TIDMSTU
RNS Number : 5236T
Studio Retail Group PLC
25 November 2021
25 November 2021
Studio Retail Group plc ("SRG" or "the Group")
Interim Results for the 26 weeks ended 24 September 2021
"Solid H1 performance, but challenging trading conditions in
Q3"
SRG, the digital value retailer, today announces its Interim
Results for the 26-week period ended 24 September 2021 and gives an
update on its performance in its peak trading period.
Financial Summary
26 weeks 26 weeks Change
ended 24.09.21 ended 25.09.20
Continuing operations (restated)^
Group revenue GBP239.6m GBP232.0m +3.2%
----------------- ----------------- ----------
Adjusted profit before tax* GBP23.7m GBP17.4m +36%
----------------- ----------------- ----------
Profit before tax GBP26.5m GBP15.9m +67%
----------------- ----------------- ----------
Core net debt* GBP20.8m GBP45.2m -GBP24.3m
----------------- ----------------- ----------
* this is an Alternative Performance Measure for which a
reconciliation to the equivalent GAAP measure can be found
below.
^ restated to show the results of Education as a discontinued
operation - see note 2.
Group summary
-- Group revenue in H1 of GBP239.6m, up 3.2% on prior year and
up 32% over two years following the exceptional growth seen during
FY21
-- Adjusted profit before tax* up 36% to GBP23.7m (2020 restated^: GBP17.4m)
-- Sale of Findel Education for headline consideration of GBP30m completed in April 2021
-- New GBP50m revolving credit facility agreed in June 2021,
with a further increase of GBP25m to the securitisation facility to
GBP275m recently approved (subject to contract) alongside a new
maturity date of December 2024
-- Core net debt* of GBP20.8m (September 2020: GBP45.2m), with
the strong H2 trading from last year and the proceeds from the sale
of Education being offset by the growth in receivables and the
extra investment in stock
Studio highlights
-- Product revenue in H1 up 0.3% on prior year and up 38% over two years
o Active credit base at the end of September down marginally to
1.46m, with spend per customer up 10.5% to GBP189
o Over 1.2m active Studio App users with 25% of purchases now
coming through this channel
-- Financial Services revenue in H1 up by GBP7.0m or 11.3% on prior year
o Representative APR for new customers reduced to 39.9%
o New technologies including Open Banking enabling a refined
strategy with a more stringent approach towards credit customer
acceptance and charging default fees, aimed at enhancing the
lifetime overall value to Studio whilst also ensuring fair outcomes
for customers
o Eligible Receivables* up by 12% on prior year, with a reduced
yield driven by lower fee income
o Bad debt charge GBP5.3m lower than prior year, due to improved
recovery rates and lower default fees being charged to
customers
Current trading and outlook
Studio is not immune to the well-publicised market headwinds and
has had to manage challenges in product shipping which has driven
up costs in this area. This will lead to selling price inflation
going forward, although we have competitive monitoring tools to
ensure we retain our value position. In addition, we have faced
some product availability issues as deliveries were delayed, but we
took a proactive decision to secure stock early aided by our
Shanghai based sourcing office, meaning that as we went into peak
season, we had higher levels of stock than last year and have good
tracking in place on all remaining deliveries due in the next
couple of weeks.
Again, as with the wider market, we have seen lower availability
of staff to fulfil temporary roles in our operations. However, by
putting in place peak season pay enhancements, we are now at a
point that we can cater with the demand forecast through December,
so customer orders are despatched in readiness for Christmas. As we
go into FY23 we are anticipating wage increases due to inflation
and increases to national living wage.
Studio typically delivers around 40% of its full-year product
sales during Q3, the period that includes Black Friday and
Christmas. Our core seasonal ranges have sold well throughout peak
and although sales of certain ranges, notably ladies clothing, have
been slower than expected, they have recovered well in the last two
weeks. Our impression is that customers are shopping more
selectively this year given inflationary pressures and the recovery
from the pandemic. The supply chain challenges have added cost and
gross margin pressure that has only partially been mitigated
through pricing. We have also recruited fewer new customers due to
marketing media inflation, lower availability hindering conversion,
plus changes previously described in our financial services
strategy that have had more of a short-term impact than
anticipated.
We will give a further update on this key trading period at the
end of January but our current expectation for the full-year
outturn of Adjusted PBT is now in a range of GBP35-40m (previously
GBP42-45m). Despite these short-term headwinds, many of which are
impacting the wider market, our strategy for growth remains intact
and we maintain our GBP1bn revenue goal in the medium term.
