrospective adoption approach. In effect, this means
that the FY20 income statement is presented on an IFRS 16 basis,
whilst the FY19 comparative is still 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 has been excluded in reaching like-for-like adjusted
operating profit and profit before tax.
-- IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations ("IFRS 5"). Since the group was engaged in an active
sale process at 27 September 2019, Education met the criteria to
classified as held for sale from half-year onwards. As a result,
Education's FY20 results are 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 are
normally disclosed within Central costs, are included within the
result from discontinued operation. IFRS 5 also requires that no
depreciation or amortisation be recorded against Education once it
is classified as held for sale. As such, depreciation and
amortisation charged in H2 for comparability, has been reversed. In
order to make the presentation of results fair, balanced and
understandable, and since Education has been run as an active part
of the group throughout FY20, all IFRS 5 adjustments have been
reversed when arriving at the like-for-like adjusted operating
profit and profit before tax. These figures therefore present the
Group's results as they would have been presented had the Group not
been engaged in a sale process (i.e. a whole-group measure).
The adjusted and like-for-like figures are derived as
follows:
2020 2019
As Exclude Exclude Reinstate Exclude Exclude Like-for-like Reported
reported IFRS IFRS H2 Depn estimated change basis figures
16 5 reallocation (IFRS COVID-19 in
5) bad debt bad
impact debt
estimate
---------- -------- --------------- ---------- ----------- ---------- -------------- ---------
Studio 22,726 (55) - - 20,000 (3,675) 38,996 39,448
Central (1,235) (15) (1,120) - - - (2,370) (4,248)
Adjusted
operating
profit from
continuing
operations 21,491 (70) (1,120) - 20,000 (3,675) 36,626 35,200
---------- -------- --------------- ---------- ----------- ----------
Education 4,050 (490) 1,120 (1,393) - - 3,287 3,217
---------- -------- --------------- ---------- ----------- ---------- -------------- ---------
Adjusted
operating
profit from
total
Group 25,541 (560) - (1,393) 20,000 (3,675) 39,913 38,417
Net finance
costs
from total
group^ (10,998) 2,319 - - - - (8,679) (9,656)
---------- -------- --------------- ---------- ----------- ----------
Adjusted
profit before
tax 14,543 1,759 - (1,393) 20,000 (3,675) 31,234 28,761
---------- -------- --------------- ---------- ----------- ---------- -------------- ---------
MTM on
derivatives 2,608 - - - - - 2,608 4,750
Individually
significant
items (8,342) - - - - - (8,342) (4,158)
Profit before
tax 8,809 1,759 - (1,393) 20,000 (3,675) 25,500 29,353
---------- -------- --------------- ---------- ----------- ----------
Tax (54) (6,064)
--------------
Profit after
tax 8,755 23,289
---------- -------- --------------- ---------- ----------- ---------- --------------
^Like-for-like net finance costs for the total group excludes
the net impact of IFRS 16. ...
Adjusted profit before tax on a like-for-like basis from
continuing operations
2020 2019
GBP000 GBP000
-------------------------------- --------- --------
Continuing operations
Adjusted profit before tax on
a like-for-like basis 27,395 25,582
Individually significant items (6,807) (4,158)
MTM on derivatives 2,608 4,750
Impact of IFRS 16 adoption (70) -
Estimated impact of COVID-19 (20,000) -
on impairment charge
Change in accounting estimate 3,675 -
-------------------------------- --------- --------
Profit before tax 6,801 26,174
-------------------------------- --------- --------
Revenue, EBITDA before individually significant items, adjusted
operating profit, finance costs, and adjusted profit before tax
from total group
The calculation of revenue, EBITDA before individually
significant items, adjusted operating profit, finance costs, and
adjusted profit before tax from total group includes continuing and
discontinued operations and is set out in note 2 to the Group
Financial Information.
Adjusted operating profit margin %
This is used a measure of the adjusted operating profit made by
the Group as a whole. It is derived as follows:
2020 2019
(Restated*)
GBP000 GBP000
Total group revenue including discontinued
operation 514,834 503,734
Adjusted operating profit on like-for-like
basis 39,913 38,417
-------------------------------------------- -------- -------------
Adjusted operating profit margin
on a like-for-like basis 7.8% 7.6%
-------------------------------------------- -------- -------------
*balances have been restated as set out in note 1 to the Group
Financial Information below.
Studio Product Gross Margin %
This is used 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:
2020 2019
(Restated*)
GBP000 GBP000
Product revenue 311,697 304,176
Less product cost of sales (208,924) (202,435)
------------------------------ ---------- -------------
Gross product margin 102,773 101,741
------------------------------ ---------- -------------
Gross product gross margin % 33.0% 33.4%
------------------------------ ---------- -------------
*balances have been restated as set out in note 1 to the Group
Financial Information below.
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) are excluded from the
reported impairment loss when calculating this measure, as they are
not reflective of the underlying performance of the receivables
portfolio.
2020 2019
(Restated*)
GBP000 GBP000
Reported impairment loss 53,930 36,623
Exclude estimated impact of (20,000) -
COVID-19
Exclude change in accounting 3,675 -
estimate
------------------------------ --------- -------------
Underlying impairment loss 37,605 36,623
------------------------------ --------- -------------
Studio total revenue 434,894 421,653
------------------------------ --------- -------------
Studio underlying impairment
loss as a % of revenue 8.6% 8.7%
------------------------------ --------- -------------
*balances have been restated as set out in note 1 to the Group
Financial Information below.
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.
2020 2019
(Restated*)
GBP000 GBP000
Marketing costs 31,661 31,693
Product revenue 311,697 304,176
-------------------------------- -------- -------------
Marketing costs to sales ratio 10.2% 10.4%
-------------------------------- -------- -------------
*balances have been restated as set out in note 1 to the Group
Financial Information below.
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:
2020 2019
GBP000 GBP000
------------------------------------- --------- ---------
Total bank loans 282,591 270,545
Lease liabilities** 43,496 498
Less cash and cash equivalents (33,163) (37,603)
------------------------------------- --------- ---------
Overall net debt* 292,924 233,440
------------------------------------- --------- ---------
Exclude impact of IFRS 16 adoption (42,902) -
------------------------------------- --------- ---------
Overall net debt on a like-for-like
basis 250,022 233,440
------------------------------------- --------- ---------
** 2020 figures reflect the requirements of IFRS 16.
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:
2020 2019
GBP000 GBP000
Net Debt 292,924 233,440
Lease liabilities** (43,496) (498)
Less securitisation borrowings*** (197,591) (175,545)
Core net debt* 51,837 57,397
----------------------------------- ---------- ----------
**2020 figures reflect the requirements of IFRS 16.
*** Disclosed within bank loans.
Debt funding consumer receivables
The majority of the trade receivables of Studio are eligible to
be funded in part from the securitisation facility, with the
remainder being funded from core net debt. This measure indicates
the face value of those 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:
2020 2019
GBP000 GBP000
---------------------------------- -------- --------
Funded from securitisation loans 197,591 175,545
Funded from cash and bank 65,864 64,075
---------------------------------- -------- --------
Eligible receivables 263,455 239,620
---------------------------------- -------- --------
Securitisation % 75% 73%
---------------------------------- -------- --------
Adjusted free cash flow generation
Free cash flow generation is a key operational metric and is of
interest to investors. Consequently, it formed part of the
remuneration targets for the Executive Directors.
