TIDMSTU
RNS Number : 5638D
Studio Retail Group PLC
30 June 2021
30 June 2021
Studio Retail Group plc ("SRG" or "the Group")
Results for the 52 weeks ended 26 March 2021
A transformational year for the Group
SRG, the digital value retail business, today announces its full
year results for the 52-week period ended 26 March 2021.
2021 2020 (restated**) Change
Revenue GBP578.6m GBP434.9m 33%
---------- ------------------ -------
Profit before tax GBP41.7m GBP6.8m 513%
---------- ------------------ -------
Adjusted profit before tax* GBP48.8m GBP27.3m 79%
---------- ------------------ -------
Adjusted earnings per share from continuing
operations* 44.9p 12.1p 271%
---------- ------------------ -------
Earnings per share from continuing operations 38.2p 8.2p 368%
---------- ------------------ -------
Core net debt* GBP27.6m GBP51.8m -47%
---------- ------------------ -------
Group Summary
-- Revenue from continuing operations of GBP578.6m, up 33% (FY20: GBP434.9m)
-- Adjusted profit before tax* from continuing operations of
GBP48.8m, up 79% from GBP27.3m in FY20.
-- Core net debt* reduced by GBP24.3m to GBP27.6m
-- Undertook a strategic review of the Group which successfully
completed with the sale of Findel Education for GBP30m in April
2021.
-- Recently completed a refinancing of the Group's GBP50m core
bank facility with a new maturity date of September 2024, which
provides a solid medium-term liquidity platform for further
growth.
Studio
-- Active customer base at Studio at records levels; up 35% in
FY21 to 2.5m at March 2021, including 1.5m with an active credit
account (a year on year increase of 14%).
-- Product revenue of GBP445.4m (FY20: GBP311.7m), growth of
43%, achieved alongside a +290bps improvement to product gross
margin % to 35.9%. The relative lack of promotional discounting
from the high street at points during the year is likely to have
contributed to some of this increase.
-- Financial services revenue up 8.2% with no material increase
in arrears seen to date. The impairment charge of GBP45.7m reflects
management's view that some customers have benefitted from the
temporary regulatory support put in place by the Government to
protect jobs and incomes and the impairment provision has been kept
at a level commensurate to this risk.
-- Eligible Receivables at the year-end were GBP315.3m,
approximately 20% up against prior year. To facilitate further
receivables growth, a further increase in the securitisation
facility from GBP225m to GBP250m was agreed in April 2021. Drawings
at the year-end were GBP225m (March 2020: GBP197.6m).
-- Adjusted operating profit* for the business of GBP61.7m (FY20
restated**: GBP39.1m) after investment in upgraded systems and
processes.
Current trading & outlook
The first quarter of the new financial year has seen Studio's
product sales in line with the same period at the start of the
pandemic last year, which in turn represents an increase of 51% on
the first quarter of FY20. Product margin rates are c.340bp higher
than last year due to the non-recurrence of Studio's significant
discounting of clothing and footwear ranges seen at this point last
year.
We expect that there will be a resumption of more competitive
market conditions later in the year, alongside inflationary impacts
on some raw material and shipping costs.
Financial services revenue is up 15% in Q1, although this is
expected to moderate later in the year. Studio is implementing
changes to some elements of its financial services products this
year to improve outcomes for customers. At this early stage of the
new financial year, we anticipate that Group adjusted profit before
tax for the 52 weeks to 25 March 2022 will be in the range of
GBP42m-45m.
Paul Kendrick, Group Chief Executive, commented:
"The Covid-19 pandemic showed the resilience and agility of
Studio, and we emerge from it a much stronger business.
"The changes over the last few years, to transform Studio into a
digital value retailer with integrated financial services, meant we
could react quickly to changing market conditions, and deliver
record levels of growth in sales, profit and customer numbers. The
success of the last year could not have been achieved without the
commitment and hard work of all our colleagues and I am proud of
how they have strived through the year to deliver for our
customers.
"With the strong performance last year, and having sold the
Findel Education business, Studio is in a stronger financial
position and is now focused on pushing forward with a well-defined
purpose that delivers great value, affordable products for our
customers. The business has a clear growth strategy, fuelled by its
digital capabilities, service enhancements, and ability to utilise
data to drive better customer targeting, credit underwriting and
product offers. All of this bodes well as we emerge from the
pandemic and I am confident Studio can go from strength to strength
and benefit all stakeholders."
Enquiries
Studio Retail Group plc
Paul Kendrick, Group CEO
Stuart Caldwell, Group CFO
0161 303 3465
Tulchan Communications
Sunni Chauhan
Will Palfreyman
020 7353 4200
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
** balances have been restated as set out in note 1 to the Group
Financial Information below.
Chairman's Statement
The Covid-19 pandemic has produced both challenges and
opportunities for the Group. The multi-year transformation of
Studio's business model into a digital-first value retailer means
that it is ideally positioned to serve the increasing number of
customers who choose to shop online; a trend which was evident
before the pandemic, but which has accelerated over the last year.
The Group's sales, profit and customer numbers all grew
substantially during FY21 and we start the new financial year with
a strong trading and financial position. This performance was
achieved without reliance on government or external support (a
small amount was initially claimed under the Government's
Coronavirus Job Retention Scheme along with a short-term payment
deferral of employment taxes but these amounts were repaid before
the year-end) and we did not make any employees redundant as a
result of the Covid-19 pandemic.
This performance would not have been possible without the
contribution of all our colleagues across the business. The
upgrading of key systems over the last few years allowed the
majority of our head-office colleagues to work effectively from
home, and we see a hybrid approach to home/office working
continuing into the future. Our frontline colleagues in our
warehouses were protected through ensuring that our facilities were
quickly upgraded with the appropriate social distancing and hygiene
measures, by introducing onsite testing facilities as soon as these
became available, by protecting colleagues' incomes where they
needed to self-isolate, and by rewarding them for their efforts
with additional vouchers and cash bonuses during the year. On
behalf of the Board, I would like to thank all our colleagues for
their hard work, which has ensured that we have been able to serve
our customers throughout the year despite lockdown disruptions.
Financial performance
A record number of more than 2.5m customers shopped with Studio
in FY21, an increase of 35% in the year. Within that, the number of
customers with a credit account, who typically exhibit far greater
shopping loyalty, increased by 14% to just over 1.5m. Total revenue
from Studio increased by 33% to GBP578.6m (FY20: GBP434.9m), which
led to adjusted profit before tax* increasing by 79% to GBP48.8m
(FY20: GBP27.3m). The statutory profit before tax from continuing
operations was GBP41.7m (FY20: GBP6.8m). Adjusted EPS increased by
271% to 44.9p (FY20: 12.1p).
Strategic Review
In December 2020, following the abandonment of the proposed sale
of Education to YPO, the Board of Directors announced a review of
all strategic options available to it to maximise value for all its
shareholders (the "Strategic Review"). Having reviewed a number of
options, including the disposal of a division and seeking offers
for the Group as a whole pursuant to a formal sale process, the
Strategic Review concluded in April 2021 with the sale of Findel
Education to a newly-formed company owned by funds managed by
Endless LLP for a gross consideration of GBP30m. That transaction
completed after the year end on 16 April 2021 and we wish the team
at Findel Education well for the future.
Balance sheet and dividends
Core net debt* ended the year at GBP27.6m (March 2020:
GBP51.8m), a position which improved in April 2021 following the
receipt of the proceeds from the sale of Findel Education and
additional drawings from an increase to the securitisation
facility.
We have recently completed a refinancing of the Group's GBP50m
core bank facility with a new maturity date of September 2024,
which provides a solid medium-term liquidity platform for further
growth.
The Group is working with the trustees of the legacy defined
benefit pension scheme to explore ways of removing any residual
pension liabilities, for example by potentially acquiring insurance
cover for some or all of its sections.
The Board will continue to prioritise investment in improving
Studio's digital capabilities and in further strengthening its
financial position in light of the broader economic environment.
Although it does not have plans to reinstate dividend payments at
this stage, the strong trading performance of Studio during FY21
enabled intra-group dividends to be made that brought the financial
position of the parent company into accumulated profits of GBP9.9m
(FY20: accumulated losses of GBP73.3m).
The Company intends to buy back the former convertible shares
issued in 2011, which have now automatically become deferred shares
following the expiration of the conversion period, for a nominal
sum later in the year.
Management and Board
Paul Kendrick, who has been Managing Director of Studio since
April 2017, was appointed as Group CEO upon the retirement of Phil
Maudsley on 26 March 2021 as the culmination of a planned
succession process. Francois Coumau will retire from the Board at
the end of the AGM in September having completed seven years, the
last two of which as Chairman of the Remuneration Committee. Elaine
O'Donnell has also indicated that she does not intend to stand for
re-election at the AGM. I would like to thank Francois and Elaine
for their contributions and to Phil for his long service to the
Group.
Current trading and outlook
The first quarter of the new financial year has seen Studio's
product sales in line with the same period at the start of the
pandemic last year, which in turn represents an increase of 51% on
the first quarter of FY20. Margin rates are c.340bp higher than
last year due to the non-recurrence of Studio's significant
discounting of clothing and footwear ranges seen at this point last
year. We expect that there will be a resumption of more competitive
market conditions later in the year, alongside inflationary impacts
on some raw material and shipping costs.
Financial services revenue is up 15% in Q1, although this is
expected to moderate later in the year.
Studio is implementing changes to some elements of its financial
services products this year to improve outcomes for customers. At
this early stage of the new financial year, we anticipate that
Group adjusted profit before tax for the 52 weeks to 25 March 2022
will be in the range of GBP42m-45m.
While the emergence of potential new variants of the virus and
the prospect of higher transmission levels as the UK continues to
unlock mean the external environment remains uncertain in the near
term, our digital value retail model remains robust, and the
changes we have made to our business enable us to continue
providing our services to our customers with minimal
disruption.
We have set out strategic plans to grow the Studio business
towards achieving revenue of GBP1bn in the medium-term. The
encouraging start of our current financial year against last year's
challenging comparator gives us confidence in those plans.
Ian Burke
Chairman
29 June 2021
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
** balances have been restated as set out in note 1 to the Group
Financial Information below.
STUDIO
Studio is a digital value retailer with a broad product offer of
clothing and footwear alongside home and electrical products plus
more seasonal ranges, many of which can be personalised for free.
Underpinning all this, is the drive to amaze our customers with
value and provide them with a range of payment options, including
our flexible credit facility.
Our medium-term ambition is to achieve over GBP1 billion of
revenue, through the following three levers for growth:
-- Attracting more of our core customers who appreciate the
affordability of Studio's VALUE proposition through building brand
awareness and through enhanced use of data analytics for customer
targeting and credit decisioning;
-- Extending the product range providing greater CHOICE for
customers alongside a personalised financial service proposition,
and digital CRM programmes to build spend per customer; and
-- Broadening the appeal of Studio to a wider customer base who
are still seeking great value and flexible PAYMENT OPTIONS.
Summary income statement
2021 2020 Change
---------- ----------
GBP'000 GBP'000
Product revenue 445,361 311,697 42.9%
Other financial services
revenue 16,922 18,617 -9.1%
Credit account interest 116,303 104,542 11.3%
Financial services revenue 133,225 123,159 8.2%
Sourcing revenue 15 38 -60.5%
Reportable segment revenue 578,601 434,894 33.0%
---------- ----------
Product cost of sales (285,556) (208,924) -36.7%
Financial services cost
of sales (45,689) (37,605) -21.5%
Total cost of sales (331,245) (246,529) -34.4%
---------- ----------
Gross profit 247,356 188,365 31.3%
---------- ----------
Marketing costs (34,457) (31,661) -8.8%
Distribution costs (49,397) (37,372) -32.2%
Administrative costs (90,763) (70,508) -28.7%
EBITDA 72,739 48,824 49.0%
---------- ----------
Depreciation and amortisation (10,995) (9,773) -12.5%
Adjusted operating profit* 61,744 39,051 58.1%
----------
Estimated impact of COVID-19
on 2020 impairment charge - (20,000)
Change in impairment accounting
estimate in 2020 - 3,675
Individually significant
items - (5,648)
Operating profit 61,744 17,078 261.5%
--------------------------------- ---------- ---------- -------
Product margin % 35.9% 33.0% +290bp
----------
Bad debt charge as % of
revenue 7.9% 8.6% -70bp
----------
Adjusted operating profit
% 10.7% 9.0% +170bp
--------------------------------- ---------- ---------- -------
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
** balances have been restated as set out in note 1 to the Group
Financial Information below.
Our purpose and culture
Our purpose at Studio shapes our culture, policies and processes
and given it is socially driven, it naturally forms the basis of
our wider ESG agenda, which at Studio is our newly created
"Sustainable, Responsible, and Good" plan. We strive to make more
affordable, make more possible for our customers and we will do
that in the most sustainable and responsible way whilst maintaining
our value proposition and operating our unique business model.
We will balance our profits with protecting our planet whilst
doing right by our customers, colleagues and wider stakeholders. We
are putting our focus and emphasis on the areas where we can make
the most positive difference, which is about helping people to
thrive.