Paul Kendrick, Group CEO , commented:
"I am pleased with how the business has built on the success
seen during FY21 in delivering a solid trading performance in the
first half of the year. There are undoubtedly more near-term
headwinds for all retailers, but we are confident that the
proactive decisions we have taken will leave us well placed to
navigate these. We continue to focus on our strategy set out in
June, and our objective remains to drive growth with Studio's
outstanding digital value proposition for its customers at the
forefront. We remain confident in our medium-term targets."
A video overview of the results from Paul Kendrick, Group CEO
and Stuart Caldwell, Group CFO, is available to watch here on the
company's website, www.studioretail.group/investor-centre . They
will be hosting a conference call for analysts and investors at
9.30am this morning, Thursday, 25th November. To register for the
call, please contact Tulchan Communications LLP at
studio@tulchangroup.com or by telephone on 020 7353 4200.
This announcement contains inside information. The person
responsible for arranging the release of it on behalf of SRG is
Stuart Caldwell, Group CFO.
Enquiries
Studio Retail Group plc 0161 303 3465
Paul Kendrick, Group CEO
Stuart Caldwell, Group CFO
Tulchan Communications 020 7353 4200
Sunni Chauhan
Will Palfreyman
Notes to Editors
LEI number: 2138006V9ZT2KO6PZY81
Studio Retail is a market-leading digital value retailer
offering its UK customers a broad range of products and a flexible
repayment proposition. Around 2.3m customers are able to enjoy
clothing and footwear alongside home and electrical products, plus
more seasonal ranges, many of which can be personalised for free.
The medium-term ambition is to achieve over GBP1bn of revenue,
through the following three levers for growth: Value, Choice,
Payment.
Forward looking statements
This document may contain forward looking statements. In
particular, but without limitation, nothing contained in this
document should be relied upon or construed as a promise or a
forecast, including any projection or management estimate, any
statements which contain the words "anticipate", "believe",
"intend", "estimate", "expect", "forecast" and words of a similar
meaning, reflect the management of the Company's current beliefs
and expectations and are subject to risks and uncertainties that
may cause actual results to differ materially. Given these risks
and uncertainties, prospective investors are cautioned not to place
undue reliance on such statements. Any forward-looking statements
speak only as at the date of this document, and except as required
by applicable law, Studio Retail Group plc undertakes no obligation
to update or revise publicly any forward-looking statements,
whether as a result of new information or otherwise.
INTERIM MANAGEMENT REPORT
Summary
Following the transformational performance seen in FY21, the
trading performance during the first half of FY22 was one of
consolidation, as anticipated. Product revenue increased by 0.3%,
with Financial Services revenue up by 11.3%. Adjusted profit before
tax increased by 36% to GBP23.7m (H1-2020: GBP17.4m), primarily due
to the stronger Financial Services performance and lower bad debt
charges.
Having completed the sale of Findel Education in April 2021 and
with new financing facilities secured in June 2021, we set out our
growth strategy for the Studio Retail business at our Capital
Markets Day at the end of June 2021 with the ambition to reach
total revenue of GBP1bn in the medium term.
Whilst the near-term market conditions have contained numerous
well-publicised headwinds, we remain confident in Studio's
proposition to "make more affordable and make more possible" for
our value-conscious customers.
Our strategy
Our digital value retail business primarily trades under the
Studi o brand. It has undergone a multi-year transformation to move
from its catalogue heritage into being a pureplay online business
of scale. The transformation continues to now make the business
truly digital, utilising data and technology in all aspects of the
business to improve customer experience and engagement.
Our strategy for growth aims to build further scale into the
business by growing its total revenue to GBP1bn over the medium
term, focussed in three primary workstreams:
- Value: Attract more of our core customers who love Studio value
- Choice: Build the spend per customer through enhanced product range
- Payment: Expand our range of flexible payment options to appeal to a broader customer base
In the near term, we expect to see faster progress with the
second workstream and, to a lesser extent, the first workstream.
This is broadly the pattern that we have seen during the first half
of FY22.
Value: attract more customers
Offering a broad range of great value products is the key driver
for customers to choose to shop at Studio. These products are
promoted to customers through an increased use of digital and TV
advertising, supplemented to a lesser extent by catalogues and
other paper media.