Adjusted free cash flow is reconciled to cash generated by
operations as follows:
2020 2019
GBP000 GBP000
------------------------------------------- --------- ---------
Adjusted free cash flow generation 23,738 28,878
Securitisation loans drawn (22,046) (18,041)
Purchases of property plant and equipment
and software 14,822 11,545
Other - (26)
------------------------------------------- --------- ---------
Cash generated from operating activities
before interest and tax paid 16,514 22,356
------------------------------------------- --------- ---------
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 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:
2020 2019
GBP000 GBP000
------------------------------------ -------- --------
Tax credit/(charge) 241 (5,715)
Exclude tax impact of individually
significant items (1,293) (741)
Exclude impact of change in (1,427) -
corporation tax rate on deferred
tax assets & liabilities
Adjusted tax charge (2,479) (6,456)
------------------------------------ -------- --------
Profit before tax and individually
significant items 13,608 30,332
------------------------------------ -------- --------
Underlying effective tax rate 18.2% 21.3%
------------------------------------ -------- --------
Principal risks and uncertainties
Risk Root cause Key mitigating controls
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.
Growth in credit income Regulatory changes impacting Studio has reviewed
could slow within the customer acquisition its integrated model
financial services and credit limit management; of retail and financial
business of Studio. and our strategy to services in terms of
put the customer at both customer conduct
the heart of the business risk and financial performance
by balancing financial and developed a business
performance and customer plan on this basis.
conduct risks. The review included
stress testing various
scenarios.
These factors will require
an evolutionary change
in our business model
placing a greater requirement
on the profitability
arising from the retail
side of Studio. The
plans set out in this
Strategic Report reflect
this.
Potential disruption The business remains Resilience testing and
to our business support highly dependent upon recovery plans are in
systems and the storage legacy systems both place.
and protection of our in the support of running
customers' data. the business on a daily The business has continued
basis and the storage to invest to update
and protection of customer its technology solutions
data. as it seeks to lower
its dependency on legacy
The combination of increasing systems.
cyber activity, fraud Notable examples include
rings and the level the enhancement in website
of change being deployed capabilities at Education
in the business makes and the development
this an area of higher of the Financier platform
potential risk. at Studio.
In addition, an enhanced
fraud solution accompanied
by improved operational
practices within Studio's
customer and financial
services departments
are being deployed.
Execution and liquidity Funding growth within Appropriate 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.
Fiscal controls, including
business forecasting
in support of stock
and cash flow management.
Any weakness in project A Change Board has been
and change management established to scrutinise,
in the delivery of key prioritise and oversee
priorities. resourcing and delivery
of transformation projects.
High level of demand We are adopting an enhanced
on planning and resource process of integrated
management to ensure cash management to meet
timely and on budget the demands of (i) change
delivery. and capital deployment
within the business;
alongside
(ii) daily operational
requirements.
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.
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
directly or indirectly.
A further rise in geopolitical
tensions with China
could lead to legislative
or economic barriers
to trade being introduced.
--------------------------------- ---------------------------------
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 consolidation of
Education's warehousing
into its facility at
Nottingham has concentrated
its fulfilment activities
into a single location
that could also potentially
become a point of failure
risk.
--------------------------------- ---------------------------------
Studio Retail Group plc
Group Financial Information
Consolidated Income Statement
52-week period ended 27 March 2020
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
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)/income (1,052) 1,293 241
Profit from continuing operations 12,556 (5,514) 7,042
------------------------------------- ------------ ------------ ---------
Discontinued operation
Profit from discontinued operation,
net of tax 2,956 (1,243) 1,713
------------------------------------- ------------ ------------ ---------
Profit for the period 15,512 (6,757) 8,755
------------------------------------- ------------ ------------ ---------
Earnings per ordinary share
from continuing operations
Basic 8.16
Diluted 8.12
from discontinued operation
Basic 1.98
Diluted 1.97
total attributable to ordinary
shareholders
Basic 10.14
Diluted 10.09
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.
Consolidated Income Statement
52-week period ended 29 March 2019 (restated - refer to note
1)
Before
individually Individually
significant significant
items items Total
GBP000 GBP000 GBP000
------------------------------------ ------------ ------------ ---------
Continuing operations
Revenue 323,534 - 323,534
Credit account interest 98,119 - 98,119
------------------------------------- ------------ ------------ ---------
Total revenue (including credit
interest) 421,653 - 421,653
------------------------------------- ------------ ------------ ---------
Cost of sales (202,453) - (202,453)
Impairment losses on customer
receivables (36,623) - (36,623)
------------------------------------- ------------ ------------ ---------
Gross profit 182,577 - 182,577
------------------------------------- ------------ ------------ ---------
Trading costs (147,377) (4,158) (151,535)
Analysis of operating profit:
- EBITDA* 45,147 (4,158) 40,989
- Depreciation, amortisation and
impairment (9,947) - (9,947)
Operating profit 35,200 (4,158) 31,042
Finance costs (9,618) - (9,618)
------------------------------------- ------------ ------------ ---------
Profit before tax and fair value
movements on derivative financial
instruments 25,582 (4,158) 21,424
------------------------------------- ------------ ------------ ---------
Fair value movements on derivative
financial instruments 4,750 - 4,750
------------------------------------- ------------ ------------ ---------
Profit before tax 30,332 (4,158) 26,174
Tax (expense)/income (6,456) 741 (5,715)
Profit from continuing operations 23,876 (3,417) 20,459
------------------------------------- ------------ ------------ ---------
Discontinued operation
Profit from discontinued operation,
net of tax 2,830 - 2,830
------------------------------------- ------------ ------------ ---------
Profit for the period 26,706 (3,417) 23,289
------------------------------------- ------------ ------------ ---------
Earnings per ordinary share
from continuing operations
Basic 23.70
Diluted 23.70
from discontinued operation
Basic 3.28
Diluted 3.28
total attributable to ordinary
shareholders
Basic 26.98
Diluted 26.98
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
Consolidated Statement of Comprehensive Income
52-week period ended 27 March 2020
2020 2019
GBP000 GBP000
--------------------------------------------------- ------- -------
Profit for the period 8,755 23,289
Other Comprehensive Income
Items that may be reclassified to profit or
loss
Cash flow hedges 28 (19)
Currency translation loss arising on consolidation (443) (353)
--------------------------------------------------- ------- -------
(415) (372)
--------------------------------------------------- ------- -------
Items that will not subsequently be reclassified
to profit or loss
Remeasurements of defined benefit pension scheme 26,915 (2,374)
Tax relating to components of other comprehensive
income (4,043) 643
--------------------------------------------------- ------- -------
22,872 (1,731)
--------------------------------------------------- ------- -------
Total comprehensive income for period 31,212 21,186
--------------------------------------------------- ------- -------
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 27 March 2020
2020 2019
GBP000 GBP000
------------------------------------------ --------- ---------
Non-current assets
Other intangible assets 9 24,952
Property, plant and equipment 80,007 45,511
Derivative financial instruments 2 6
Retirement benefit surplus 31,695 -
Deferred tax assets - 10,556
111,713 81,025
------------------------------------------ --------- ---------
Current assets
Inventories 42,827 48,757
Trade and other receivables 235,227 235,923
Derivative financial instruments 3,250 604
Cash and cash equivalents 33,163 37,603
Current tax assets 1,718 -
-------------------------------------------- --------- ---------
Current assets excluding assets
held for sale 316,185 322,887
-------------------------------------------- --------- ---------
Assets held for sale 60,570 -
Total current assets 376,755 322,887
-------------------------------------------- --------- ---------
Total assets 488,468 403,912
-------------------------------------------- --------- ---------
Current liabilities
Trade and other payables (57,908) (72,592)
Lease liabilities (6,035) (498)
Derivative financial instruments (36) -
Provisions (4,335) (3,325)
Current tax liabilities - (1,762)
-------------------------------------------- --------- ---------
Current liabilities excluding liabilities
held for sale (68,314) (78,177)
-------------------------------------------- --------- ---------
Liabilities held for sale (24,684) -
Total current liabilities (92,998) (78,177)
-------------------------------------------- --------- ---------
Non-current liabilities
Bank loans (282,591) (270,545)
Lease liabilities (37,461) -
Provisions - (7,753)
Retirement benefit obligation - (68)
Deferred tax liabilities (37) (3,849)
(320,089) (282,215)
------------------------------------------ --------- ---------
Total liabilities (413,087) (360,392)
-------------------------------------------- --------- ---------
Net assets 75,381 43,520
-------------------------------------------- --------- ---------
Equity
Share capital 48,644 48,644
Translation reserve 321 764
Hedging reserve (26) (54)
Retained earnings/(accumulated losses) 26,442 (5,834)
Total equity 75,381 43,520
-------------------------------------------- --------- ---------
The accompanying notes are an integral part of this consolidated
balance sheet.