Following an extensive assessment, reviewing over 500 potential
areas, engaging with colleagues, customers and shareholders, we
aligned on 19 key material issues to tackle as a priority in the
years ahead. These issues are represented by a five- pillar plan
which will be set out in the Annual Report.
Our business model
Over the last few years, Studio has completed the first phase of
its digital transformation, moving Studio from a traditional
catalogue retailer to an online pureplay. The transformation now
continues to become truly digital, utilising data and technology in
all aspects of the business to improve customer experience and
engagement.
Customer shopping patterns have been gradually shifting away
from the high street and towards online digital retailers for some
time. The Covid pandemic has accelerated this pre-existing trend
and Studio has seen a very rapid level of sales growth over the
last year as customers browse online, including using our new app,
to find products that help make family life that bit easier. New
customers have found the combination of a broad, value product
range and integrated financial services creates a point of
difference to other retailers. The business has no physical stores
to service and virtually all orders received online (a small
minority still being phone and postal orders).
We believe that Studio has a valuable and arguably unique
position in the market being digital, value and with integrated
credit. Many successful value retailers struggle with the move to
trading online as the economics of the business model do not
generally work on low price point, low margin ranges. At Studio we
achieve this by having the additional income stream from financial
services, but also from how the credit account drives customer
loyalty. The increased number of customer touchpoints with our
credit account customers drives order frequency and spend over
time. Our focus on lifetime value means we can invest upfront in
customer acquisition and then, through high levels of retention,
drive longer term returns. When we then compare to others who have
an integrated credit proposition, they do not generally market
themselves as having unbeatable value, or are not pureplay in the
way Studio now is. New entrants to the retail credit market have
emerged in recent years. However, the key
difference with our model is that Studio owns the data on both
retail and financial services, allowing us to make better informed
credit underwriting decisions.
Our routes to growth #1 - VALUE
The VALUE growth pillar is all about increasing our current core
customer base which are attracted to Studio through the unbeatable
value we offer. Market studies suggest our current base of 2.5m
active customers has a penetration of less than a quarter of our
target market, so there is plenty of scope to grow.
Our own research tells us that one of the main reasons that
customers don't choose Studio today is a lack of awareness of the
brand. In today's digital world, Studio's adverts appear alongside
other brands and awareness becomes important to build trust and
confidence with customers. We have been building awareness over the
last two years through increased TV advertising and developing
partnerships with popular ITV programmes such as "I'm a Celebrity,
Get Me Out of Here", "This Morning" and "In For a Penny". We have
also extended our focus on having our products displayed in press
features displaying our value credentials.
We can then harvest the interest generated by using data-driven
customer acquisition, with better targeting driving marketing
efficiencies. Once a customer comes to us, we then promote the
benefits of the credit proposition.
With more customers aware of Studio, attracted to our value
product offer and with the ability to responsibly accept more
applicants, we will drive up the number of new credit customers who
shop with Studio each year.
Our routes to growth #2 - CHOICE
Our second route to growth is around driving up our share of the
customer's wallet and the annual spend per customer through broader
product CHOICE. This growth route is likely to be the most
significant over the short to medium term, as we have identified
that our customers' current average spend benchmarks at around half
that of other large integrated online retailers. Studio's current
annual spend per customer is around GBP180 based upon the overall
base of 2.5m customers. However, we know that the spend from our
credit customers is higher than that at approximately GBP250 due to
the greater frequency of shopping from that cohort.
Much of Studio's new customer recruitment is driven by our
own-brand, great value products, such as our personalised nightwear
and wooden toy ranges. An opportunity exists to broaden sales in
future through a gradual widening and depth of product ranges . In
particular, we see a significant opportunity in clothing and
footwear, which makes up only around a quarter of our total sales
today, as this category tends to see greater order frequency.
Our research suggests that we have also historically
underperformed against our peers in higher-value ranges like
electricals, furniture and garden. Some progress has been made in
these ranges through the pandemic, but an opportunity still exists
which we expect will feed through to push up order values over
time. Our ambition through greater frequency, and greater order
value, is to increase spend per customer by around 20-25% over
time. We believe this to be a credible ambition as, even at this
level, it is still lower than competitor benchmarks.
This range extension, much of which can be sent direct to
customer by the supplier so that we do not stock the product, is
supported again by the use of data-driven marketing, predominately
through digital activity, to engage customers and offer tailored
financial services offers to further add to retention and
spend.
Our routes to growth #3 - PAYMENT OPTIONS
The third route to growth, by expanding our range of flexible
PAYMENT OPTIONS, is likely to be less visible in the short term,
but may create a strong longer-term opportunity. Our research
indicates that some customers or potential customers with better
credit profiles are attracted by Studio's great value products.
However, they do not need the current credit proposition that we
offer, which in turn leads to a lower frequency of product shopping
because they do not see the increased level of customer touchpoints
such as those generated by monthly account statements.
Recent changes to the technology used by Studio to underwrite
and responsibly oversee our credit accounts have allowed Studio to
vary the APR at the point of application using a tailored
rate-for-risk approach. This reduces the level of drop-out for
better-quality customers through the application process, as data
allows us to accept that profile of applicant with less friction in
the customer journey. It may also increase the proportion of
seemingly higher-risk customers that can be responsibly accepted by
asking supplementary questions and taking additional steps such as
the use of Open Banking to validate they can afford the credit
offered.
Recruiting a greater number of customers with a slightly
nearer-prime profile onto a relevant financial services product is
likely to increase the second income stream from interest, but also
increase the frequency of product shopping from this segment of the
population.
Digital Transformation
Studio has made progress over the last few years in gradually
replacing its legacy mainframe systems and IT architecture through
the development of a clear IT strategy built around data,
application and infrastructure architecture. Notable improvements
to the CRM, marketing and financial services underwriting systems
have created the flexibility for many of our colleagues to work
effectively from home during the pandemic.
The introduction of the Studio App in late 2019 has been a
significant contributor to the success of the business during FY21,
with over 1 million customers downloading the App. As well as now
accounting for over 20% of product sales in FY21, it has introduced
a virtually cost-free marketing channel via push notifications
which have been enabled by around two-thirds of its users.
There remains much still to do to achieve our ambition of
becoming a truly digital business, utilising data and technology in
all aspects of the business to improve customer experience and
engagement. We have therefore organised our ongoing transformation
activity around four workstreams:
-- Retail Transformation - delivering an upgraded real-time
experience for customers to improve retention; equipping colleagues
to better serve our customers; and encouraging our direct to
customer partners to provide better stock security and a better
delivery experience. This programme of activity will address most
of our existing customer pain points;
-- Data Strategy - this programme aims to deliver value-creating
insight that will drive the whole business, specifically supporting
product ranging decisions to increase choice and enabling us to
target our existing and new customers with the right offers more
cost-effectively;
-- Continuous improvement - an ongoing portfolio and programme
of continual improvement of our existing systems, delivering a
rhythm of incremental gains across the business enabling us to
underpin our value proposition;
-- IT Strategy - our programme to ensure our systems are built
on secure, reliable and scalable environments, including the
gradual retirement of the legacy mainframe environment.
Performance and Progress
FY21 represented a step-change in the level of performance for
Studio. The growth in its active customer base from 1.8m to 2.5m
customers included a number of cash-paying customers who found
Studio for the first time during the pandemic when the high-street
alternatives were closed. The number of customers within this total
who now have a credit account increased by 14% to 1.5m. The average
annual spend per customer increased by around 5% to GBP180, which
led to product revenue increasing by 43% over the year to GBP445.4m
(FY20: GBP311.7m).
The product margin rate increased by 290bp during the year to
end at 35.9%. The relative lack of promotional discounting from the
high street at points during the year is likely to have contributed
to some of this increase. However, the pandemic also led to factors
that reduced the overall margin, such as lower sales of "going out"
clothing and footwear which are normally higher-margin ranges, and
higher sales of electricals such as TVs, laptops and gaming
consoles which are normally lower-margin ranges. Management
estimate that mix effect to have been around -20bp, meaning that
the underlying increase in the margin rate through pricing and
better buying practices increased by 310bp.
The increase in the number of credit account customers led to
growth in the closing Eligible Receivables* book of 20%. Revenue
from financial services during the year grew at 8.2% to GBP133.2m,
due to lower fees being charged to customers who missed payments
due to the greater level of forbearance and payment holidays
offered to those most affected by the pandemic. Studio also
significantly increased the level of new customer recruitment
undertaken in the final quarter of the year, including via its
"Interest Saver" product that allows customers to repay over either
3 or 6 months without accruing any interest.
Studio estimated that the increase in its bad debt provision
required at the end of March 2020 by the sudden deterioration in
future economic prospects caused by the start of the pandemic to be
around GBP20m. There are too many competing factors to allow us to
identify reliably how much of this increase now remains within the
closing provision at March 2021. The book has grown significantly
during FY21, there are a higher proportion of new customers within
the portfolio at the year-end although the overall quality of new
recruits during the year has improved, and the future economic
outlook is less pessimistic than a year ago. However, management's
analysis of the arrears profile of the portfolio indicates that
some customers have benefitted from the temporary regulatory
support put in place by the government to protect jobs and incomes.
We therefore believe that some of these customers are in a better,
lower-provision state than will ultimately be appropriate.
Judgement has therefore been applied in determining the year-end
provision, which has increased it by approximately GBP13m from the
central level derived from the normal forecasting model. That in
turn leads to a bad debt charge for the year of GBP45.7m, compared
to the underlying level of GBP37.6m in FY20 (or GBP53.9m including
the GBP20m additional Covid estimate offset by the GBP3.7m change
to model estimate reported in FY20).
The gross profit for Studio therefore increased to GBP247.4m, up
by 31.3% using the underlying measure of bad debt. Marketing costs
increased by 8.8% to GBP34.5m, a much lower rate than the growth in
customers and revenue, due to lower tariffs being available on
certain channels at various times during FY20. Normal tariffs
appear to have returned by the start of FY22.
Distribution costs have inherently increased alongside the
growth in product revenue. Admin costs have also increased with the
Group incurring additional payroll costs, higher variable overheads
through increased alongside activity and high costs through the
investment in both people and IT systems.
The adjusted operating profit* was therefore GBP61.7m, an
increase of 58.1% on the GBP39.1m seen in FY20.
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
FINANCE REVIEW
Adjusted profit before tax*
The Group reported an adjusted profit before tax from continuing
operations of GBP48.8m, as set out in the table below. Full
reconciliations between the adjusted figures presented below and
their statutory equivalents are shown in the Alternative
Performance Measures section below.
2020
2021 (Restated**) Change
GBP000 GBP000 GBP000
---------------------------------- ------- ------------- -------
Continuing operations
Studio 61,744 39,051 22,693
Central (3,757) (1,235) (2,522)
---------------------------------- ------- ------------- -------
Adjusted operating profit* 57,987 37,816 20,171
Net finance costs (9,175) (10,491) 1,316
Adjusted profit before tax* 48,812 27,325 21,487
Individually significant costs (1,053) (6,807) 5,754
Estimated impact of COVID-19
on 2020 impairment charge - (20,000) 20,000
Change in impairment accounting
estimate in 2020 - 3,675 (3,675)
Fair value movement on derivative
financial instruments (6,085) 2,608 (8,693)
---------------------------------- ------- ------------- -------
Profit before tax 41,674 6,801 34,873
---------------------------------- ------- ------------- -------
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below
** balances have been restated as set out in note 1 to the Group
Financial Information below .
The key elements of this improved performance are discussed
above.
Individually significant items totalling GBP1.1m (FY20: GBP6.8m)
were incurred, as discussed in more detail below and set out in
Note 3 to the Group Financial Information below. The fair value
movement on derivative financial instruments was a charge of
GBP6.1m (FY20: credit of GBP2.6m). This is presented below the
adjusted profit before tax* on the income statement as it relates
to the reversal of prior year fair value movements net of the
revaluation of hedging contracts that will unwind during FY22.
Individually significant items
The Strategic Review announced in December 2020 included a
formal sale process for the Group as a whole, in addition to the
successful sale of Education. Professional fees incurred in
relation to that former element, totalling GBP0.8m have been
recorded as an individual significant item. Fees relating to the
sale of Education are included within discontinued operations.
A further High Court decision relating to the historical
treatment of Guaranteed Minimum Pensions was issued during the
second half of the year and builds on similar previous decisions on
this topic. The impact of the court's findings when applied to
Studio's legacy defined benefit pension scheme is an additional
charge of GBP0.8m which has been recorded as an increase to
past-service benefits and therefore taken through the income
statement. However, due to its nature, and in line with the
approach taken in the past, the item has been recorded as an
individually significant item.
A review of the ongoing use of the Group's former head office
property in Hyde has been undertaken in light of the sale of
Education and planned changes to the use of this property as we
emerge from the pandemic into more hybrid working. That has led to
a reduction in the level of impairment previously recorded against
this the right-of-use property asset of GBP0.5m, which has been
recorded within individually significant items to be consistent
with the previous impairment treatment.
Discontinued Operation - Education
Education reported an adjusted operating loss* for the year of
GBP0.4m (FY20 profit restated: GBP2.4m). An impairment charge of
GBP11.1m was recorded against the carrying value of its intangible
assets to align with the value achieved upon the subsequent sale of
the business in April 2021. Associated disposal costs totalling
GBP2.5m have also been recorded within discontinued operations.