Studio ended the previous financial year with a total active
customer base (customers who have traded in the previous 12 months)
of 2.47m. Within that figure were 1.53m customers with an active
credit account, a feature which generates a significantly higher
level of customer loyalty, repeat purchasing and lifetime value.
The typical level of retention from these credit customers is
normally around 70%. The other 0.94m customers as at the end of
March 2021 were customers who pay using a credit or debit card at
the point of sale. These cash customers exhibit a far lower
retention rate of around 20%.
The total customer base increased by 36% during FY21. However,
the number of cash customers within that base doubled in that
period, as the pandemic reduced high-street shopping opportunities.
This was not a trend that we expected to continue as the UK
returned to more normal conditions.
Marketing costs increased by 6.1% during H1 to GBP17.3m, with
tariffs for most types of media increasing at a far higher rate on
the equivalent period at the start of the pandemic. The response
levels and effectiveness of this spend was therefore lower,
producing 28% fewer applicants for credit accounts. Our regulated
credit account application process has been enhanced through the
introduction of newer technologies such as Open Banking, to ensure
that customers can demonstrably afford to repay for the products
they purchase from Studio. In the near term, that has the effect of
reducing the proportion of these applicants who are accepted for
credit. However, in the longer term, that approach is expected to
produce a better outcome for customers and a greater lifetime
return for Studio due to better loyalty and lower arrears.
The lower marketing effectiveness and the changes to our lending
strategy have had a marked impact on new customer acquisition,
which has in turn reduced the active credit base to stand at 1.46m
at the end of September 2021, with the total base at 2.35m.
Temporary factors such as stock availability will depress this
further during the remainder of the year, before moving forwards
again in FY23 as process improvements to reduce attrition in the
application journey and to convert more of the rejected credit
customers into cash buyers of the product are introduced.
Choice: build the spend per customer
Once we have brought a customer to the website, the next element
of our strategy is to present more products and brands that
customers want at competitive prices, so that we capture a greater
share of their wallet and increase their ordering frequency. This
is likely to be the most effective route to our overall growth in
revenue, as we know that our customers' average spend with Studio
is around half that seen with peer retailers.
We have seen the annual average spend per customer increase by
11% over the last year, now standing at GBP189 (September 2020:
GBP171, March 2021: GBP180), driven by mix effects within our
ranges towards branded electrical goods and garden furniture. As
the pandemic eases, we would expect to see spending on clothing
ranges increase further, which is a significant opportunity for
growth due to the relatively high frequency of purchasing and our
underweight performance in kidswear.
Our Studio App has become an important retention tool over the
last year. It now accounts for around a quarter of all product
purchases, with more than 1.2m customers having the App on their
devices. Nearly 900k of these have push notifications enabled,
providing a low-cost route to bringing customers back to our
shop.
The flexible credit account is also a key part of bringing
customers back to the shop. Around 7-8% of customers who come onto
the App or website to make their monthly repayment will also make a
new product purchase.
Part of Studio's successful performance in FY21 was the result
of being able to increase the proportion of sales dispatched
directly to the customer by a supplier, particularly from popular
brands such as Samsung, Regatta and Virgin Wines. We have continued
to see this feature in H1 with new ranges from Disney, Hasbro and
Lenovo being added, with directly dispatched sales representing
34.3% of product sales in H1.
The business is in the middle of its investment to modernise its
retail back-office technology, including a new order management
system and a more granular product database to improve the quality
of the information presented to customers and so increase basket
building and order conversion. We expect to see the benefits from
this investment starting to emerge in FY23.
Payment: expand the range of our flexible payment options
Studio has invested in its systems and datasets over the last
three years to enhance its flexible, affordable credit options that
allow customers to pay for their goods over an extended period.
These enhancements have included the capability to tailor the
interest rate to the customer's circumstances during the
application process, rather than imposing a single rate that is
subsequently adjusted after the customer has shopped for 6-12
months. This has allowed Studio to reposition its representative
APR offered to new customers at 39.9% during the first half of the
year, but it should also give the business the capability to offer
lower-APR payment solutions to a different customer audience in the
future. This is our third route to growth, which will be developed
in FY23 and beyond.