Consolidated Cash Flow Statement
52-week period ended 27 March 2020
2020 2019
GBP000 GBP000
--------------------------------------------------------- -------- --------
Profit for the period 8,755 23,289
Adjustments for:
Income tax credit 54 6,064
Finance costs 10,998 9,656
Depreciation of property, plant and equipment 14,393 9,438
Impairment of property, plant and equipment 1,300 -
Amortisation of intangible assets 1,163 2,167
Share-based payment expense 649 926
Fair value movements on financial instruments net of
premiums paid (2,621) (4,784)
Pension contributions less income statement charge (4,792) (40)
Operating cash flows before movements in working capital 29,899 46,716
(Increase)/decrease in inventories (10,068) 5,618
Increase in receivables (9,317) (26,549)
Increase in payables 4,442 5,522
Increase/(decrease) in provisions 1,558 (8,951)
---------------------------------------------------------- -------- --------
Cash generated from operations before interest and
tax paid 16,514 22,356
Income taxes paid (3,717) (1,931)
Interest paid (8,495) (10,017)
Net cash from operating activities 4,302 10,408
---------------------------------------------------------- -------- --------
Investing activities
Purchases of property, plant and equipment, software
and IT development costs and intangible assets (14,822) (11,545)
Net cash used in investing activities (14,822) (11,545)
---------------------------------------------------------- -------- --------
Financing activities
Payments of lease liabilities (2019: Repayments of
obligations under finance leases) (5,966) (571)
Bank loans repaid (10,000) (5,000)
Securitisation loan drawn 22,046 18,041
Net cash from financing activities 6,080 12,470
---------------------------------------------------------- -------- --------
Net (decrease)/increase in cash and cash equivalents (4,440) 11,333
Cash and cash equivalents at the beginning of the period 37,603 26,244
Effect of foreign exchange rate changes on cash held - 26
Cash and cash equivalents at the end of the period 33,163 37,603
---------------------------------------------------------- -------- --------
The accompanying notes are an integral part of this consolidated
cash flow statement.
Consolidated Statement of Changes in Equity
52-week period ended 27 March 2020
Translation (Accumulated
reserve Hedging losses)/retained
Share capital reserve earnings Total equity
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------- ----------- -------- ----------------- ------------
At 30 March 2018 48,644 1,117 (35) (28,318) 21,408
Total comprehensive income
for the period - (353) (19) 21,558 21,186
Transactions with owners
Share-based payments - - - 926 926
At 29 March 2019 48,644 764 (54) (5,834) 43,520
Total comprehensive income
for the period - (443) 28 31,627 31,212
Transactions with owners
Share-based payments - - - 649 649
--------------------------- ------------- ----------- -------- ----------------- ------------
At 27 March 2020 48,644 321 (26) 26,442 75,381
--------------------------- ------------- ----------- -------- ----------------- ------------
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 27
March 2020 or 29 March 2019, but is derived from those financial
statements. Statutory financial statements for 2019 have been
delivered to the Registrar of Companies, and those for 2020 will be
delivered in due course. The financial statements were approved by
the Board of directors on 22 August 2020. 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 Financial Reporting Standards ("IFRS") as
adopted for use within the European Union and in accordance with
the accounting policies included in the Annual Report for the
period ended 29 March 2019 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,
as we have done through the lockdown period, with only temporary
disruptions to operations being experienced in the downside
scenarios. The downside sensitivities considered include a
reduction in the level of future forecast revenue and gross margin
growth and 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
its revolving credit facility matures on 31 December 2021, 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 the consolidated financial statements. They
therefore consider it appropriate to adopt the going concern basis
of accounting in preparing the consolidated financial
statements.
Impact of accounting standards that have become effective during
the current period
IFRS 16 Leases
IFRS 16 is effective for all accounting periods beginning on or
after 1 January 2019. For Studio Retail Group plc this is the first
reported accounting period under IFRS 16. The Group adopted this
standard using the modified retrospective approach with a date of
initial application of 30 March 2019.
Under IFRS 16, lease agreements give rise to both a right of use
asset and a lease liability for future lease rentals. The right of
use asset is depreciated on a straight-line basis over the life of
the lease. On transition, lease liabilities were measured at the
present value of the remaining lease payments, discounted at the
Group's incremental borrowing rate as at 30 March 2019. The right
of use assets are measured at an amount equal to the lease
liability adjusted by the amount of any prepaid or accrued lease
payments. The interest is recognised on the lease liability,
resulting in a higher interest expense in the earlier years of the
lease term. The total expense recognised over the life of the lease
will be unaffected by the new standard, however, IFRS 16 results in
the timing of lease expense recognition being accelerated for
leases which would be currently accounted for as operating
leases.
The Group has applied the practical expedient to "grandfather"
the definition of a lease on transition and applied the recognition
exemption for both short term and low value assets. Consequently,
the definition of a lease under IFRS 16 was applied only to
contracts entered into or changed on or after 30 March 2019. The
Group has also applied a single discount rate to a portfolio of
leases with reasonably similar characteristics. Previous
assessments of whether leases are onerous in accordance with IAS 37
Provisions, Contingent Liabilities and Contingent Assets
immediately before the date of initial application have been relied
upon as an alternative to performing an impairment review.
The modified retrospective approach does not require a
restatement of the prior period comparatives and consequently,
there will be no adjustment to opening retained earnings.