Pensions
The net valuation on the Group's legacy defined benefit scheme
at the end of FY21, measured in accordance with IAS 19, reduced
from a surplus of GBP31.7m at March 2020 to GBP20.8m at March 2021
due to reductions in the assumed level of future returns.
The IAS 19 valuation has no bearing on the contributions made by
the Group to the scheme, which is instead derived from the
triennial valuation of the scheme. The most recent valuation
measured as at April 2019 concluded during the year leading to a
continuation of contributions totalling GBP5.0m p.a. until
September 2023. The lump-sum contribution of GBP13m and lower
contributions noted in the FY20 accounts relating to the proposed
sale of Education to YPO did not occur as they were contingent upon
completion of that sale, which did not occur.
As part of the subsequent agreement to sell Education to Endless
LLP, the Group made an additional contribution of GBP9m into the
scheme in May 2021. This has brought the valuation of the scheme
measured by reference to the actuarial targets into surplus. The
Company is therefore working with the scheme's trustees to explore
options to remove this potentially volatile liability from the
balance sheet, including the potential use of insurance.
Taxation
The Group posted a charge of GBP8.6 m in the year in respect of
taxation for continuing operations (FY20: credit of GBP0.2m). The
underlying effective tax rate* for the year was 20.6% (FY20
restated: 18.2%).
Earnings per share
The adjusted earnings per share* for the year from continuing
operations was 44.9p in FY20 (FY20 restated: 12.1p). The basic
earnings per share from continuing operations was 38.2p per share
(FY20 restated: 8.2p).
Summary balance sheet
2020
2021 (restated) Change
GBP000 GBP000 GBP000
---------------------------------- --------- ----------- --------
Intangible fixed assets 22,761 41,837 (19,076)
Tangible fixed assets 58,188 68,144 (9,956)
Net working capital 250,189 222,787 27,402
Net debt* (293,006) (298,573) 5,567
Net assets of disposal group held
for sale 26,572 - 26,572
Other net assets 20,214 39,801 (19,587)
Net assets 84,918 73,996 10,922
---------------------------------- --------- ----------- --------
Consolidated net assets amounted to GBP84.9m at the period end
(FY20 restated: GBP74.0m) as summarised above, reflecting the net
profit reported and the actuarial remeasurements in respect of the
pension deficit. The net assets are equivalent to 98p per ordinary
share (FY20 restated: 86p per ordinary share).
Cash flow and borrowings
After taking account of interest and the net impact of finance
leases, the Group's core net debt reduced by GBP24.3m to GBP27.3m
(FY20: GBP51.8m ), as summarised below.
Total net debt* at the year-end was as follows:
2020
2021 (restated) Change
GBP000 GBP000 GBP000
------------------------------------ -------- ----------- --------
External bank borrowings (excluding
securitisation facility) 65,000 85,000 (20,000)
Less total cash (37,443) (33,163) (4,280)
------------------------------------ -------- ----------- --------
Core net debt* 27,557 51,837 (24,280)
Securitisation drawings 225,000 197,591 27,409
Lease liabilities 40,449 49,145 (8,696)
Net debt* 293,006 298,573 (5,567)
------------------------------------ -------- ----------- --------
The Group's revolving credit facility was refinanced in June
2021, with the available level of facilities now scheduled to be
GBP50m until the end of September 2024. The securitisation facility
was increased from GBP200m to GBP225m during the year, and then
subsequently increased further to GBP250m in April 2021 to cater
for the continued growth in Studio's trade receivables. The final
maturity date of the securitisation facility is the earlier of 30
December 2028 or the date on which drawings in respect of eligible
receivables in place at 30 December 2022 are repaid. Under the
current agreement, the Group cannot make additional drawings on the
facility after 30 December 2022.
Dividends and capital structure
Dividends totalling GBP110m were received by the Company from
its subsidiaries during the period and its balance sheet as at 26
March 2021 shows a surplus of GBP9.9m on its retained reserves
(FY20: deficiency of GBP73.3m).
The 166.9m convertible ordinary shares in the Company
automatically converted to become non-voting deferred shares on 23
March 2021. The Company is able to repurchase and cancel these
shares for a nominal sum, which it plans to do later in FY22.
Our ambition over the next few years is to invest in our digital
capabilities in order to increase the level of potentially
distributable reserves within the primary operating subsidiary,
Studio Retail Limited, to enable it to remit dividends to Studio
Retail Group plc. Studio Retail Group plc does not have plans to
reinstate dividend payments at this stage. The Directors have
determined that no interim dividend will be paid (FY20: GBPnil) and
are not recommending the payment of a final dividend (FY20:
GBPnil).
Treasury and risk management
The Group's central treasury function seeks to reduce or
eliminate exposure to foreign exchange, interest rate and other
financial risks, to ensure sufficient liquidity is available to
meet foreseeable needs and to invest cash assets safely and
profitably. It does not engage in speculative transactions and
transacts only in relation to underlying business requirements in
accordance with approved policies.
Interest rate risk management
The Group's interest rate exposure is managed by the use of
derivative arrangements as appropriate. The Group has purchased
interest rate caps covering the period to July 2021 to protect
against the risk of unforeseen increases to LIBOR rates.
Net interest costs for the year for continuing operations were
GBP9.2m, (FY20: GBP10.5m), with a reduction being largely caused by
the significant increase in the opening pension scheme surplus of
GBP31.7m, together with lower LIBOR and a lower borrowing margin.
Finance charges were covered 6.3 times by adjusted operating
profit* (FY20 restated: 3.6 times).
Currency risk management
A significant proportion of the products sold by Studio are
procured through the Group's Far-East buying operations and beyond.
The currency of purchase for these goods is principally the US
dollar.
The Group's hedging policy aims to cover anticipated future
exposures on a rolling 12-month basis. As at the balance sheet
date, the Group had forward contracts with an outstanding principal
of $104m (FY20: $91m) and an average rate of GBP1/$1.33 (FY20:
$1.286). The market value and unrealised loss on those contracts as
at the balance sheet date, less the reversal of the equivalent
valuation as at the end of March 2020, was a charge of GBP6.1m
(FY20: gain of GBP2.6m). This is presented separately on the Income
Statement as it represents an element of product costs to be
realised in FY22 as the contracts unwind. The Group currently has
forward contracts in place with an outstanding principal of $91.5m
covering the 12 months to June 2022.
In addition to this direct exposure, the divisions face a
significant level of indirect exposure from supplies made by UK
suppliers who in turn source goods from overseas. That risk is
normally mitigated through a combination of supplier agreements and
fixed term pricing, although from time to time there may be a
requirement to increase prices to customers to maintain
margins.
Borrowing and counterparty risk
The Group's exposure to borrowing and cash investment risk is
managed by dealing only with banks and financial institutions with
strong credit ratings.
Alternative Performance Measures
The Directors use several Alternative Performance Measures
("APMs") that are considered to provide useful information about
the performance and underlying trends facing the Group. As these
APMs are not defined by IFRS, they may not be comparable with APMs
shown in other companies' accounts. They are not intended to be a
replacement for, or be superior to, IFRS measures.
The principal APMs used by management are set out below.
Adjusted profit before tax
this measure is used by management to assess the underlying
trading performance of the Group from period to period.
In both the current and prior period, the following items have
been excluded in arriving at adjusted PBT:
-- Individually significant items are, due to their nature or
scale, not reflective of the underlying performance of the Group.
The Directors believe that presenting these items separately aids
year on year comparability of performance.
-- The Group's foreign exchange hedging policy means that there
will be unrealised fair value gains or losses at the period end
relating to contracts intended for future periods. Those fair value
movements are therefore excluded from the underlying performance of
the Group until realised.
In the prior period, owing to the impact of Covid-19, the
ongoing disposal process in respect of the sale of Education to YPO
and the adoption of IFRS 16 Leases ("IFRS 16), further items were
adjusted for to ensure the figures were presented on a consistent
basis:
1. The GBP20m estimated impact of Covid-19 on the impairment
charge in Studio was excluded in reaching like-for-like adjusted
operating profit and profit before tax to enable comparability with
the results of the prior periods and to allow a fair (although
estimated) assessment of the business' underlying trading
performance excluding Covid-19.
2. During the prior period, the Group refined its impairment
models to make use of more up to date customer data that was more
reflective of current credit policies and operational processes.
The availability of this more granular and up to date information
enabled management to refine its estimate in respect of the level
of impairment provision required and resulted in reduction in the
level of provision required by GBP3.8m. Since this change was not
reflective of the underlying performance of the receivables
portfolio, it was excluded when arriving at like-for-like adjusted
operating profit and profit before tax to enable to allow a fair
and balanced assessment of the business' underlying trading
performance in FY20.
3. IFRS 16 was adopted for the first time in FY20 using the
modified retrospective adoption approach. In effect, this meant
that the FY20 income statement was presented on an IFRS 16 basis,
whilst the FY19 comparative was stated based on the requirements of
IAS 17 Leases ("IAS 17"). In order to allow for a like-for-like
comparison, and to present results on a consistent basis with that
used to formulate market consensus, the impact of IFRS 16 was
excluded in reaching like-for-like adjusted operating profit and
profit before tax.
4. IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations ("IFRS 5"). Since the Group was engaged in an active
sale process from September 2019 onwards, Education met the
criteria to classified as held for sale and as a result, its FY20
results were presented separately in a single, post-tax "result
from discontinued operation" line in the income statement. In
addition, the amortisation of intangible assets relating to
Education, which arise upon consolidation, and were previously
disclosed within Central costs, were included within the result
from discontinued operation. IFRS 5 also required that no
depreciation or amortisation be recorded against Education once it
was classified as held for sale. As such, depreciation and
amortisation charged in H2 of FY20 was reversed. In order to make
the presentation of results fair, balanced and understandable, and
since Education was run as an active part of the Group throughout
FY20, all IFRS 5 adjustments were reversed when arriving at the
like-for-like adjusted operating profit and profit before tax (i.e.
its results were presented as they would have been if the disposal
process had not taken place).
In order to allow for a fair comparison with the results for
FY21, adjustments 1 and 2 will still be made to in arriving at an
equivalent adjusted profit before tax measure for FY20.
Since the requirements of IFRS 16 have been applied in both FY21
and FY20, the adjustment set out in 3 is no longer required to aid
comparability.
Since the Education business met the criteria to be held for
sale at 26 March 2021, its results have been presented separately
in the consolidated income statement in both the 52-week period
ended 26 March 2021 and the 52-week period ended 27 March 2020.
Since the business was involved in two disposal processes during
FY21 and was sold in April 2021, management have concluded that the
results of Education are no longer relevant when assessing the
underlying performance of the Group and have therefore focused on
the results from continuing operations.
A reconciliation from adjusted profit before tax to profit
before tax is shown below:
2021 2020
GBP000 GBP000
------------------------------------------ -------- ---------
Adjusted profit before tax 48,812 27,325
Individually significant items (1,053) (6,807)
MTM on derivatives (6,085) 2,608
Estimated impact of COVID-19 on 2020
impairment charge - (20,000)
Change in impairment accounting estimate
in 2020 - 3,675
------------------------------------------ -------- ---------
Profit before tax 41,674 6,801
------------------------------------------ -------- ---------
EBITDA before individually significant items and adjusted
operating before individually significant items
The calculation EBITDA before individually significant items and
adjusted operating before individually significant items is set out
in note 2 to the Group Financial Information.
Studio Product Gross Margin %
This is used as a measure of the gross profit made by Studio on
the sale of products only, which shows progress against one of
Studio's strategic pillars. It is derived as follows:
2021 2020
GBP000 GBP000
Product revenue 445,361 311,697
Less product cost of sales (285,556) (208,924)
------------------------------ ---------- ----------
Gross product margin 159,805 102,773
------------------------------ ---------- ----------
Gross product gross margin % 35.9% 33.0%
------------------------------ ---------- ----------
Studio underlying impairment loss as a % of revenue
This is an assessment of the underlying impairment loss incurred
in respect of Studio's trade receivables, which enables management
to assess the quality and performance of its trade receivables from
period to period. The estimated impact of COVID-19 and the change
in accounting estimate (detailed above) in the prior period are
excluded from the reported impairment loss when calculating this
measure, as they are not reflective of the underlying performance
of the receivables portfolio.
2021 2020
GBP000 GBP000
Reported impairment loss 45,689 53,930
Exclude estimated impact of
COVID-19 on 2020 impairment
charge - (20,000)
Exclude change in impairment
accounting estimate in 2020 - 3,675
------------------------------ -------- ---------
Underlying impairment loss 45,689 37,605
------------------------------ -------- ---------
Studio total revenue 578,601 434,894
------------------------------ -------- ---------
Studio underlying impairment
loss as a % of revenue 7.9% 8.6%
------------------------------ -------- ---------
Studio marketing costs to sales ratio
This measure allows management to assess the efficiency of our
marketing spend as we pursue our stated strategy of increasing the
profile of the Studio brand. It is calculated by dividing marketing
costs by product revenue.