As a responsible lender who is regulated for its conduct by the
FCA, Studio is mindful of the need to only lend to customers who
can reasonably afford the associated repayments. In addition to
using the traditional datasets from credit bureaus in its
underwriting scorecards, as noted above Studio is increasingly
using Open Banking tools to gain rapid documented assurance on the
affordability of lending to each customer at the point of
application. Whilst such tools do not prevent real-life
circumstances from affecting a customer's future repayment
capabilities, Studio starts from the working presumption that all
of its customers could be vulnerable from having lower financial
resilience if their circumstances change, and this shapes how we
design our financial services products and processes. Our tools
then enable us to make acceptance decisions and set credit limits
that incorporate appropriate buffers for the customer's personal
circumstances.
This presumption of potential financial vulnerability then feeds
into our approach to forbearance and default fees, which we have
also adapted over the last year to reduce the incidence of fees
being charged to customers when monthly repayments are missed.
Whilst in the short term, that reduces a part of Studio's financial
services revenue, it also reduces bad debt charges, produces a
better lifetime return for Studio through greater loyalty for
product spending and, most importantly, produces a better outcome
for the customer. This is consistent with the FCA's guidance on
responsible lending.
Balances available for funding from the securitisation facility,
which is a measure of "in order" customer accounts now stand at
GBP301.4m, 12% higher than at September 2020. That growth led to
Financial Services revenue increasing in the first half of the year
by 11.3% to GBP69.6m (2020: GBP62.5m), although the overall yield
is reducing due to the lower number of default fees being charged
and, in time, the lower representative APR for new customers
reducing interest income.
Customer collections performance continues to be robust and,
whilst we have seen some year-on-year deterioration in arrears
performance against the abnormally good performance seen in H1 of
FY21, this has been in line with our expectations. The level of
recovery achieved from the sale of defaulted debt has improved, and
the size of the loss at the point of default is lower due to the
new fee strategy noted above. Both of these factors reduce the size
of the bad debt provision, leading to a lower in-period bad debt
charge.
The accounting standard for bad debt provisioning requires a
forward-looking assessment of potential loss. That economic outlook
is less pessimistic than a year ago, particularly in the case of
unemployment. However, management's analysis of the arrears profile
of the portfolio indicates that some customers have continued to
benefit from the temporary regulatory support put in place by the
government to protect jobs and incomes. There is also increased
concern about the likely effect of rising inflation on household
incomes and repayments. 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 period-end provision, which has increased it by
approximately GBP13m from the central level derived from the normal
forecasting model.
The bad debt charge for H1 was GBP11.4m, down by GBP5.3m on the
prior year.
Peak season planning
As has been well publicised, global shipping container
availability and costs have been materially disrupted in recent
months. The business took a proactive decision early in the summer
to secure its supply chain for the crucial trading period leading
up to Christmas, aided by Studio's in-house sourcing office based
in Shanghai. This included use of our contracted container shipping
plus additional charter ships at an incremental cost, which gives
more guaranteed stock availability, albeit arriving slightly later
than originally planned. This means Studio was in a strong stock
position at the end of September ahead of the peak Christmas
season.
H1 Financial results
Product revenue in H1 increased by 0.3% to GBP170.0m. However,
trading from the middle of August was more challenging for online
retailers such as Studio, due in part to the full reopening of the
high street, and further easing of lockdown restrictions.
Nonetheless, the business exited the summer season with a clean
seasonal stock position, albeit achieved through a longer period of
sale than originally envisaged. Most of the new stock acquired
through the higher-cost sourcing routes noted above is intended for
sale during H2 and early FY23, although some of it was sold in H1.
This, alongside the longer sale period, contributed to the product
margin rate achieved in H1 of 34.9% being 120bp lower than in prior
year. The gross profit from product therefore reduced slightly by
3.0% to GBP59.3m.
The gross profit from financial services increased by GBP12.4m
to GBP58.2m, bringing the total gross profit for the business in H1
to GBP117.5m. Overhead costs including depreciation and Central
costs increased by 4.6%, bringing the Adjusted Operating Profit*
for the Group in H1 to GBP28.6m, up 30% on 2020. After taking
account of finance costs of GBP4.9m, the Adjusted PBT for the Group
was GBP23.7m (2020: GBP17.4m).