Additionally, the disclosure requirements of IFRS 16 have not
generally been applied to comparative information. The Group
recognised an opening right of use asset of GBP43.2m and a lease
liability of GBP52.3m at 30 March 2019. The most significant lease
liabilities relate to property.
The GBP9.0m difference between the opening right use asset and
lease liability is due to the portion of the onerous lease
provision held at 29 March 2019 relating to lease rentals of
GBP8.3m being reclassified against the opening right of use asset.
In addition, GBP0.7m has been reclassified from other creditors in
respect of a rent free period on one of the Group's properties,
which was being amortised to the income statement over the life of
the lease under IAS 17 but under IFRS 16, is netted off the right
of use asset.
Operating profit from continuing operations in the current
period has increased by GBP0.1m as operating lease rental costs of
GBP4.3m have been replaced by GBP4.2m of depreciation of right of
use assets under IFRS 16. Finance costs have increased by GBP1.8m
reflecting interest charged on lease liabilities under IFRS 16. The
net impact on profit before tax was therefore GBP1.7m.
There is no impact on total cash flows, although from a
presentation perspective, whilst operating lease rentals formed
part of net cash from operating activities, lease payments under
IFRS 16 now form part of net cash used in financing activities.
We do not expect the adoption of IFRS 16 to have a material
impact on the Group's effective tax rate.
A reconciliation from the operating lease commitments as at 29
March 2019 to the opening lease liabilities as at 30 March 2020 is
as follows:
GBP000
--------------------------------------------------------------------------- --------
Operating lease commitments disclosed as at 29 March 2019 (57,841)
Discounted using the incremental borrowing rate at the date of application 7,993
Less: low value and short-term leases not recognised as a liability (2,931)
---------------------------------------------------------------------------- --------
Lease liability recognised as at 30 March 2019 (52,779)
---------------------------------------------------------------------------- --------
Full details of the impact of adopting IFRS 16 on the
consolidated income statement and balance sheet are given in the
tables below:
Impact on the Consolidated Income Statement and Comprehensive
Income
52-week period ended 27 March 2020
Amounts Impact of As reported
prior to IFRS 16 adoption
adoption
of IFRS 16
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 (157,426) 70 (157,356)
Analysis of operating profit:
- EBITDA* 25,088 4,301 29,389
- Depreciation, amortisation and
impairment (10,474) (4,231) (14,705)
Operating profit 14,614 70 14,684
Finance costs (8,668) (1,823) (10,491)
------------------------------------- ------------ ----------------- -----------
Profit before tax and fair value
movements on derivative financial
instruments 5,946 (1,753) 4,193
------------------------------------- ------------ ----------------- -----------
Fair value movements on derivative
financial instruments 2,608 - 2,608
------------------------------------- ------------ ----------------- -----------
Profit before tax 8,554 (1,753) 6,801
Tax income 241 - 241
Profit from continuing operations 8,795 (1,753) 7,042
------------------------------------- ------------ ----------------- -----------
Discontinued operation
Profit from discontinued operation,
net of tax 1,719 (6) 1,713
------------------------------------- ------------ ----------------- -----------
Profit for the period 10,514 (1,759) 8,755
------------------------------------- ------------ ----------------- -----------
Total comprehensive income for
period 32,971 (1,759) 31,212
------------------------------------- ------------ ----------------- -----------
Earnings per ordinary share
from continuing operations
Basic 10.19 (2.03) 8.16
Diluted 10.14 (2.02) 8.12
from discontinued operation
Basic 1.99 (0.01) 1.98
Diluted 1.98 (0.01) 1.97
total attributable to ordinary
shareholders
Basic 12.18 (2.04) 10.14
Diluted 12.12 (2.03) 10.09
*Earnings before interest, taxation, depreciation, amortisation
and fair value movements on derivative financial instruments.
Impact on the Consolidated Balance Sheet
at 27 March 2020
Amounts prior
to adoption of
IFRS 16 Impact of IFRS 16 adoption As reported
27.3.2020 27.3.2020 27.3.2020
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- --------------- -------------------------- -----------
Non-current assets
Other intangible assets 9 - 9
Property, plant and equipment 45,840 34,167 80,007
Derivative financial instruments 2 - 2
Retirement benefit surplus 31,695 - 31,695
Deferred tax assets - - -
77,546 34,167 111,713
-------------------------------------------------------- --------------- -------------------------- -----------
Current assets
Inventories 42,827 - 42,827
Trade and other receivables 235,227 - 235,227
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 - 316,185
--------------------------------------------------------- --------------- -------------------------- -----------
Assets held for sale 55,459 5,111 60,570
Total current assets 371,644 5,111 376,755
--------------------------------------------------------- --------------- -------------------------- -----------
Total assets 449,190 39,278 488,468
--------------------------------------------------------- --------------- -------------------------- -----------
Current liabilities
Trade and other payables (57,908) - (57,908)
Lease liabilities (175) (5,860) (6,035)
Derivative financial instruments (36) - (36)
Current tax liabilities (4,335) - (4,335)
Provisions - - -
-------------------------------------------------------- --------------- -------------------------- -----------
Current liabilities excluding liabilities held for sale (62,454) (5,860) (68,314)
--------------------------------------------------------- --------------- -------------------------- -----------
Liabilities held for sale (19,704) (4,980) (24,684)
Total current liabilities (82,158) (10,840) (92,998)
--------------------------------------------------------- --------------- -------------------------- -----------
Non-current liabilities
Bank loans (282,591) - (282,591)
Lease liabilities (419) (37,042) (37,461)
Provisions (6,845) 6,845 -
Retirement benefit obligation - - -
Deferred tax liabilities (37) - (37)
(289,892) (30,197) (320,089)
-------------------------------------------------------- --------------- -------------------------- -----------
Total liabilities (372,050) (41,037) (413,087)
--------------------------------------------------------- --------------- -------------------------- -----------
Net assets 77,140 (1,759) 75,381
--------------------------------------------------------- --------------- -------------------------- -----------
Equity
Share capital 48,644 - 48,644
Translation reserve 321 - 321
Hedging reserve (26) - (26)
Retained earnings 28,201 (1,759) 26,442
Total equity 77,140 (1,759) 75,381
--------------------------------------------------------- --------------- -------------------------- -----------
Impact on the Consolidated Balance Sheet
at 30 March 2019*
Amounts prior to
adoption of
IFRS 16 Impact of IFRS 16 adoption Opening balance sheet
30.3.2019 30.3.2019 30.3.2019
GBP'000 GBP'000 GBP'000
---------------------------------------------- ---------------- -------------------------- ---------------------
Non-current assets
Other intangible assets 24,952 - 24,952
Property, plant and equipment 45,511 43,239 88,750
Derivative financial instruments 6 - 6
Retirement benefit surplus - - -
Deferred tax assets 10,556 - 10,556
81,025 43,239 124,264
---------------------------------------------- ---------------- -------------------------- ---------------------
Current assets
Inventories 48,757 - 48,757
Trade and other receivables 235,923 - 235,923
Derivative financial instruments 604 - 604
Cash and cash equivalents 37,603 - 37,603
Current tax assets - - -
---------------------------------------------- ---------------- -------------------------- ---------------------
Current assets excluding assets held for sale 322,887 - 322,887
----------------------------------------------- ---------------- -------------------------- ---------------------
Assets held for sale - - -
Total current assets 322,887 - 322,887
----------------------------------------------- ---------------- -------------------------- ---------------------
Total assets 403,912 43,239 447,151
----------------------------------------------- ---------------- -------------------------- ---------------------
Current liabilities
Trade and other payables (72,592) 741 (71,851)
Lease liabilities (498) (6,771) (7,269)
Derivative financial instruments - - -
Current tax liabilities (3,325) - (3,325)
Provisions (1,762) 978 (784)
----------------------------------------------- ---------------- -------------------------- ---------------------
Current liabilities excluding liabilities held
for sale (78,177) (5,052) (83,229)
----------------------------------------------- ---------------- -------------------------- ---------------------
Liabilities held for sale - - -
Total current liabilities (78,177) (5,052) (83,229)
----------------------------------------------- ---------------- -------------------------- ---------------------
Non-current liabilities
Bank loans (270,545) - (270,545)
Lease liabilities - (45,510) (45,510)
Provisions (7,753) 7,323 (430)
Retirement benefit obligation (68) - (68)
Deferred tax liabilities (3,849) - (3,849)
(282,215) (38,187) (320,402)
---------------------------------------------- ---------------- -------------------------- ---------------------
Total liabilities (360,392) (43,239) (403,631)
----------------------------------------------- ---------------- -------------------------- ---------------------
Net assets 43,520 - 43,520
----------------------------------------------- ---------------- -------------------------- ---------------------
Equity
Share capital 48,644 - 48,644
Translation reserve 764 - 764
Hedging reserve (54) - (54)
Retained earnings (5,834) - (5,834)
Total equity 43,520 - 43,520
----------------------------------------------- ---------------- -------------------------- ---------------------
* this balance sheet discloses the initial impact of adopting
IFRS 16 as at 30 March 2019, this is not a restatement of the
comparative balance sheet as at 29 March 2019.