2021 2020
GBP000 GBP000
Marketing costs 34,457 31,661
Product revenue 445,361 311,697
-------------------------------- -------- --------
Marketing costs to sales ratio 7.7% 10.2%
-------------------------------- -------- --------
Overall net debt
This measure takes account of total borrowings less cash held by
the Group and represents our total indebtedness. Management use
this measure for assessing overall gearing.
It is calculated as follows:
2021 2020
(Restated*)
GBP000 GBP000
------------------------------------- --------- -------------
Total bank loans 290,000 282,591
Lease liabilities 40,449 49,145
Less cash and cash equivalents (37,443) (33,163)
------------------------------------- --------- -------------
Overall net debt 293,006 298,573
------------------------------------- --------- -------------
Exclude impact of IFRS 16 (38,676) (47,882)
------------------------------------- --------- -------------
Overall net debt on a like-for-like
basis 254,330 250,691
------------------------------------- --------- -------------
* balances have been restated as set out in note 1 to the Group
Financial Information.
Core net debt
This measure excludes lease liabilities and securitisation
borrowings from net debt to show borrowings under the revolving
credit facility net of cash held by the Group. This is our
preferred measure of the indebtedness of the Group and is relevant
for covenant purposes.
It is calculated as follows:
2021 2020
(Restated*)
GBP000 GBP000
Net Debt 293,006 298,573
Lease liabilities (40,449) (49,145)
Less securitisation borrowings** (225,000) (197,591)
Core net debt 27,557 51,837
---------------------------------- ---------- -------------
** Disclosed within bank loans.
* balances have been restated as set out in note 1 to the Group
Financial Information.
Debt funding consumer receivables
The majority of Studio's trade receivables are eligible to be
funded in part from the securitisation facility, with the remainder
being funded from working capital. This measure indicates the face
value of trade receivables (before any impairment provision)
capable of being funded from the securitisation facility. It is
useful to management as it demonstrates the proportion of net debt
that is supported by paying customer receivables.
It is calculated as follows:
2021 2020
GBP000 GBP000
---------------------------------- -------- --------
Funded from securitisation loans 225,000 197,591
Funded from working capital 90,345 65,864
---------------------------------- -------- --------
Eligible receivables 315,345 263,455
---------------------------------- -------- --------
Securitisation % 71% 75%
---------------------------------- -------- --------
The drawings under the securitisation facility at the end of
March 2021 stood at the prevailing facility limit of GBP225m. The
lenders and the Group mutually agreed a variation to the facility
in April 2021 to increase the facility limit to GBP250m. If that
higher limit had been in place at the period end, then an advance
rate of 75% totalling GBP236.5m could theoretically have been
drawn.
Adjusted earnings per share
This measure shows the earnings per share given when
individually significant items and fair value movements on
derivative financial instruments are excluded from the profit after
tax figure. Details of how the adjusted earnings per share are
calculated can be found in note 6 to the to the Group Financial
Information.
Underlying effective tax rate
This measure shows the Group's effective tax rate when the tax
impact of individually significant items and other non-recurring
items are adjusted for. This measure allows management to assess
underlying trends in the Group's tax rate. It is calculated as
follows:
2021 2020
GBP000 GBP000
------------------------------------ -------- --------
Tax (charge)/credit (8,604) 241
Exclude tax impact of individually
significant items (200) (1,293)
Exclude impact of change in
corporation tax rate on deferred
tax assets & liabilities - (1,427)
Adjusted tax charge (8,804) (2,479)
------------------------------------ -------- --------
Profit before tax and individually
significant items 42,727 13,608
------------------------------------ -------- --------
Underlying effective tax rate 20.6% 18.2%
------------------------------------ -------- --------
Principal risks and uncertainties
Risk Root cause Key mitigating controls
Socio-economic
Pressures on the levels The economic outlook The expansion of our
of disposable income is uncertain, particularly digital activity and
available to lower in relation to the impact a shift in customer
socio-economic groups, of Covid-19, Brexit acquisition strategy
who form a core part and more broadly changes has broadened the overall
of Studio's customer in unemployment, interest customer footprint and
base. rates and inflation reduced our dependency
and wage restraint. on older, lower socio-economic
customer segments.
Successful implementation
of our strategies to
recruit and retain customers,
thereby increasing our
customer base, will
dilute this impact.
Management information
tools, alongside Studio's
governance framework,
identify trends within
the receivables portfolio
enabling strategic changes
to be proposed and implemented
promptly.
Financial Crime
The risk of financial Increasing cyber activity Continuing to embed,
crime being attempted and fraud rings makes develop and improve
or committed against this an area of higher our Business Incident
Studio, its customers potential risk. Management Process.
or employees.
The introduction of
enhanced fraud detection
capability and cyber
security protection,
including enhancements
to process and governance.
Technology The business remains The Business Continuity
Potential disruption highly dependent upon Framework continues
to the business due legacy systems both to evolve, with a continuation
to the instability in the support of running of resilience testing
of Studio's legacy the business on a daily and a review of recovery
IT systems and infrastructure. basis and the storage plans.
and protection of customer
data. The business has continued
to invest to update
its technology solutions
as it seeks to lower
its dependency on legacy
systems.
Financial
Execution and liquidity Funding growth within Appropriate debt facilities
risks from a substantial our integrated retail are in place for the
multi-year plan of and credit business medium term and regular
transformation and model is dependent on and rigorous viability
growth at Studio. the continued availability exercises are undertaken.
of debt facilities. The main debt facility
has recently been extended
to mature in September
2024 following the sale
of Findel Education
Any weakness in project Fiscal controls, including
and change management business forecasting
in the delivery of key in support of stock
priorities. and cash flow management.
A Change Committee operates
High level of demand within Studio to scrutinise,
on planning and resource prioritise and oversee
management to ensure resourcing and delivery
timely and on budget of transformation projects.
delivery.
There continues to be
a detailed process of
integrated cash management
to meet the demands
of (i) change and capital
deployment within the
business; alongside
(ii) daily operational
requirements.
People
Attracting and retaining Limited available experienced Significant progress
the right talent in staff in key business has been made in attracting
the business, particularly and technical areas new talent to the business
in the highly competitive and high demand for resulting in the renewal
areas of digital marketing, those people, of the senior management
IT development and teams throughout the
cyber security, to Group.
support the deployment
of our high growth Developing the business
digital strategy. as a regional employer
of choice is a key objective
and as such, enhanced
personnel frameworks
and reward strategies
are being developed.
Legal and Regulatory An ever-changing legal Policies, procedures
Failure to comply with and regulatory landscape and training are in
legal and regulatory which impacts the ways place for employees
developments could in which Studio currently whose role is impacted
result in significant operates, particularly by financial regulation
financial penalties, in respect of the consumer and Studio keeps these
including fines or credit aspect of Studio's under review.
sanctions and could business.
also leader to reputational A range of assurance
damage and/or restrictions activity is undertaken
on Studio's ability by Studio's three lines
to trade. of defence in order
to ensure compliance
to legal and regulatory
requirements.
Creation of a first
line risk team and planned
enhancement of the second
line Risk and Compliance
function to respond
to changing requirements.
--------------------------------- ---------------------------------
Supply chain disruption
A material interruption Brexit could lead to Studio's Shanghai sourcing
to the product supply new barriers to trade office is actively seeking
chain could reduce with some overseas countries. to widen the number
the level of retail of countries that it
trading In particular, Studio sources products from,
imports a relatively whilst retaining appropriate
high proportion of its quality standards.
retail products from
China, either sourced Studio has recently
directly or indirectly. changed its shipping
A further rise in geopolitical partner which has helped
tensions with China to increase the level
could lead to legislative of visibility of stock
or economic barriers in transit.
to trade being introduced.
--------------------------------- ---------------------------------
Warehousing
Any inability to operate While Studio has a number Appropriate disaster
from one of our key of warehouse facilities, recovery plans have
warehouse facilities there is a high dependency been developed and are
centres on its main facility periodically reviewed
in Accrington. and upgraded. The key
systems were last tested
successfully for recovery
in June 2021.
--------------------------------- ---------------------------------
Studio Retail Group plc
Group Financial Information
Consolidated Income Statement
52-week period ended 26 March 2021
Before
individually Individually
significant significant
items items Total
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ---------
Continuing operations
Revenue 462,298 - 462,298
Credit account interest 116,303 116,303
------------------------------------ ------------ ------------ ---------
Total revenue (including credit
interest) 578,601 - 578,601
------------------------------------ ------------ ------------ ---------
Cost of sales (285,556) - (285,556)
Impairment losses on customer
receivables (45,689) - (45,689)
------------------------------------ ------------ ------------ ---------
Gross profit 247,356 - 247,356
------------------------------------ ------------ ------------ ---------
Trading costs (189,369) (1,053) (190,422)
Analysis of operating profit:
- EBITDA* 72,968 (1,575) 71,393
- Depreciation, amortisation and
impairment reversal (14,981) 522 (14,459)
Operating profit 57,987 (1,053) 56,934
Net finance costs (9,175) - (9,175)
------------------------------------ ------------ ------------ ---------
Profit before tax and fair value
movements on derivative financial
instruments 48,812 (1,053) 47,759
------------------------------------ ------------ ------------ ---------
Fair value movements on derivative
financial instruments (6,085) - (6,085)
------------------------------------ ------------ ------------ ---------
Profit before tax 42,727 (1,053) 41,674
Tax (expense)/credit (8,804) 200 (8,604)
Profit from continuing operations 33,923 (853) 33,070
------------------------------------ ------------ ------------ ---------
Discontinued operation
Loss from discontinued operation,
net of tax (311) (10,984) (11,295)
------------------------------------ ------------ ------------ ---------
Profit for the period 33,612 (11,837) 21,775
------------------------------------ ------------ ------------ ---------
Profit attributable to owners
of the parent 33,612 (11,837) 21,775
Earnings/(loss) per ordinary share
from continuing operations
Basic 38.22
Diluted 37.38
from discontinued operation
Basic (13.06)
Diluted (12.77)
total attributable to ordinary
shareholders
Basic 25.16
Diluted 24.61
The accompanying notes are an integral part of this consolidated
income statement.
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
52-week period ended 27 March 2020 (restated)
Before
individually Individually
significant significant
items items Total
GBP000 GBP000 GBP000
------------------------------------ ------------ ------------ ---------
Continuing operations
Revenue 330,352 - 330,352
Credit account interest 104,542 - 104,542
------------------------------------- ------------ ------------ ---------
Total revenue (including credit
interest) 434,894 - 434,894
------------------------------------- ------------ ------------ ---------
Cost of sales (208,924) - (208,924)
Impairment losses on customer
receivables (53,930) - (53,930)
------------------------------------- ------------ ------------ ---------
Gross profit 172,040 - 172,040
------------------------------------- ------------ ------------ ---------
Trading costs (150,549) (6,807) (157,356)
Analysis of operating profit:
- EBITDA* 35,037 (5,648) 29,389
- Depreciation, amortisation and
impairment (13,546) (1,159) (14,705)
Operating profit 21,491 (6,807) 14,684
Net finance costs (10,491) - (10,491)
------------------------------------- ------------ ------------ ---------
Profit before tax and fair value
movements on derivative financial
instruments 11,000 (6,807) 4,193
------------------------------------- ------------ ------------ ---------
Fair value movements on derivative
financial instruments 2,608 - 2,608
------------------------------------- ------------ ------------ ---------
Profit before tax 13,608 (6,807) 6,801
Tax (expense)/credit (1,052) 1,293 241
Profit from continuing operations 12,556 (5,514) 7,042
------------------------------------- ------------ ------------ ---------
Discontinued operation
Profit from discontinued operation,
net of tax 1,571 (1,243) 328
------------------------------------- ------------ ------------ ---------
Profit for the period 14,127 (6,757) 7,370
------------------------------------- ------------ ------------ ---------
Profit attributable to owners
of the parent 14,127 (6,757) 7,370
------------------------------------- ------------ ------------ ---------
Earnings per ordinary share
from continuing operations
Basic 8.16
Diluted 8.12
from discontinued operation
Basic 0.38
Diluted 0.38
total attributable to ordinary
shareholders
Basic 8.54
Diluted 8.50
The accompanying notes are an integral part of this consolidated
income statement. A restated Consolidated Income Statement has been
presented in note 1.
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments
Consolidated Statement of Comprehensive Income
week period ended 26 March 2021
2021 2020 (restated)
GBP000 GBP000
-------------------------------------------------- -------- ---------------
Profit for the period 21,775 7,370
Other Comprehensive Income
Items that may be reclassified to profit
or loss
Cash flow hedges 20 28
Currency translation gain/(loss) arising
on consolidation 615 (443)
-------------------------------------------------- -------- ---------------
635 (415)
-------------------------------------------------- -------- ---------------
Items that will not subsequently be reclassified
to profit or loss
Remeasurements of defined benefit pension
scheme (15,877) 26,915
Tax relating to components of other comprehensive
income 3,017 (4,043)
-------------------------------------------------- -------- ---------------
(12,860) 22,872
-------------------------------------------------- -------- ---------------
Total comprehensive income for period 9,550 29,827
-------------------------------------------------- -------- ---------------
The total comprehensive income for the period is attributable to
the equity shareholders of the parent company Studio Retail Group
plc.