Our sustainability plan - Sustainable, Responsible and Good
We outlined our approach to sustainability, "Sustainable,
Responsible and Good" in June, focussed around five pillars:
- Putting colleagues first
- Helping people thrive
- Protecting our planet
- Sourcing responsibly
- Upholding high standards
Key elements of progress during the first half of the year
include increasing the number of mental health first-aiders within
Studio, implementing the changes to our financial services strategy
to improve customer outcomes, stepping up our activities to
proactively monitor our suppliers and their factories resulting in
us ceasing to trade with a small number of overseas factories, and
working across the business with our chosen charity partner,
Home-Start.
On emissions, we are currently having our Scope 1 and 2
calculations audited which should enable us to set out our carbon
neutrality targets by the end of the financial year.
Current trading and outlook
Studio is not immune to the well-publicised market headwinds and
has had to manage challenges in product shipping which has driven
up costs in this area. This will lead to selling price inflation
going forward, although we have competitive monitoring tools to
ensure we retain our value position. In addition, we have faced
some product availability issues as deliveries were delayed, but we
took a proactive decision to secure stock early aided by our
Shanghai based sourcing office, meaning that as we went into peak
season we had higher levels of stock than last year and have good
tracking in place on all remaining deliveries due in the next
couple of weeks.
Again, as with the wider market, we have seen lower availability
of staff to fulfil temporary roles in our operations. However, by
putting in place peak season pay enhancements, we are now at a
point that we can cater with the demand forecast through December
so customer orders are despatched in readiness for Christmas. As we
go into FY23 we are anticipating wage increases due to inflation
and increases to national living wage.
Studio typically delivers around 40% of its full-year product
sales during Q3, the period that includes Black Friday and
Christmas. Our core seasonal ranges have sold well throughout peak
and although sales of certain ranges, notably ladies clothing, have
been slower than expected, they have recovered well in the last two
weeks. Our impression is that customers are shopping more
selectively this year given inflationary pressures and the recovery
from the pandemic. The supply chain challenges have added cost and
gross margin pressure that has only partially been mitigated
through pricing. We have also recruited fewer new customers due to
marketing media inflation, lower availability hindering conversion,
plus changes previously described to our financial services
strategy that have had more of a short-term impact than
anticipated.
We will give a further update on this key trading period at the
end of January but our current expectation for the full-year
outturn of Adjusted PBT is now in a range of GBP35-40m (previously
GBP42-45m). Despite these short-term headwinds, many of which are
impacting the wider market, our strategy for growth remains intact
and we maintain our GBP1bn revenue goal in the medium term.
FINANCIAL REVIEW
Summary income statement
The Group produced an adjusted profit before tax* of GBP23.7m in
the period, up 36% on the prior year, as set out below.
26 weeks 26 weeks Variance
ended ended
24.09.21 25.09.20
(restated^)
GBP'000 GBP'000 GBP'000
----------------------------- ---------- ------------- ---------
EBITDA 36,929 29,795 7,134
Depreciation & amortisation (8,338) (7,804) (534)
Adjusted operating
profit* 28,591 21,991 6,600
----------------------------- ---------- ------------- ---------
Finance costs (4,873) (4,565) (308)
Adjusted profit before
tax* 23,718 17,426 6,292
----------------------------- ---------- ------------- ---------
Fair value movements 2,847 (1,490) 4,337
----------------------------- ---------- ------------- ---------
Profit before tax 26,565 15,936 10,629
----------------------------- ---------- ------------- ---------
* this is an Alternative Performance Measure, for which the
reconciliation to the equivalent GAAP measure can be found
below.
^ restated to show the results of Education as a discontinued
operation - see note 2.
Profit before tax was GBP26.5m (2020 restated^: GBP15.9m).
Borrowings and finance costs
The Group finances its operations through a combination of a
securitisation facility that partially funds Studio's credit
receivables and a revolving credit facility. The securitisation
facility was increased by GBP25m to GBP250m in April 2021. We have
recently agreed terms for a further increase to GBP275m in
principle subject to the documentation being signed in the coming
days, with its maturity date also proposed to be extended to 31
December 2024. The revolving credit facility was refinanced in June
2021 with a smaller group of three lenders providing a commitment
of GBP50m until 30 September 2024.
Core net debt* which excludes securitisation funding and lease
liabilities, stood at GBP20.8m at the end of September 2021, down
by GBP24.3m from September 2020.
Credit receivables capable of being funded by the securitisation
facility grew by GBP32.6m or 12% to GBP301.4m. GBP23.1m of this
growth was funded by the securitisation facility and GBP9.5m was
funded from working capital.