Changes in classification of costs
During the current period management has changed presentation of
Studio's trade discounts received on purchases to show them within
cost of sales rather than within trading costs. Extended warranty
credits have been deducted from revenue rather than shown within
cost of sales. In addition, management has removed grossed up
revenue and trading costs recognised in respect of free delivery
services to its customers. The comparative figures have been
restated to reduce revenue by GBP3,073,000, cost of sales by
GBP5,909,000 and increase trading costs by GBP2,836,000. These
adjustments have no effect on the profit for the year.
Non-current assets 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
At 27 March 2020 the Group's Education 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. Results from this discontinued operation
have therefore been separated out in the consolidated income
statement for the 52-week period ended 27 March 2020, and its
assets and liabilities have been classified as held for sale in the
consolidated balance sheet at 27 March 2020. In addition, the
comparative figures given in the consolidated income statement for
the 52-week period ended 29 March 2019 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. Further details are given in note 4.
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.
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 27 March 2020 trade receivables with a gross value of GBP317.8m
(2019: GBP295.5m) were recorded on the balance sheet, less a
provision for impairment of GBP101.8m (2019: GBP87.9m).
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.
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. The deterioration in the economic
outlook caused by Covid-19, particularly in relation to
unemployment, has led management to increase the level of provision
for expected credit loss by approximately GBP20m, based on
information available at the end of March 2020. Whilst we have not
yet seen a significant increase in the level of customer arrears
resulting from the pandemic, nor have we seen a material reduction
in customer payment rates, we expect that the Coronavirus Job
Retention Scheme and other support from government have delayed any
deterioration in performance. We anticipate that arrears will
increase when these schemes are phased out in the coming months. 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
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 the UK economy will make a rapid recovery following
COVID19 lockdown restrictions and will therefore have the least
detrimental impact on unemployment
-- Baseline
A short, sharp shock is expected to the economy with ongoing
consumer caution and a 'V' shaped recovery to GDP. Assumes a
consensus view on unemployment
-- Downside
A prolonged downturn in the economy, as ongoing consumer caution
means that they do not return to pre-lockdown levels of activity
for an extended period. Very high unemployment levels.
-- Stress
Prolonged, deep downturn, with continued COVID19 outbreaks.
Large numbers of corporate failures cause unemployment not seen
since the 1930's.
The table below summarises the peak employment levels assumed
within each scenario, with the weightings we have applied to
each.
2020 2019
Scenario Unemployment Weighting Applied Unemployment Weighting Applied
Peak Peak
-------------- ------------------ ------------- ------------------
Upside c 8% 25% c 4% 5%
-------------- ------------------ ------------- ------------------
Baseline c 10% 60% c 4.4% 30%
-------------- ------------------ ------------- ------------------
Downside c 14% 10% c 6.6% 50%
-------------- ------------------ ------------- ------------------
Stress c 20% 5% c 9.5% 15%
-------------- ------------------ ------------- ------------------
Discount rate for pension scheme liabilities
At 27 March 2020 the Group's defined benefit pension scheme
showed a surplus of GBP31.7m (2019: deficit of GBP0.1m). 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 liabilities 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 27
March 2020 a provision of GBP1.3m (2019: GBP2.5m) was held against
a gross inventory value of GBP44.1m (2019: GBP51.2m).
Provisions are made against inventory based upon its location,
the planned method of sale 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 GBP450,000. 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.
Provisions for Financial Services redress
At 27 March 2020 an amount of GBP4.1m (2019: GBP2.2m) remains
provided in the balance sheet in respect of redress and refunds for
flawed financial services products. Studio saw a large increase in
the level of PPI claims and enquiries in the days leading up to the
FCA's deadline for claims of 29 August. This included a large block
of previously unseen claims from the Official Receiver acting on
behalf of bankrupt customers.
An increase in provision of GBP7.9m was recorded as at September
2019, which was based on management's assessment of estimated
uphold rates from the population of claims received and average
claim values expected to be paid in respect of claims upheld. All
claims, other than those due to the Official Receiver have now been
processed and refunded. The uphold rates were lower than we
anticipated in September, resulting in a GBP2.3m release of
provision (net, GBP5.6m increase in the year). A method of
calculation has been agreed with the Official Receiver for those
claims, and they are expected to be processed by the end of
September 2020.
The Product Protection / Parcel Insurance refund programme is
now complete, and decommissioning work at our outsourcer, Capita,
was completed in June 2020. We continue to receive very low volumes
of response to the mailings which were completed in 2018, and these
will now be handled internally.
The Notice of Sums in Arrears (NOSIA) refund programme has
begun, with contact mailings expected to be issued in the early
part of FY21. This programme addresses a technical breach of the
Consumer Credit Act (CCA), whereby a number of customers did not
receive a NOSIA following two consecutive missed payments. This
breach rendered the credit agreement unenforceable, and therefore
interest and fees from this point must be refunded. An incremental
GBP1.3m was provided in this regard in FY20.
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.
Carrying value of right of use assets
The Group has rights of use assets of GBP31.3m as at 27 March
2020 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.
Judgements
Judgements made in applying accounting policies that have the
most significant effect on the amounts recognised in the financial
statements are as follows:
Held for sale classification
At 27 September 2019 the Group's Education 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.