The accompanying notes are an integral part of this consolidated
statement of comprehensive income.
Consolidated Balance Sheet Company Number: 549034
at 26 March 2021
2021 2020 (restated)
GBP000 GBP000
------------------------------------------- --------- ---------------
Non-current assets
Intangible assets 22,761 41,837
Property, plant and equipment 58,188 68,144
Derivative financial instruments - 2
Retirement benefit surplus 20,837 31,695
Deferred tax assets 1,742 3,172
103,528 144,850
------------------------------------------- --------- ---------------
Current assets
Inventories 37,769 58,825
Trade and other receivables 291,225 245,240
Derivative financial instruments 55 3,250
Cash and cash equivalents 37,443 33,163
Current tax assets 507 1,718
------------------------------------------- --------- ---------------
Current assets excluding assets
held for sale 366,999 342,196
------------------------------------------------ --------- ---------------
Assets classified as held for sale 45,287 -
Total current assets 412,286 342,196
------------------------------------------- --------- ---------------
Total assets 515,814 487,046
------------------------------------------- --------- ---------------
Current liabilities
Trade and other payables (73,266) (76,943)
Lease liabilities (6,275) (6,853)
Derivative financial instruments (2,927) (36)
Provisions (5,185) (4,335)
Bank loans (65,000) -
------------------------------------------- --------- ---------------
Current liabilities excluding liabilities
held for sale (152,653) (88,167)
------------------------------------------- --------- ---------------
Liabilities directly associated
with the assets
held for sale (18,715) -
Total current liabilities (171,368) (88,167)
------------------------------------------- --------- ---------------
Non-current liabilities
Bank loans (225,000) (282,591)
Lease liabilities (34,174) (42,292)
Provisions (354) -
(259,528) (324,883)
------------------------------------------- --------- ---------------
Total liabilities (430,896) (413,050)
------------------------------------------- --------- ---------------
Net assets 84,918 73,996
------------------------------------------- --------- ---------------
Equity
Share capital 48,687 48,644
Translation reserve 936 321
Hedging reserve (6) (26)
Retained earnings 35,301 25,057
Total equity 84,918 73,996
------------------------------------------- --------- ---------------
The accompanying notes are an integral part of this consolidated
balance sheet.
Consolidated Cash Flow Statement
week period ended 26 March 2021
2021 2020 (restated)
GBP000 GBP000
--------------------------------------------------------- -------- ---------------
Profit for the period 21,775 7,370
Adjustments for:
Income tax charge/(credit) 5,625 (271)
Finance costs 9,447 10,998
Depreciation of property, plant and equipment 12,724 14,953
Impairment of property, plant and equipment 630 1,300
Impairment of intangible assets 11,075 -
Amortisation of intangible assets 5,489 2,313
Share-based payment expense 1,372 649
Fair value movements on financial instruments net of
premiums paid 6,085 (2,621)
Pension contributions less income statement charge (4,175) (4,792)
Operating cash flows before movements in working capital 70,047 29,899
Decrease/(increase) in inventories 9,600 (10,068)
Increase in receivables (57,871) (9,317)
Increase in payables 10,737 4,442
Increase in provisions 1,204 1,558
---------------------------------------------------------- -------- ---------------
Cash generated from operations before interest and
tax paid 33,717 16,514
Income taxes paid (5,482) (3,717)
Interest paid (10,453) (8,495)
Net cash from operating activities 17,782 4,302
---------------------------------------------------------- -------- ---------------
Investing activities
Proceeds on disposal of property, plant and equipment 23 -
Purchases of property, plant and equipment (6,812) (14,292)
Purchases of software and IT development costs and
other intangible assets (8,500) (530)
Net cash used in investing activities 15,289 (14,822)
---------------------------------------------------------- -------- ---------------
Financing activities
Payments of lease liabilities (5,615) (5,966)
Bank loans repaid (20,000) (10,000)
Securitisation loan drawn 27,409 22,046
Net cash from financing activities 1,794 6,080
---------------------------------------------------------- -------- ---------------
Net on increase/(decrease) in cash and cash equivalents 4,287 (4,440)
Cash and cash equivalents at the beginning of the period 33,163 37,603
Effect of foreign exchange rate changes on cash held (7) -
Cash and cash equivalents at the end of the period 37,443 33,163
---------------------------------------------------------- -------- ---------------
The accompanying notes are an integral part of this consolidated
cash flow statement.
Consolidated Statement of Changes in Equity
52-week period ended 26 March 2021
Translation (Accumulated
reserve Hedging losses)/retained
Share capital reserve earnings Total equity
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------- ----------- -------- ----------------- ------------
As at 29 March 2019 48,644 764 (54) (5,834) 43,520
Profit for the period
- as reported - - - 8,755 8,755
Reversal of IFRS 5 adjustment - - - (1,385) (1,385)
---------------------------------- ------------- ----------- -------- ----------------- ------------
Profit for the period
- restated - - - 7,370 7,370
Other Comprehensive income/(loss) - (443) 28 22,872 22,457
Transactions with owners
Share-based payments - - - 649 649
As at 27 March 2020 (restated) 48,644 321 (26) 25,057 73,996
Profit for the period - - - 21,775 21,775
Other Comprehensive income/(loss) - 615 20 (12,860) (12,225)
Transactions with owners
Issue of shares 43 - - (43) -
Share-based payments - - - 1,372 1,372
---------------------------------- ------------- ----------- -------- ----------------- ------------
As at 26 March 2021 48,687 936 (6) 35,301 84,918
---------------------------------- ------------- ----------- -------- ----------------- ------------
The total equity is attributable to the equity shareholders of
the parent company Studio Retail Group plc.
The accompanying notes are an integral part of this consolidated
statement of changes in equity.
Studio Retail Group plc
Notes to the Group Financial Information
1 Basis of preparation of consolidated financial information
The financial information set out herein does not constitute the
Company's statutory financial statements for the periods ended 26
March 2021 or 27 March 2020, but is derived from those financial
statements. Statutory financial statements for 2020 have been
delivered to the Registrar of Companies, and those for 2021 will be
delivered in due course. The financial statements were approved by
the Board of directors on 29 June 2021. The auditors have reported
on those financial statements; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under Section 498 (2)
or (3) of the Companies Act 2006.
Copies of the Company's statutory financial statements will be
available on the Group's corporate website. Additional copies will
be available upon request from Studio Retail Group plc, Church
Bridge House, Accrington, BB5 4EE.
The Group financial information has been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and, as regards the group
financial statements, International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union and in accordance with the accounting policies
included in the Annual Report for the period ended 27 March 2020
except as stated below.
Going concern
The directors have adopted the going concern basis in preparing
these financial statements after assessing the principal risks and
having considered the impact of severe but plausible downside
scenarios for COVID-19. The Group is financed by a securitisation
facility and a Revolving Credit Facility ("RCF"). The directors
considered the impact of the current COVID-19 environment on the
business, as disclosed in the strategic report, for the next 12
months, the viability period and the longer term. Whilst there is
inherent uncertainty in forecasts caused by COVID-19, the directors
have considered a number of impacts on sales, profits and cash
flows.
The directors have assumed that the Group's operations remain
open and that we will continue to be able to serve our customers in
the event of any further national lockdowns, as we have done since
March 2020. The downside sensitivities considered include a
reduction in new customer growth and existing customer spend, the
level of future forecast revenue and gross margin growth as well
the impact of economic factors (particularly unemployment rates) on
the ability of the Group's customer base to continue to shop with
us and to service their credit accounts. The directors also
considered the impact of these sensitivities occurring in
combination. In the event that one of or a number of these downside
scenario arise at the same time the directors consider they are
able to take reasonable mitigating actions, which include but are
not limited to, a reduction in discretionary capital expenditure
and a reduction in discretionary marketing spend. Implementing
these mitigating actions would enable the Group to continue to
operate within its existing facilities during the forecast
period.
The directors believe that the Group is well placed to manage
its financing and other business risks satisfactorily, noting that
further agreement would be required to make fresh drawings on the
securitisation facility after 30 December 2022 and its RCF matures
on 30 September 2024, and have a reasonable expectation that the
Group will have adequate resources to continue in operation for at
least 12 months from the signing date of these consolidated
financial statements. They therefore consider it appropriate to
adopt the going concern basis of accounting in preparing the
consolidated financial statements.
Non-current assets classified as held for sale and discontinued
operations
A non-current asset or a group of assets containing a
non-current asset (a disposal group) is classified as held for sale
if its carrying amount will be recovered principally through sale
rather than through continuing use, it is available for immediate
sale and sale is highly probable within one year.
On initial classification as held for sale, non-current assets
and disposal groups are measured at the lower of previous carrying
amount and fair value less costs to sell with any adjustments taken
to profit or loss. The same applies to gains and losses on
subsequent remeasurement although gains are not recognised in
excess of any cumulative impairment loss. Any impairment loss on a
disposal group first is allocated to goodwill, and then to
remaining assets and liabilities on pro rata basis, except that no
loss is allocated to inventories, financial assets, deferred tax
assets, employee benefit assets and investment property, which
continue to be measured in accordance with the Group's accounting
policies. Intangible assets and property, plant and equipment once
classified as held for sale or distribution are not amortised or
depreciated.
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operations that has been disposed of or is held for sale,
or is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs upon disposal or
when the operation meets the criteria to be classified as held for
sale, if earlier. When an operation is classified as a discontinued
operation, the comparative income statement is restated as if the
operation has been discontinued from the start of the comparative
period.
Findel Education
As at 27 March 2020 the Group's Education business was
classified as a discontinued operation as defined by IFRS 5
Non-current Assets Held for Sale and Discontinued Operations. Due
to the CMA's provisional findings, the planned transaction did not
proceed to completion and therefore we have restated the
comparative consolidated income statement for the 52-week period to
27 March 2020 and the consolidated balance sheet as at 27 March
2020 to present the results of Findel Education as a continuing
operation. An adjustment has also been made to opening equity to
reinstate GBP1,710,000 of depreciation and amortisation that was
not charged for the 26-week period to 27 March 2020 (i.e. the
period during which Findel Education was classified as held for
sale). This adjustment carries a deferred tax impact of GBP325,000,
therefore the net impact to opening reserves is GBP1,385,000.
On 16 April 2021 the Group's Education business was sold to West
Moorland 221 Limited, a newly formed company owned by investment
funds managed by Endless LLP. At 26 March 2021 the business met the
criteria to be accounted for as held for sale and as a discontinued
operation as defined by IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations . Education's results have therefore been
separated out in the consolidated income statement for the 52-week
period ended 26 March 2021, and its assets and liabilities have
been classified as held for sale in the consolidated balance sheet
at 26 March 2021. In addition, the comparative figures given in the
consolidated income statement for the 52-week period ended 27 March
2020 has been restated to show the results from this discontinued
operation separately, in order to enhance the comparability of the
results of the Group's ongoing businesses.
The restated Consolidated Income Statement and Consolidated
Balance Sheet shown below summarise the restatements made.
Reclassification of software
During the period, management performed a review of the Group's
accounting policies and identified that software that had
previously been disclosed within property, plant and equipment and
should been disclosed within intangible assets. Consequently,
software with a net book value GBP18,668,000 at 27 March 2020 has
been reclassified from property plant and equipment to intangible
assets. This is a balance sheet reclassification only and has no
impact on the income statement or net assets. A third balance sheet
has not been presented as management consider that this
reclassification does not have material effect on the information
in the statement of financial position at the beginning of the
preceding period, since the impact on net assets is GBPnil and the
total value of non-current assets remains unchanged. The group have
considered the tax consequences of this adjustment and have
conclude that there is no impact.
The restated Consolidated Balance Sheet shown below summarises
the restatement made.