The disposal is now subject to CMA phase 2 clearance and is
likely to be completed more than twelve months after initial
classification as at 27 September 2019. Therefore, as at 27 March
2020, judgement was required over whether the disposal continued to
meet the criteria to be recognised as held for sale and as a
discontinued operation. The Group remains committed to the disposal
of Findel Education and the events that have delayed the disposal
were outside of the Group's control. Whilst the disposal is
delayed, it is expected to be completed within twelve months of the
year end date of 27 March 2020.
2 Segmental analysis
52 weeks ended 27 March 2020
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* before individually significant items 32,499 2,538 35,037 6,060 41,097
---------- -------- ---------- ----------------------- ----------
Depreciation and amortisation (9,773) (3,773) (13,546) (2,010) (15,556)
---------- -------- ---------- ----------------------- ----------
Operating profit before individually
significant items 22,726 (1,235) 21,491 4,050 25,541
---------- -------- ---------- ----------------------- ----------
Individually significant items (5,648) (1,159) (6,807) (1,535) (8,342)
---------- -------- ---------- ----------------------- ----------
Operating profit 17,078 (2,394) 14,684 2,515 17,199
---------- -------- ---------- ----------------------- ----------
Finance costs (10,491) (507) (10,998)
---------- -------- ---------- ----------------------- ----------
Profit before tax and fair value movements on
derivative financial instruments 4,193 2,008 6,201
---------- -------- ---------- ----------------------- ----------
Fair value movements on derivative financial
instruments 2,608 - 2,608
---------- -------- ---------- ----------------------- ----------
Profit before tax 6,801 2,008 8,809
---------- -------- ---------- ----------------------- ----------
*Earnings before interest, tax, depreciation, amortisation, fair
value movements on derivative financial instruments and
individually significant items.
52 weeks ended 29 March 2019 (restated)
Continuing operations Discontinued operation Group
Studio Central Total Education Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------- -------- ---------- ----------------------- ----------
Product revenue 304,176 - 304,176 82,081 386,257
Other financial services revenue 19,332 - 19,332 - 19,332
Credit account interest 98,119 - 98,119 - 98,119
---------- -------- ---------- ----------------------- ----------
Financial services revenue 117,451 - 117,451 - 117,451
Sourcing revenue 26 - 26 - 26
---------- -------- ---------- ----------------------- ----------
Reportable segment revenue 421,653 - 421,653 82,081 503,734
---------- -------- ---------- ----------------------- ----------
Product cost of sales (202,435) - (202,435) (53,015) (255,450)
Financial services cost of sales (36,623) - (36,623) - (36,623)
Sourcing costs of sales (18) - (18) - (18)
---------- -------- ---------- ----------------------- ----------
Total cost of sales (239,076) - (239,076) (53,015) (292,091)
---------- -------- ---------- ----------------------- ----------
Gross profit 182,577 - 182,577 29,066 211,643
---------- -------- ---------- ----------------------- ----------
Marketing costs (31,693) - (31,693) (2,803) (34,496)
Distribution costs (36,423) - (36,423) (8,836) (45,259)
Administrative costs (66,533) (2,781) (69,314) (12,552) (81,866)
---------- -------- ---------- ----------------------- ----------
EBITDA* before individually significant items 47,928 (2,781) 45,147 4,875 50,022
---------- -------- ---------- ----------------------- ----------
Depreciation and amortisation (8,480) (1,467) (9,947) (1,658) (11,605)
---------- -------- ---------- ----------------------- ----------
Operating profit before individually
significant items 39,448 (4,248) 35,200 3,217 38,417
---------- -------- ---------- ----------------------- ----------
Individually significant items (2,918) (1,240) (4,158) - (4,158)
---------- -------- ---------- ----------------------- ----------
Operating profit 36,530 (5,488) 31,042 3,217 34,259
---------- -------- ---------- ----------------------- ----------
Finance costs (9,618) (38) (9,656)
---------- -------- ---------- ----------------------- ----------
Profit before tax and fair value movements on
derivative financial instruments 21,424 3,179 24,603
---------- -------- ---------- ----------------------- ----------
Fair value movements on derivative financial
instruments 4,750 - 4,750
---------- -------- ---------- ----------------------- ----------
Profit before tax 26,174 3,179 29,353
---------- -------- ---------- ----------------------- ----------
*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
2020 2019
GBP000 GBP000
-------------------------------------------------------- --- --------------------------- -------
Impairment of right of use asset (1,159) -
Studio financial services redress and refund costs (5,648) (2,918)
Reduction in onerous lease provisions - 1,220
GMP equalisation adjustment - (2,460)
--------------------------------------------------------------------------------- ------- -------
(6,807) (4,158)
Tax credit in respect of individually significant items 1,293 741
Total (5,514) (3,417)
--------------------------------------------------------------------------------- ------- -------
Discontinued operation
2020 2019
GBP000 GBP000
-------------------------------------------------------- ----------------------- --------
Disposal costs (1,535) -
(1,535) -
Tax credit in respect of individually significant items 292 -
Total (1,243) -
------------------------------------------------------------------------- ------- --------
A charge of GBP1,159,000 has been recorded in respect of the
impairment of the right of use asset for the group's property at
Hyde following a re-assessment of the assumptions made subsequent
to transition to IFRS 16 as a result of 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 has been recorded in the current period
(2019: GBP2,918,000) in respect of an increase in provisions for
redress and refunds for flawed financial services products. For
further details, please refer to the Estimates section in note
1.
Disposal costs of GBP1,535,000 were incurred during current
period in relation to the sale of Education. These costs have been
disclosed within the result from discontinued operation in
accordance with IFRS 5.
During the prior period, an agreement was reached to sublease
the vacant property at Enfield. Since the level of sublet income
was higher than anticipated, and the reduced risk around the
sublease inflows has led to a reduced 4% discount rate being
applied, a reduction in provision of GBP1.2m was indicated.
Consequently, a credit was recorded in the Consolidated Income
Statement in this regard.
In October 2018, the High Court handed down a judgement
involving the Lloyds Banking Group's defined benefit pension
schemes. The judgement concluded that the schemes should be amended
to equalise pension benefits for men and women in relation to
guaranteed minimum pension ("GMP") benefits. The issues determined
by the judgement arose in relation to many other defined benefit
pension schemes, including the Findel Group Pension Fund. After
discussion with the trustees, actuaries and legal advisors of our
fund, a past service cost of GBP2,460,000 was recognised in the
prior period to address this historical issue
4 Discontinued operation
On 15 December 2019 the Group entered into an agreement for the
sale of Findel Education Limited and its subsidiaries to the
Council of the City of Wakefield acting in its capacity as the lead
authority of the joint committee known as Yorkshire Purchasing
Organisation ("YPO") for a gross consideration of GBP50m on a debt
free, cash free basis. The transaction is subject to clearance from
the Competition and Markets Authority. Management consider that the
disposal transaction will reduce the group's indebtedness and allow
a greater level of investment and focus on growing the core Studio
business.