Restated Consolidated Income Statement
As reported Restatement As restated
of discontinued
operations
GBP000 GBP000 GBP000
------------------------------------ ----------- ---------------- ------------
Continuing operations
Revenue 330,352 - 330,352
Credit account interest 104,542 - 104,542
------------------------------------- ----------- ---------------- ------------
Total revenue (including credit
interest) 434,894 - 434,894
------------------------------------- ----------- ---------------- ------------
Cost of sales (208,924) - (208,924)
Impairment losses on customer
receivables (53,930) - (53,930)
------------------------------------- ----------- ---------------- ------------
Gross profit 172,040 - 172,040
------------------------------------- ----------- ---------------- ------------
Trading costs (157,356) - (157,356)
Analysis of operating profit:
- EBITDA* 29,389 - 29,389
- Depreciation, amortisation and
impairment (14,705) - (14,705)
Operating profit 14,684 - 14,684
Finance costs (10,491) - (10,491)
------------------------------------- ----------- ---------------- ------------
Profit before tax and fair value
movements on derivative financial
instruments 4,193 - 4,193
------------------------------------- ----------- ---------------- ------------
Fair value movements on derivative
financial instruments 2,608 - 2,608
------------------------------------- ----------- ---------------- ------------
Profit before tax 6,801 - 6,801
Tax income 241 - 241
Profit from continuing operations 7,042 - 7,042
------------------------------------- ----------- ---------------- ------------
Discontinued operation
Profit from discontinued operation,
net of tax 1,713 (1,385) 328
------------------------------------- ----------- ---------------- ------------
Profit for the period 8,755 (1,385) 7,370
------------------------------------- ----------- ---------------- ------------
Profit attributable to owners
of the parent 8,755 (1,385) 7,370
------------------------------------- ----------- ---------------- ------------
Earnings per ordinary share
from continuing operations
Basic 8.16 - 8.16
Diluted 8.12 - 8.12
from discontinued operation
Basic 1.98 (1.60) 0.38
Diluted 1.97 (1.59) 0.38
total attributable to ordinary
shareholders
Basic 10.14 (1.60) 8.54
Diluted 10.09 (1.59) 8.50
Restated Consolidated Balance Sheet
at 27 March 2020
As reported Restatement Software reclassification Restated
of assets
held for sale
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- --- ----------- -------------- ------------------------- ---------
Non-current assets
Intangible assets 9 23,160 18,668 41,837
Property, plant and equipment 80,007 6,805 (18,668) 68,144
Derivative financial instruments 2 - - 2
Retirement benefit surplus 31,695 - - 31,695
Deferred tax assets - 3,172 - 3,172
111,713 33,137 - 144,850
--- ----------- -------------- ------------------------- ---------
Current assets -
Inventories 42,827 15,998 - 58,825
Trade and other receivables 235,227 10,013 - 245,240
Derivative financial instruments 3,250 - - 3,250
Cash and cash equivalents 33,163 - - 33,163
Current tax assets 1,718 - - 1,718
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Current assets excluding assets held for sale 316,185 26,011 - 342,196
---------------------------------------------- ----------- -------------- ------------------------- ---------
Assets classified as held for sale 60,570 (60,570) - -
Total current assets 376,755 (34,559) - 342,196
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Total assets 488,468 (1,422) - 487,046
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Current liabilities -
Trade and other payables (57,908) (19,035) - (76,943)
Lease liabilities (6,035) (818) - (6,853)
Derivative financial instruments (36) - - (36)
Provisions (4,335) - - (4,335)
Bank loans - - - -
--------------------------------------------- --- ----------- -------------- ------------------------- ---------
Current liabilities excluding liabilities held for
sale (68,314) (19,853) - (88,167)
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Liabilities directly associated with the assets
held for sale (24,684) 24,684 - -
Total current liabilities (92,998) 4,831 - (88,167)
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Non-current liabilities -
Bank loans (282,591) - - (282,591)
Lease liabilities (37,461) (4,831) - (42,292)
Provisions - - - -
Deferred tax liabilities (37) 37 - -
(320,089) (4,794) - (324,883)
--- ----------- -------------- ------------------------- ---------
Total liabilities (413,087) 37 - (413,050)
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Net assets 75,381 (1,385) - 73,996
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Equity -
Share capital 48,644 - - 48,644
Translation reserve 321 - - 321
Hedging reserve (26) - - (26)
Retained earnings 26,442 (1,385) - 25,057
Total equity 75,381 (1,385) - 73,996
-------------------------------------------------- ----------- -------------- ------------------------- ---------
Critical accounting judgements and key sources of estimation
uncertainty
In the course of preparing the consolidated financial
statements, management has made judgements and estimates that
affect the application of the Group's accounting policies and the
reported amounts of assets, liabilities, income and expenses.
Critical accounting judgements
Recognition of defined benefit pension surplus
At 26 March 2021 the Group's defined benefit pension scheme
showed a surplus of GBP20.8m (2020: GBP31.7m). This surplus has
been recognised in the Group's consolidated balance sheet. In
recognising the surplus, management exercised judgement as to
whether the Company (as sponsoring employer) has an unconditional
right to benefit from any pension surplus at some point in the
future (through refunds of surplus or reductions in future
contributions), in accordance with the requirements of IFRIC 14.
Management concluded that this was the case.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are as follows:
Studio's trade receivables
Studio's trade receivables are recognised on the balance sheet
at amortised cost (i.e. net of provision for expected credit loss).
At 26 March 2021 trade receivables with a gross value of GBP385.5m
(2020: GBP317.8m) were recorded on the balance sheet, less a
provision for impairment of GBP106.8m (2020: GBP101.8m).
An appropriate allowance for expected credit loss in respect of
trade receivables is derived from estimates and underlying
assumptions such as the Probability of Default and the Loss Given
Default, taking into consideration forward looking macro-economic
assumptions. Changes in the assumptions applied such as the value
and frequency of future debt sales in calculating the Loss Given
Default, and the estimation of customer repayments and Probability
of Default rates, as well as the weighting of the macro-economic
scenarios applied to the impairment model could have a significant
impact on the carrying value of trade receivables.
These assumptions are continually assessed for relevance and
adjusted appropriately. Revisions to estimates are recognised
prospectively.
The macro-economic drivers that impact the bad debt charge are
as follows:
-- Annual changes in unemployment rate;
-- Actual unemployment rate; and
-- Changes in average weekly earnings.
The latest economic scenarios are heavily influenced by the
impact of Covid-19 on the UK economy, in particular the impact on
unemployment.
We consider four economic scenarios, and apply a weighting based
on probability. These are:
-- Upside
Assumes unemployment would peak at 5.4% in financial Q3/Q4
before falling sharply as the economy returns more-or-less to
normal by the March 2022.
-- Baseline
The economy is expected to contract in financial Q1 as the
economy remains in lockdown for most of the quarter. But once
restrictions are lifted, much of normal life would be quickly
resumed. The economy is expected to regain the December 2019 level
of GDP in mid-2022.
-- Downside
A prolonged downturn in the economy, as ongoing consumer choose
to retain rather than spend their savings. The unemployment rate
peaks at 8% at the start of 2022 as workers leaving furlough
struggle to find employment.
-- Stress
Assumes a prolonged, deep downturn, with the virus mutating and
the vaccine proving less effective than hoped. Most of the country
remains restricted through next winter, resulting in higher
unemployment and a deterioration in customer payment performance as
a result.
The table below summarises the peak employment levels assumed
within each scenario, with the weightings we have applied to
each.
March 2021 March 2020
Scenario Unemployment Weighting Applied Unemployment Weighting Applied
Peak Peak
-------------- ------------------ ------------- ------------------
Upside c 5% 5% c 8% 25%
-------------- ------------------ ------------- ------------------
Baseline c 6% 50% c 10% 60%
-------------- ------------------ ------------- ------------------
Downside c 8% 35% c 14% 10%
-------------- ------------------ ------------- ------------------
Stress c 10% 10% c 20% 5%
-------------- ------------------ ------------- ------------------
We note that the impairment model was not designed to take into
account changes to customer payment and default performance arising
as a result of the Covid-19 pandemic, and that Covid-19 has
inherently impacted the economic inputs of the model. Whilst we
have not yet seen a significant increase in the level of customer
arrears resulting from the pandemic, nor have we seen a reduction
in customer payment rates, management's analysis of the arrears
profile of the portfolio indicates that some customers have
benefitted from the temporary regulatory support put in place by
the government to protect jobs and incomes. We therefore believe
that some of these customers are in a better, lower-provision state
than will ultimately be appropriate. Judgement has therefore been
applied in determining the year-end provision, which has increased
it by approximately GBP13m from the central level derived from the
normal forecasting model.
We note that the unprecedented level of uncertainty around the
impact of Covid-19 on the UK economy as a whole, and subsequently
on our customer base, continues to cause challenges in assessing
bad debt on a forward-looking basis.
Discount rate for pension scheme liabilities
At 26 March 2021 the Group's defined benefit pension scheme
showed a surplus of GBP20.8m (2020: GBP31.7m). Management makes use
of the PwC Single Agency corporate bond yield curve to derive the
discount rate applied to the scheme's projected cash flows, in the
calculation of its liabilities under IAS 19. Changes to the
discount rate applied could lead to significant changes in the
level of pension obligation recognised..
The carrying amounts of the assets and liabilities detailed
above are sensitive to the underlying assumptions used by
management in their calculation. It is reasonably possible that the
outcomes within the next financial year could differ from the
assumptions made, which would impact upon the carrying values
assumed.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any of the future
periods affected.
Other key accounting estimates which, although important
estimates, are not considered to be a significant risk of resulting
in a material adjustment within the next financial year are as
follows:
Inventory provisioning
The Group carries significant amounts of inventory against which
there are provisions for slow moving and delisted products. At 26
March 2021 a provision of GBP3.6m (2020 restated: GBP1.9m) was held
against a gross inventory value of GBP41.4m (2020 restated:
GBP60.8m).
Provisions are made against inventory based upon its location,
the planned method of sale, the age of inventory and the level of
holding compared to forecast sales levels. The provisioning
calculations require a high degree of judgement in assessing which
lines require provisioning against and the use of estimates around
historical recovery rates for slow moving and delisted
products.
If a further 10% of lines were assessed as being slow moving,
then the provision required would increase by approximately
GBP150,000. If the recovery rate assumed decreased by 10% then the
provision would increase by approximately GBP250,000. These
sensitivities reflect management's assessment of reasonably
possible changes to key assumptions which could result in
adjustments to the level of provision within the next financial
year.
Carrying value of right of use assets
The Group has rights of use assets of GBP30.7m as at 26 March
2021 (2020 restated: GBP39.4m) which is primarily made up of
property leases. These assets are held at cost less accumulated
depreciation and are tested annually for impairment. Tests for
impairment are primarily based on the calculation of a value in use
for each cash generating unit. This involves the preparation of
discounted cash flow projections, which require an estimate of both
future operating cash flows and an appropriate discount rate.
In determining the length of lease terms, the Group has made a
judgement based on the likelihood of extension, if applicable,
based on current and expected usage of the asset.
2 Segmental analysis
52 weeks ended 26 March 2021
Continuing operations Discontinued operation Group
Studio Central Total Education Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------- -------- ---------- ----------------------- ----------
Product revenue 445,361 - 445,361 71,432 516,793
Other financial services revenue 16,922 - 16,922 - 16,922
Credit account interest 116,303 - 116,303 - 116,303
---------- -------- ---------- ----------------------- ----------
Financial services revenue 133,225 - 133,225 - 133,225
Sourcing revenue 15 - 15 - 15
---------- -------- ---------- ----------------------- ----------
Reportable segment revenue 578,601 - 578,601 71,432 650,033
---------- -------- ---------- ----------------------- ----------
Product cost of sales (285,556) - (285,556) (46,686) (332,242)
Financial services cost of sales (45,689) - (45,689) - (45,689)
Sourcing costs of sales - - - - -
---------- -------- ---------- ----------------------- ----------
Total cost of sales (331,245) - (331,245) (46,686) (377,931)
---------- -------- ---------- ----------------------- ----------
Gross profit 247,356 - 247,356 24,746 272,102
---------- -------- ---------- ----------------------- ----------
Marketing costs (34,457) - (34,457) (2,120) (36,577)
Distribution costs (49,397) - (49,397) (4,968) (54,365)
Administrative costs (90,763) 229 (90,534) (14,867) (105,401)
---------- -------- ---------- ----------------------- ----------
EBITDA* 72,739 229 72,968 2,791 75,759
---------- -------- ---------- ----------------------- ----------
Depreciation and amortisation (10,995) (3,986) (14,981) (3,232) (18,213)
---------- -------- ---------- ----------------------- ----------
Operating profit before individually
significant items 61,744 (3,757) 57,987 (441) 57,546
---------- -------- ---------- ----------------------- ----------
Individually significant items - (1,053) (1,053) (13,561) (14,614)
---------- -------- ---------- ----------------------- ----------
Operating profit 61,744 (4,810) 56,934 (14,002) 42,932
---------- -------- ---------- ----------------------- ----------
Finance costs (9,175) (272) (9,447)
---------- -------- ---------- ----------------------- ----------
Profit before tax and fair value movements on
derivative financial instruments 47,759 (14,274) 33,485
---------- -------- ---------- ----------------------- ----------
Fair value movements on derivative financial
instruments (6,085) - (6,085)
---------- -------- ---------- ----------------------- ----------
Profit before tax 41,674 (14,274) 27,400
---------- -------- ---------- ----------------------- ----------
*Earnings before interest, tax, depreciation, amortisation, fair
value movements on derivative financial instruments and
individually significant items.