Education's results for the 52-week period to 27 March 2020 and
the 52-week period to 29 March 2019 have been presented to show the
discontinued operation separately from continuing operations and
are summarised below:
52 weeks 52 weeks
ended ended
27.3.20 29.3.19
GBP000 GBP000
---------------------- -------- --------
Revenue 79,940 82,081
Expenses (77,932) (78,902)
Profit before tax 2,008 3,179
Tax charge (295) (349)
----------------------- -------- --------
Profit for the period 1,713 2,830
----------------------- -------- --------
No gain or loss on remeasurement has been recorded on the assets
and liabilities of Education. The major classes of assets and
liabilities as at 27 March 2020 were as follows:
27.3.20
GBP000
----------------------------- --------
Assets
Intangible assets 24,310
Tangible assets 7,365
Deferred tax assets 2,884
Inventories 15,998
Trade and other receivables 10,013
------------------------------- --------
60,570
----------------------------- --------
Liabilities
Trade and other payables (19,035)
Lease liabilities (5,649)
(24,684)
Net assets of disposal group 35,886
------------------------------- --------
The net cash flow used in Education during the period was as
follows:
52 weeks ended
27.3.20
GBP000
--------------------- --------------
Operating cash flows (492)
Investing cash flows (1,131)
Financing cash flows 730
----------------------- --------------
Net cash flow (893)
----------------------- --------------
5 Current taxation
(a) Tax (credited)/charged in the income statement
2019
2020 restated
GBP000 GBP000
---------------------------------------------------- ------- ---------
Current tax expense:
Current period (UK tax) 1,104 3,879
Current period (overseas tax) 166 123
Adjustments in respect of prior periods (UK tax)(1) (986) 185
284 4,187
---------------------------------------------------- ------- ---------
Deferred tax expense:
Origination and reversal of temporary differences (96) 1,382
Adjustments in respect of prior periods(1) 998 146
Impact of change in rate of corporation tax (1,427) -
(525) 1,528
---------------------------------------------------- ------- ---------
Tax (credit)/expense from continuing operations (241) 5,715
---------------------------------------------------- ------- ---------
(1) 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 2018/19 being lower than the level
assumed in the FY19 accounts. This led to a reduction in the level
of brought short-term timing 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 27 March 2020 the Group held current tax assets of
GBP1,718,000 (2019: current tax liabilities GBP1,762,000).
(b) Tax recognised directly in other comprehensive income
2020 2019
GBP000 GBP000
------------------------------------- ------ ------
Deferred tax:
Tax on defined benefit pension plans 4,043 (643)
------------------------------------- ------ ------
(c) Reconciliation of the total tax (income)/charge
The tax expense in the income statement for the period differs
from the standard rate of corporation tax in the UK of 19% (2019:
19%).
The differences are reconciled below:
2019
2020 restated
GBP000 GBP000
--------------------------------------------------------------------- ------- ---------
Profit before tax 6,801 26,174
Tax calculated at standard corporation tax rate of 19% (2019: 19%) 1,292 4,973
Effects of:
Expenses not deductible for tax purposes 21 347
Higher tax rates on overseas earnings 144 178
Deferred tax asset not previously recognised (283) (114)
Impact of change in rate of corporation tax on deferred tax balances (1,427) -
Adjustments in respect of prior periods 12 331
--------------------------------------------------------------------- ------- ---------
Total tax (credit)/expense for the period (241) 5,715
--------------------------------------------------------------------- ------- ---------
6 Earnings per share
Earnings per share figures for the 52-week period ended 29 March
2019 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
--------------------------------------------- ------------- -------------
2020 2019
No. of shares No. of shares
--------------------------------------------- ------------- -------------
Ordinary shares in issue 86,442,534 86,442,534
Effect of own shares held (114,808) (114,808)
--------------------------------------------- ------------- -------------
Weighted average number of shares - basic 86,327,726 86,327,726
--------------------------------------------- ------------- -------------
Impact of potentially dilutive share options 412,383 -
--------------------------------------------- ------------- -------------
Weighted average number of shares - diluted 86,740,109 86,327,726
--------------------------------------------- ------------- -------------
From continuing operations
Earnings attributable to ordinary shareholders
-------
2020 2019
GBP000 GBP000
------------------------------------------------------------------------------------------ ------- -------
Net profit attributable to equity holders for the purposes of basic earnings per share 7,042 20,459
------------------------------------------------------------------------------------------ ------- -------
Individually significant items (net of tax) 5,514 3,417
Fair value movements on derivative financial instruments (net of tax) (2,112) (3,847)
------------------------------------------------------------------------------------------ ------- -------
Net profit attributable to equity holders for the purposes of adjusted earnings per share 10,444 20,029
------------------------------------------------------------------------------------------ ------- -------
Earnings per share
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - basic 8.16 23.70
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - adjusted* basic 12.10 23.20
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - diluted 8.12 23.70
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - adjusted* diluted 12.04 23.20
------------------------------------------------------------------------------------------ ------- -------
* Adjusted to remove the impact of individually significant
items and fair value movements on derivative financial
instruments.
From discontinued operation
Earnings attributable to ordinary shareholders
------
2020 2019
GBP000 GBP000
------------------------------------------------------------------------------------------ ------ ------
Net profit attributable to equity holders for the purposes of basic earnings per share 1,713 2,830
------------------------------------------------------------------------------------------ ------ ------
Individually significant items (net of tax) 1,243 -
Fair value movements on derivative financial instruments (net of tax) - -
------------------------------------------------------------------------------------------ ------ ------
Net profit attributable to equity holders for the purposes of adjusted earnings per share 2,956 2,830
------------------------------------------------------------------------------------------ ------ ------
Earnings per share
------------------------------------------------------------------------------------------ ------ ------
Earnings per share - basic 1.98 3.28
------------------------------------------------------------------------------------------ ------ ------
Earnings per share - adjusted* basic 3.42 3.28
------------------------------------------------------------------------------------------ ------ ------
Earnings per share - diluted 1.97 3.28
------------------------------------------------------------------------------------------ ------ ------
Earnings per share - adjusted* diluted 3.41 3.28
------------------------------------------------------------------------------------------ ------ ------
* 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
-------
2020 2019
GBP000 GBP000
------------------------------------------------------------------------------------------ ------- -------
Net profit attributable to equity holders for the purposes of basic earnings per share 8,755 23,289
------------------------------------------------------------------------------------------ ------- -------
Individually significant items (net of tax) 6,757 3,417
Fair value movements on derivative financial instruments (net of tax) (2,112) (3,847)
------------------------------------------------------------------------------------------ ------- -------
Net profit attributable to equity holders for the purposes of adjusted earnings per share 13,400 22,859
------------------------------------------------------------------------------------------ ------- -------
Earnings per share
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - basic 10.14 26.98
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - adjusted* basic 15.52 26.48
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - diluted 10.09 26.98
------------------------------------------------------------------------------------------ ------- -------
Earnings per share - adjusted* diluted 15.45 26.48
------------------------------------------------------------------------------------------ ------- -------
* 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 27 March 2020 or subsequently and are therefore not dilute from
an earnings per share perspective
7 Trade and other receivables
2020 2019
GBP000 GBP000
----------------------------------- --------- --------
Gross trade receivables 317,891 304,279
Allowance for expected credit loss (101,782) (88,030)
Trade receivables 216,109 216,249
Other debtors 4,623 5,347
Prepayments 14,495 14,327
----------------------------------- --------- --------
235,227 235,923
----------------------------------- --------- --------
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 GBP263,455,000 (2019: GBP239,620,000)
were funded through the securitisation facility, and the facilities
utilised were GBP197,591,000 (2019: GBP175,545,000).