52 weeks ended 27 March 2020 (restated)
Continuing operations Discontinued operation Group
Studio Central Total Education Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------- -------- ---------- ----------------------- ----------
Product revenue 311,697 - 311,697 79,940 391,637
Other financial services revenue 18,617 - 18,617 - 18,617
Credit account interest 104,542 - 104,542 - 104,542
---------- -------- ---------- ----------------------- ----------
Financial services revenue 123,159 - 123,159 - 123,159
Sourcing revenue 38 - 38 - 38
---------- -------- ---------- ----------------------- ----------
Reportable segment revenue 434,894 - 434,894 79,940 514,834
---------- -------- ---------- ----------------------- ----------
Product cost of sales (208,924) - (208,924) (51,573) (260,497)
Financial services cost of sales (53,930) - (53,930) - (53,930)
Sourcing costs of sales - - - - -
---------- -------- ---------- ----------------------- ----------
Total cost of sales (262,854) - (262,854) (51,573) (314,427)
---------- -------- ---------- ----------------------- ----------
Gross profit 172,040 - 172,040 28,367 200,407
---------- -------- ---------- ----------------------- ----------
Marketing costs (31,661) - (31,661) (3,161) (34,822)
Distribution costs (37,372) - (37,372) (5,121) (42,493)
Administrative costs (70,508) 2,538 (67,970) (14,025) (81,995)
---------- -------- ---------- ----------------------- ----------
EBITDA* 32,499 2,538 35,037 6,060 41,097
---------- -------- ---------- ----------------------- ----------
Depreciation and amortisation (9,773) (3,773) (13,546) (3,720) (17,266)
---------- -------- ---------- ----------------------- ----------
Operating profit before individually
significant items 22,726 (1,235) 21,491 2,340 23,831
---------- -------- ---------- ----------------------- ----------
Individually significant items (5,648) (1,159) (6,807) (1,535) (8,342)
---------- -------- ---------- ----------------------- ----------
Operating profit 17,078 (2,394) 14,684 805 15,489
---------- -------- ---------- ----------------------- ----------
Finance costs (10,491) (507) (10,998)
---------- -------- ---------- ----------------------- ----------
Profit before tax and fair value movements on
derivative financial instruments 4,193 298 4,491
---------- -------- ---------- ----------------------- ----------
Fair value movements on derivative financial
instruments 2,608 - 2,608
---------- -------- ---------- ----------------------- ----------
Profit before tax 6,801 298 7,099
---------- -------- ---------- ----------------------- ----------
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
3 Individually significant items
An analysis of individually significant items arising during the
current and prior periods is as follows:
Continuing operations
2021 2020
GBP000 GBP'000
---------------------------------------------------------- ----------- -------
Strategic review costs (750) -
GMP equalisation adjustment (825) -
Reversal of impairment/(impairment) of right of use asset 522 (1,159)
Studio financial services redress and refund costs - (5,648)
--------------------------------------------------------------- ------- -------
(1,053) (6,807)
Tax credit in respect of individually significant items 200 1,293
Total (853) (5,514)
--------------------------------------------------------------- ------- -------
Discontinued operation
2021 2020
GBP000 GBP'000
-------------------------------------------------------- -------- -------
Disposal costs (2,486) (1,535)
Impairment of intangible assets (11,075) -
(13,561) (1,535)
Tax credit in respect of individually significant items 2,577 292
Total (10,984) (1,243)
--------------------------------------------------------- -------- -------
Costs of GBP750,000 were incurred in respect of the strategic
review which was undertaken by the business during the period.
In October 2018, the High Court handed down a judgement
involving the Lloyds Banking Group's defined benefit pension
schemes. The latest ruling in November 2020, the 'Lloyds III
judgment', concluded that schemes will now need to review past
transfer values and consider whether any top up would be required
to equalise those benefits. There is no limit to the look back
period and Trustees will need to consider any transfer values paid
where a member has accrued service between 17 May 1990 and 5 April
1997. After discussion with the trustees, actuaries and legal
advisors of our fund, a past service cost of GBP825,000 was
recognised in the current period to address this historical
issue.
During the period the Group reassessed the use of the Hyde
property which resulted in an impairment reversal of GBP522,000. A
prior period charge of GBP1,159,000 was recorded in respect of the
impairment of the right of use asset for the Group's property at
Hyde following Education being classified as held for sale from
September 2019 onwards. The right of use asset in respect of the
Hyde property was assessed for impairment individually rather than
part of a cash generating unit.
A charge of GBP5,648,000 was recorded in the prior period in
respect of an increase in provisions for redress and refunds for
flawed financial services products.
Disposal costs of GBP2,486,000 were incurred during current
period (2020: GBP1,535,000) in relation to the aborted sale of
Education to YPO and the subsequent sale to West Moorland 221
Limited. These costs have been disclosed within the result from
discontinued operation in accordance with IFRS 5.
An impairment of GBP11,075,000 has been recorded against the
intangible assets of the Education business. This has been
calculated based on the FVLCS following the disposal of the
business.
A charge of GBP5,648,000 was recorded in the prior period in
respect of an increase in provisions for redress and refunds for
flawed financial services products.
4 Discontinued operation
On 16 April 2021, the Group entered into a definitive agreement
for the sale of Findel Education Limited to West Moorland 221
Limited, a newly formed company owned by investment funds managed
by Endless LLP for a gross consideration of GBP30.0 million on a
debt free, cash free basis paid in cash on completion. In addition
to the consideration, the Group has made available a working
capital facility of GBP2.0 million to Findel Education. The net
cash proceeds were used to make a voluntary payment to the Group's
defined benefit pension fund of GBP9.0 million with the remainder
used to reduce the Group's net debt.
An impairment review was conducted using the fair value less
costs to sell (FVLCS) methodology. FVLCS was compared to the
carrying value of the assets of the disposal group at 26 March
2021. An impairment of GBP11,075,000 was indicated and was recorded
against the brand names allocated to the Education CGU.
Education's results for the 52-week period to 26 March 2021 and
the 52-week period to 27 March 2020 have been presented to show the
discontinued operation separately from continuing operations and
are summarised below:
52 weeks 52 weeks
ended ended
26.03.21 27.03.20 (restated)
GBP000 GBP000
----------------------------- --------- --------------------
Revenue 71,432 79,940
Expenses (85,706) (79,642)
(Loss)/profit before tax (14,274) 298
Tax charge 2,979 30
------------------------------ --------- --------------------
(Loss)/profit for the period (11,295) 328
------------------------------ --------- --------------------
The major classes of assets and liabilities as at 26 March 2021
were as follows:
26.03.21
GBP000
----------------------------- --------
Assets
Intangible assets 11,012
Tangible assets 5,420
Deferred tax assets 5,514
Inventories 11,455
Trade and other receivables 11,886
------------------------------- --------
45,287
----------------------------- --------
Liabilities
Trade and other payables (13,622)
Lease liabilities (5,093)
(18,715)
Net assets of disposal group 26,572
------------------------------- --------
The net cash flow used in Education during the period was as
follows:
52 weeks ended
26.03.21
GBP000
--------------------- --------------
Operating cash flows (5,259)
Investing cash flows (897)
Financing cash flows 5,028
----------------------- --------------
Net cash flow (1,128)
----------------------- --------------
5 Current taxation
Tax charged/(credited) in the income statement
2021 2020
GBP000 GBP000
---------------------------------------------------- ------ -------
Current tax expense:
Current period (UK tax) 6,477 1,104
Current period (overseas tax) 10 166
Adjustments in respect of prior periods (UK tax)(2) (45) (986)
6,442 284
---------------------------------------------------- ------ -------
Deferred tax expense:
Origination and reversal of temporary differences 1,711 (96)
Adjustments in respect of prior periods(1)(2) 451 998
Impact of change in rate of corporation tax - (1,427)
2,162 (525)
---------------------------------------------------- ------ -------
Tax expense/(credit) from continuing operations 8,604 (241)
---------------------------------------------------- ------ -------
(1) The prior period adjustment in FY21 relates to a correction
of the current tax relief expected to be obtained in respect of the
adjustment made on the adoption of IFRS 9.
(2) The prior period adjustment in FY20 relates to the tax
treatment of a post balance sheet event recorded in the statutory
accounts of Studio Retail Limited, which resulted in the Group's
current tax liability for 2019/20 being lower than the level
assumed in the FY20 accounts. This led to a reduction in the level
of brought short-term temporary differences, which resulted in a
corresponding adjustment to deferred tax.
The Group believes that its accruals for tax liabilities are
adequate for all open tax years based on its assessment of many
factors, including interpretations of tax law and prior experience.
As at 26 March 2021 the Group held current tax assets of GBP507,000
(2020: GBP1,718,000).
(b) Tax recognised directly in other comprehensive income
2021 2020
GBP000 GBP000
------------------------------------- ------- ------
Deferred tax:
Tax on defined benefit pension plans (3,017) 4,043
------------------------------------- ------- ------
(c) Reconciliation of the total tax charge/(income)
The tax expense in the income statement for the period differs
from the standard rate of corporation tax in the UK of 19% (2020:
19%).
The differences are reconciled below:
2021 2020
GBP000 GBP000
--------------------------------------------------------------------- ------ -------
Profit before tax 41,674 6,801
Tax calculated at standard corporation tax rate of 19% (2020: 19%) 7,918 1,292
Effects of:
Expenses not deductible for tax purposes 293 21
(Lower)/higher tax rates on overseas earnings (9) 144
Deferred tax asset not previously recognised (4) (283)
Impact of change in rate of corporation tax on deferred tax balances - (1,427)
Adjustments in respect of prior periods 406 12
--------------------------------------------------------------------- ------ -------
Total tax expense/(credit) for the period 8,604 (241)
--------------------------------------------------------------------- ------ -------
6 Earnings per share
Earnings per share figures for the 52-week period ended 27 March
2020 have been restated to reflect the presentation of the results
of Education as a discontinued operation as defined by IFRS 5
Non-current Assets Held for Sale and Discontinued Operations .
Weighted average number of shares
---------------------------------------------------- ------------- -------------
2021 2020
No. of shares No. of shares
---------------------------------------------------- ------------- -------------
Ordinary shares in issue at the start of the period 86,442,534 86,442,534
Effect of share issue 122,596 -
Effect of own shares held (49,598) (114,808)
---------------------------------------------------- ------------- -------------
Weighted average number of shares - basic 86,515,53 2 86,327,726
---------------------------------------------------- ------------- -------------
Impact of potentially dilutive share options 1,946,164 412,383
---------------------------------------------------- ------------- -------------
Weighted average number of shares - diluted 88,461,696 86,740,109
---------------------------------------------------- ------------- -------------
From continuing operations
Earnings attributable to ordinary shareholders
-------
2021 2020
GBP000 GBP000
------------------------------------------------------------------------------------------ ------ -------
Net profit attributable to equity holders for the purposes of basic earnings per share 33,070 7,042
------------------------------------------------------------------------------------------ ------ -------
Individually significant items (net of tax) 853 5,514
Fair value movements on derivative financial instruments (net of tax) 4,929 (2,112)
------------------------------------------------------------------------------------------ ------ -------
Net profit attributable to equity holders for the purposes of adjusted earnings per share 38,852 10,444
------------------------------------------------------------------------------------------ ------ -------
Earnings per share
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - basic 38.22 8.16
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - adjusted* basic 44.91 12.10
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - diluted 37.38 8.12
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - adjusted* diluted 43.92 12.04
------------------------------------------------------------------------------------------ ------ -------
* Adjusted to remove the impact of individually significant
items and fair value movements on derivative financial
instruments.
From discontinued operation
(Loss)/earnings attributable to ordinary shareholders
------
2021 2020
GBP000 GBP000
---------------------------------------------------------------------------------------------- -------- ------
Net (loss)/profit attributable to equity holders for the purposes of basic earnings per share (11,295) 328
---------------------------------------------------------------------------------------------- -------- ------
Individually significant items (net of tax) 10,984 1,243
Fair value movements on derivative financial instruments (net of tax) - -
---------------------------------------------------------------------------------------------- -------- ------
Net (loss)/profit attributable to equity holders for the purposes of adjusted earnings per
share (311) 1,571
---------------------------------------------------------------------------------------------- -------- ------
(Loss)/earnings per share
---------------------------------------------------------------------------------------------- -------- ------
(Loss)/earnings per share - basic (13.06) 0.38
---------------------------------------------------------------------------------------------- -------- ------
(Loss)/earnings per share - adjusted* basic (0.36) 1.82
---------------------------------------------------------------------------------------------- -------- ------
(Loss)/earnings - diluted (12.77) 0.38
---------------------------------------------------------------------------------------------- -------- ------
(Loss)/earnings per share - adjusted* diluted (0.35) 1.81
---------------------------------------------------------------------------------------------- -------- ------
* Adjusted to remove the impact of individually significant
items and fair value movements on derivative financial
instruments.
Total attributable to ordinary shareholders
Earnings attributable to ordinary shareholders
-------
2021 2020
GBP000 GBP000
------------------------------------------------------------------------------------------ ------ -------
Net profit attributable to equity holders for the purposes of basic earnings per share 21,775 7,370
------------------------------------------------------------------------------------------ ------ -------
Individually significant items (net of tax) 11,837 6,757
Fair value movements on derivative financial instruments (net of tax) 4,929 (2,112)
------------------------------------------------------------------------------------------ ------ -------
Net profit attributable to equity holders for the purposes of adjusted earnings per share 38,541 12,015
------------------------------------------------------------------------------------------ ------ -------
Earnings per share
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - basic 25.16 8.54
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - adjusted* basic 44.55 13.92
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - diluted 24.61 8.50
------------------------------------------------------------------------------------------ ------ -------
Earnings per share - adjusted* diluted 43.57 13.85
------------------------------------------------------------------------------------------ ------ -------
* Adjusted to remove the impact of individually significant
items and fair value movements on derivative financial
instruments.
The earnings per share attributable to convertible ordinary
shareholders is GBPnil. The convertible shares have not converted
at 26 March 2021 or subsequently and are therefore not dilutive
from an earnings per share perspective.