Studio
The average credit period taken on sales of goods is 222 days
(2019 restated: 213 days). On average, interest is charged at 3.5%
(2019: 3.4%) per month on the outstanding balance.
Before accepting any new customer, Studio uses an external
credit scoring system to assess the potential customer's credit
quality and affordability of the credit and defines credit limits
by customer. Limits and scoring attributed to customers are
continually reviewed. There are no customers who represent more
than 1% of the total balance of the Group's trade receivables.
The Group uses a number of forbearance measures to assist those
customers approaching, or at the point of experiencing, financial
difficulties. Such measures include arrangement to pay less than
the minimum payment and the suspension of interest charges to help
the customer pay off their debt. We expect customers to resume
normal payments where they are able. At the balance sheet date
forbearance measures were in place on 11,685 accounts (2019:
16,922) with total gross balances of GBP7,656,000 (2019:
GBP10,429,000). Provisions are assessed as detailed above.
During the current period, overdue receivables with a gross
value of GBP56,586,000 (2019: GBP35,492,000) 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.
The following tables provide information about the exposure to
credit risk and ECLs for trade receivables from individual
customers as at 27 March 2020:
2020 2019
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 236,980 6,524 243,504 214,837 8,454 223,291
Past due:
0 - 60 days 30,972 928 31,900 27,060 1,541 28,601
60 - 120 days 12,572 204 12,776 12,640 434 13,074
120+ days 29,605 - 29,605 30,507 - 30,507
---------------------------- ----------- ----------------- --------- ----------- ----------------- --------
Gross trade receivables 310,129 7,656 317,785 285,044 10,429 295,473
Allowance for expected
credit loss (96,135) (5,647) (101,782) (81,358) (6,548) (87,906)
---------------------------- ----------- ----------------- --------- ----------- ----------------- --------
Carrying value 213,994 2,009 216,003 203,686 3,881 207,567
---------------------------- ----------- ----------------- --------- ----------- ----------------- --------
2020 2019
--------------------------------------- --------
Stage 1 Stage 2 Stage 3 Total Total
----------------------------------- -------- -------- -------- --------- --------
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- -------- -------- -------- --------- --------
Gross trade receivables 151,252 122,481 44,052 317,785 295,473
----------------------------------- -------- -------- -------- --------- --------
Allowance for expected credit loss
----------------------------------- -------- -------- -------- --------- --------
Opening balance (9,260) (30,267) (48,379) (87,906) (76,512)
Impairment charge (12,834) (8,907) (32,188) (53,929) (36,623)
Utilised in the period - - 40,053 40,053 25,229
----------------------------------- -------- -------- -------- --------- --------
Closing balance (22,094) (39,174) (40,514) (101,782) (87,906)
----------------------------------- -------- -------- -------- --------- --------
Carrying value 129,158 83,307 3,538 216,003 207,567
----------------------------------- -------- -------- -------- --------- --------
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 1p 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 baseline scenario weighting is
reduced to 50%, upside scenario to 25%, downside to 20%, and the
stress scenario to 5% would result in the impairment provision
decreasing by approximately GBP1. 2m .
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 GBP123,000
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. The average
age of these receivables was 152 days.
The carrying value of not past due trade receivables which are
unimpaired is GBPnil (2019: GBP5,593,000).
The aged analysis of the carrying values of past due trade
receivables which are unimpaired is as follows:
2020 2019
GBP000 GBP000
-------------- ------ ------
0 - 60 days 33 1,909
60 - 120 days 40 849
120+ days 33 208
Total 106 2,966
-------------- ------ ------
The aged analysis of the carrying values of past due trade
receivables which are impaired is as follows:
2020 2019
GBP000 GBP000
-------------- ------ ------
0 - 60 days - -
60 - 120 days - -
120+ days - 123
Total - 123
-------------- ------ ------
Movement in allowance for expected credit losses
Studio Rest of
Retail Group Total
GBP000 GBP000 GBP000
---------------------------------------------------- -------- ------- --------
Balance at 30 March 2018 55,084 125 55,209
Adjustment to opening balance on adoption of IFRS 9 21,428 - 21,428
Impairment losses recognised 36,623 55 36,678
Amounts written off as uncollectible (25,229) (56) (25,285)
Balance at 29 March 2019 87,906 124 88,030
Impairment losses recognised 53,929 - 53,929
Amounts written off as uncollectible (40,053) - (40,053)
Impact of classification as held for sale - (124) (124)
Balance at 27 March 2020 101,782 - 101,782
---------------------------------------------------- -------- ------- --------
8 Provisions
Studio financial
services redress
Onerous leases and refunds Total
GBP000 GBP000 GBP000
--------------------------- ---------------- ----------------- --------
At 30 March 2018 11,407 8,622 20,029
Released during the period (1,220) - (1,220)
Provided during the period - 4,157 4,157
Utilised in the period (1,344) (10,544) (11,888)
---------------------------- ---------------- ----------------- --------
At 29 March 2019 8,843 2,235 11,078
Adoption of IFRS 16 (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
---------------------------- ---------------- ----------------- --------
2020
Analysed as:
Current 192 4,143 4,335
Non-current - - -
------------- --- ----- -----
192 4,143 4,335
------------- --- ----- -----
2019
Analysed as:
Current 1,090 2,235 3,325
Non-current 7,753 - 7,753
--------------------------- ------------- ----------- ----------- ---------
8,843 2,235 11,078
--------------------------- ------------- ----------- ----------- ---------
Onerous Leases
A provision was made in prior periods for onerous leases
regarding vacated leasehold properties.
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 amount provided was increased by GBP6,948,000 in the
current period. Refer to note 1 for details. The provision is
expected to be utilised within 12 months.
.
9 Related parties
During the current and prior periods, the Group made purchases
in the ordinary course of business from Brands Inc. Limited and
Firetrap Limited, subsidiaries of Frasers Group plc (formerly
Sports Direct International plc), which is a significant
shareholder in the ultimate parent company, Studio Retail Group
plc. In the prior period, the Group also provided consultancy
services to Frasers Group plc itself in the current period on
arm's-length terms. The value of purchases made, and consultancy
fees charged in the current and prior periods and amounts owed at
the 27 March 2020 and 29 March 2019 were as follows:
Brands Inc. Limited
2020 2019
GBP000 GBP000
------------- ------- -------
Purchases 43 196
Amounts owed 17 22
------------- ------- -------
Firetrap Limited
2020 2019
GBP000 GBP000
------------- ------- -------
Purchases - 176
Amounts owed - -
------------- ------- -------
Frasers Group plc (formerly Sports Direct International plc)
2020 2019
GBP000 GBP000
-------------------------- ------- -------
Consultancy fees received - 93
Amounts due - -
-------------------------- ------- -------
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.
2020 2019
GBP000 GBP000
------------------------------ ------ ------
Short-term employee benefits 1,223 1,730
Company pension contributions 131 123
Long-term incentives 519 -
Termination payments - 7
------------------------------ ------ ------
1,873 1,860
Share-based payments charge 318 642
2,191 2,502
------------------------------ ------ ------
By order of the Board
P B Maudsley S M Caldwell
Group CEO Group CFO
22 August 2020 22 August 2020
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END
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