7 Trade and other receivables
2021 2020 (restated)
GBP000 GBP'000
----------------------------------- --------- ---------------
Gross trade receivables 385,537 325,793
Allowance for expected credit loss (106,761) (101,936)
Trade receivables 278,776 223,857
Other debtors 246 5,804
Prepayments 12,203 15,579
----------------------------------- --------- ---------------
291,225 245,240
----------------------------------- --------- ---------------
Trade receivables are measured at amortised cost. The directors
consider that the Group's maximum exposure to credit risk is the
carrying value of the trade and other receivables and that their
carrying amount approximates their fair value.
Certain of the Group's trade receivables are funded through a
securitisation facility with HSBC Bank plc and is secured against
those receivables. The finance provider will seek repayment of the
finance, as to both principal and interest, only to the extent that
collections from the trade receivables financed allows and the
benefit of additional collections remains with the Group. At the
period end, receivables of GBP315,345,000 (2020: GBP263,455,000)
were eligible to be funded via the securitisation facility, and the
facilities utilised were GBP225,000,000 (2020: GBP197,591,000).
Studio
The average credit period taken on sales of goods is 203 days
(2020: 222 days). On average, interest is charged at 3.5% (2020:
3.5%) per month on the outstanding balance.
Studio will undertake a reasonable assessment of the
creditworthiness of a customer before opening a new credit account
or significantly increasing the credit limit on that credit
account. Studio will only provide credit for those customers that
can reasonably be expected to be able to afford and sustain the
repayments in line with the affordability and creditworthiness
assessment. Studio will only offer credit limit increases for those
customers that can reasonably be expected to be able to afford and
sustain the increased repayments in line with the affordability and
creditworthiness assessment. There are no customers who represent
more than 1% of the total balance of the Group's trade
receivables.
Where appropriate, the Group will offer forbearance to allow
customers reasonable time to repay the debt. Studio will ensure
that the forbearance option deployed is suitable in light of the
customer's circumstances (paying due regard to current and future
personal and financial circumstances). Where repayment plans are
agreed, Studio will ensure that these are affordable to the
customer and that unreasonable or unsustainable amounts are not
requested. At the balance sheet date there were 16,153 accounts
(2020: 11,685) with total gross balances of GBP10,453,000 (2020:
GBP7,656,000) on repayment plans. Provisions are assessed as
detailed above.
During the current period, overdue receivables with a gross
value of GBP52,609,000 (2020: GBP56,586,000) were sold to third
party debt collection agencies. As a result of the sales, the
contractual rights to receive the cash flows from these assets were
transferred to the purchasers. Any gain or loss between actual
recovery and expected recovery is reflected within the bad debt
charge in the income statement.
The following tables provide information about the exposure to
credit risk and ECLs for trade receivables from individual
customers as at 26 March 2021:
2021 2020
Trade receivables Trade receivables
Trade on forbearance Trade on forbearance
receivables arrangements Total receivables arrangements Total
Ageing of trade receivables GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ----------- ----------------- --------- ----------- ----------------- ---------
Not past due 305,099 9,433 314,532 236,980 6,524 243,504
Past due:
0 - 60 days 29,733 1,002 30,735 30,972 928 31,900
60 - 120 days 16,746 18 16,764 12,572 204 12,776
120+ days 23,502 - 23,502 29,605 - 29,605
---------------------------- ----------- ----------------- --------- ----------- ----------------- ---------
Gross trade receivables 375,080 10,453 385,533 310,129 7,656 317,785
Allowance for expected
credit loss (99,064) (7,697) (106,761) (96,135) (5,647) (101,782)
---------------------------- ----------- ----------------- --------- ----------- ----------------- ---------
Carrying value 276,016 2,756 278,772 213,994 2,009 216,003
---------------------------- ----------- ----------------- --------- ----------- ----------------- ---------
2021 2020
--------------------------------------- ---------
Stage 1 Stage 2 Stage 3 Total Total
----------------------------------- -------- -------- -------- --------- ---------
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- -------- -------- -------- --------- ---------
Gross trade receivables 265,751 74,441 45,341 385,533 317,785
----------------------------------- -------- -------- -------- --------- ---------
Allowance for expected credit loss
----------------------------------- -------- -------- -------- --------- ---------
Opening balance (22,093) (39,174) (40,515) (101,782) (87,906)
Impairment charge (19,081) (13,087) (22,799) (54,967) (65,564)
Utilised in the period 11,463 14,146 24,379 49,988 51,688
----------------------------------- -------- -------- -------- --------- ---------
Closing balance (29,711) (38,115) (38,935) (106,761) (101,782)
----------------------------------- -------- -------- -------- --------- ---------
Carrying value 236,040 36,326 6,406 278,772 216,003
----------------------------------- -------- -------- -------- --------- ---------
Analysis of impairment
charge
2021 2020
GBP'000 GBP'000
------------------------------------------ --------- ---------
Impairment charge impacting on provision (54,967) (65,564)
Recoveries 8,114 12,544
Other 1,164 (910)
Impairment Charge (45,689) (53,930)
------------------------------------------ --------- ---------
Allowance for expected credit loss
An appropriate allowance for expected credit loss in respect of
trade receivables is derived from estimates and underlying
assumptions such as the Probability of Default and the Loss Given
Default, taking into consideration forward looking macro-economic
assumptions. Changes in the assumptions applied such as the value
and frequency of future debt sales in calculating the Loss Given
Default, and the estimation of customer repayments and Probability
of Default rates, as well as the weighting of the macro-economic
scenarios applied to the impairment model could have a significant
impact on the carrying value of trade receivables.
Sensitivity analysis
Management judgement is required in setting assumptions around
probabilities of default, cash recoveries and the weighting of
macro-economic scenarios applied to the impairment model, which
have a material impact on the results indicated by the model.
A 1% increase/decrease in the probability of default would
increase/decrease the provision amount by approximately
GBP2.9m.
A 1% increase in the assumed recoveries rate would result in the
impairment provision decreasing by approximately GBP1.2m.
Changing the weighting of macro-economic scenarios applied to
the impairment model so that the base-case scenario's weighting is
halved to 25% (with severe doubling to 20% and the downside being
50%) would result in the impairment provision increasing by
approximately GBP0.9m.
A 1% increase in the peak unemployment in base-case scenario
would result in the impairment provision increasing by
approximately GBP0.4m.
These sensitivities reflect management's assessment of
reasonably possible changes to key assumptions which could result
in a material adjustment to the level of provision within the next
financial year.
Rest of the Group
Trade receivables are provided for based on estimated
irrecoverable amounts from the sale of goods, determined by
reference to past default experience.
Given the nature of the customer base within the rest of the
Group , it is not considered necessary to utilise formal credit
scoring. However, credit references are sought for all new
customers prior to extending credit. There are no customers who
represent more than 1% of the total balance of the Group's trade
receivables.
Included in the rest of the Group's trade receivables balance in
the prior period were debtors with a carrying amount GBP154,000
which were past due at the reporting date and were partially
provided against. There had not been a significant change in credit
quality and the amounts were still considered recoverable. The
Group did not hold any collateral over these balances. There were
no other receivables due at the year-end remaining after
reclassifying those as held for sale.
The carrying value of not past due trade receivables which are
unimpaired is GBPnil (2020 restated: GBP4,495,000).
The aged analysis of the carrying values of past due trade
receivables which are unimpaired is as follows:
2021 2020 (restated)
GBP'000 GBP'000
-------------- ------- ---------------
0 - 60 days - 2,121
60 - 120 days - 641
120+ days 4 443
Total 4 3,205
-------------- ------- ---------------
The aged analysis of the carrying values of past due trade
receivables which are impaired is as follows:
2021 2020
GBP'000 GBP'000
-------------- ------- -------
0 - 60 days - -
60 - 120 days - -
120+ days - 154
Total - 154
-------------- ------- -------
Movement in allowance for expected credit losses
Studio Rest of
Retail Group Total
GBP000 GBP000 GBP000
------------------------------------------ -------- ------- --------
Balance at 29 March 2019 87,906 124 88,030
Impairment losses recognised 65,564 56 65,620
Amounts written off as uncollectible (51,688) (26) (51,714)
Balance at 27 March 2020 (restated) 101,782 154 101,936
Impairment losses recognised 54,967 - 54,967
Amounts written off as uncollectible (49,988) - (49,988)
Impact of classification as held for sale - (154) (154)
Balance at 26 March 2021 106,761 - 106,761
------------------------------------------ -------- ------- --------
8 Provisions
(a) Provisions
Studio financial services redress and
Onerous leases refunds VAT provision Total
GBP000 GBP000 GBP000 GBP000
--------------------------- ---------------- -------------------------------------------- ------------- -------
At 29 March 2019 8,843 2,235 - 11,078
Released during the period (8,301) - - (8,301)
Provided during the period - 6,948 - 6,948
Utilised in the period (350) (5,040) - (5,390)
---------------------------- ---------------- -------------------------------------------- ------------- -------
At 27 March 2020 192 4,143 - 4,335
Transfer from accruals - - 1,925 1,925
Provided during the period 522 - 1,927 2,449
Utilised in the period (139) (3,031) - (3,170)
At 26 March 2021 575 1,112 3,852 5,539
---------------------------- ---------------- -------------------------------------------- ------------- -------
2021
Analysed as:
Current 221 1,112 3,852 5,185
Non-current 354 - - 354
-------------- --- ----- ----- -----
575 1,112 3,852 5,539
------------- --- ----- ----- -----
2020
Analysed as:
Current 192 4,143 -4,335
Non-current - - - -
--------------- --- ---- ----- -----
192 4,143 -4,335
--------------- --- ---- ----- -----
Onerous Leases
The onerous lease provision at 26 March 2021 relates to
(non-rent related) unavoidable costs in respect of the unused areas
of the Group's properties at Enfield and Hyde.
Studio financial services redress and refunds
Provisions in excess of GBP30m were built up in previous years
in relation to the anticipated refund of premiums and interest to
customers in respect of historic flawed credit and insurance
products. The refund programmes are now complete and the remaining
provision is expected to be utilised within 12 months.
VAT provision
The VAT provision relates to the Group's ongoing discussions
with HMRC with regard to agreeing a new Partial Exemption Special
Method (the means by which the recovery of input VAT on costs
relating the Group financial services activities is restricted). As
at 26 March 2021, the Group held a provision of GBP3.9m (2020:
GBP1.9m presented within accruals), which represents management's
best estimate of the likely increase in the level of restriction on
the recovery of input VAT over and above that which has already
been restricted in the Group's quarterly VAT returns. We note that
management's best estimate is one of a number of different outcomes
so the amounts provided may differ to the final cost incurred by
the Group in respect of this matter.
During the year, the Group has undertaken a review of the
accounting policy and transferred GBP1.9m in respect of this matter
from accruals to provisions. The prior year figure has not been
restated as management conclude that the quantum of the transfer is
not material to the users of the financial statements and note that
that both provisions and accruals are presented within current
liabilities.
(b) Contingent liability
As a regulated entity, the Group's main trading subsidiary,
Studio Retail Limited, is subject to legal and regulatory reviews,
challenges, and investigations during the ordinary course of
business. All such material matters are periodically reassessed,
with the assistance of external professional advisors where
appropriate, to determine the likelihood of the Group incurring a
liability. In those instances where it is concluded that it is more
likely than not that a payment will be made, a provision is
established to management's best estimate of the amount required at
the relevant balance sheet date.
.
9 Related parties
During the current and prior periods, the Group made purchases
in the ordinary course of business from Brands Inc Limited, a
subsidiary of Frasers Group plc , which is a significant
shareholder in the ultimate parent company, Studio Retail Group
plc. The value of purchases made and amounts owed at the 26 March
2021 and 27 March 2020 were as follows:
Brands Inc. Limited
2021 2020
GBP'000 GBP'000
--------------------- -------- --------
Purchases 6 43
Amounts owed - 17
--------------------- -------- --------
During the current period, Studio Retail Limited traded with
Panther Warehousing Limited, a company owned by Ingelby (2016) Ltd,
of which Greg Ball (a non-executive director of the Parent Company)
was non-executive chairman until November 2020. The trading
relationship was conducted on an arm's length basis. The value of
purchases made and amounts owed at the 26 March 2021 were as
follows:
2021
GBP'000
-------------- --------
Purchases 561
Amounts owed 22
-------------- --------
Transactions between Studio Retail Group plc and its
subsidiaries, which are related parties of Studio Retail Group plc,
have been eliminated on consolidation and are not discussed in this
note. All transactions and outstanding balances between group
companies are priced on an arm's-length basis and are settled in
the ordinary course of business.
Compensation of key management personnel
The remuneration of the Directors including consultancy
contracts and share-based payments, who are the key management of
the Group, is summarised below.
2021 2020
GBP000 GBP000
------------------------------ ------ ------
Short-term employee benefits 2,493 1,223
Company pension contributions 147 131
Long-term incentives 567 519
------------------------------ ------ ------
3,207 1,873
Share-based payments charge 707 318
3,914 2,191
------------------------------ ------ ------
By order of the Board
P R Kendrick S M Caldwell
Group CEO Group CFO
29 June 2021 29 June 2021
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END
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