Finance costs of GBP 4.9m (2020 restated^: GBP4.6m) were
incurred in the first half of the year. The Group manages its
exposure to rising interest rates through the use of interest rate
caps. It currently has such protection in place until February 2023
over GBP250m of borrowings at a capped SONIA rate of 0.68%.
Foreign exchange contracts
The Group's policy on hedging its foreign exchange risks remains
to cover its planned exposures over the next 12 months on a rolling
basis by the use of forward contracts. At the end of September
2021, the Group was committed to contracts for $97. 5m, contracted
at US dollar exchange rates between GBP1/$1.41 and GBP1/$1.31, with
maturity dates covering the period to September 2022. The fair
value of these contracts at the period end was a net position of
GBPnil (September 2020: asset of GBP1.7m). Fair value movements in
the first half have resulted in a credit of GBP2.8m (September
2020: charge of GBP1.5m), which has been recorded in the condensed
consolidated income statement.
Taxation
The Group recorded a tax charge of GBP5.8m in the first half
from continuing operations (2020 restated^: GBP3.3m), based on an
estimated effective tax rate for the full year of 21.8% (2020
restated^: 20.4%), marginally higher than the prevailing rate of
19%. The increase in rate vs. FY21 is due to the remeasurement of
deferred tax assets and liabilities at the now substantively
enacted rate of 25%.
Balance sheet
Net assets at 24 September 2021 stood at GBP99.3m, up from
GBP84.9m at the year end due to the net income of GBP19.8m from
continuing operations less GBP5.4m from the discontinued Education
business including the loss on disposal.
Defined benefit pension contributions totalling GBP2.5m have
been made into the pension scheme in the first half, together with
a lump-sum contribution of GBP9m following the completion of the
sale of Findel Education. The net valuation of the pension scheme
as calculated per the rules of IAS19 showed a surplus of GBP30.3m
at the end of September 2021 (March 2021: GBP20.8m, September 2020:
GBP21.7m). The Company is continuing to actively pursue options to
remove this potentially volatile item from the balance sheet,
including the potential use of insurance.
Share capital and dividends
The Company's shareholders passed resolutions at the AGM in
September 2021 approving the repurchase and cancellation of the
non-voting deferred shares for the nominal sum of GBP1. That
process was completed in November 2021.
As noted in the FY21 Annual Report, our ambition over the next
few years is to invest in our digital capabilities to increase the
level of potentially distributable reserves within the primary
operating subsidiary, Studio Retail Limited, to enable it to remit
dividends up to the Company. The Company does not have plans to
reinstate dividend payments at this stage.
Alternative Performance Measures
The Directors use several Alternative Performance Measures
("APMs") that are considered to provide useful information about
the performance and underlying trends facing the Group. As these
APMs are not defined by IFRS, they may not be comparable with APMs
shown in other companies' accounts. They are not intended to be a
replacement for, or be superior to, IFRS measures.
The principal APMs used in these Interim Results 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, fair value movements on
derivative financial instruments have been excluded in arriving at
adjusted PBT. 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.
Since the Education business met the criteria to be held for
sale at 26 March 2021, its results have been presented separately
in the condensed consolidated income statement in both the 26-week
period ended 24 September 2021 and the 26-week period ended 25
September 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:
26 weeks 26 weeks
ended 24.09.21 ended 25.09.20
(restated*)
GBP000 GBP000
------------------------------------ ---------------- ----------------
Adjusted profit before tax 23,718 17,426
Fair value movements on derivative
financial instruments 2,847 (1,490)
Profit before tax 26,565 15,936
------------------------------------ ---------------- ----------------
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:
26 weeks ended 26 weeks ended
24.09.21 25.09.20
GBP000 GBP000
Product revenue 169,979 169,485
Less product cost of sales (110,727) (108,383)
---------------------------- --------------- ---------------
Gross product margin 59,252 61,102
---------------------------- --------------- ---------------
Product gross margin % 34.9% 36.1%
---------------------------- --------------- ---------------
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.
26 weeks ended 26 weeks ended
24.09.21 25.09.20
GBP000 GBP000
Reported impairment loss 11,351 16,686
Studio total revenue 239,564 232,031
----------------------------------- --------------- ---------------
Studio underlying impairment loss
as a % of revenue 4.7% 7.2%
----------------------------------- --------------- ---------------
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.
26 weeks ended 26 weeks ended
24.09.21 25.09.20
GBP000 GBP000
Marketing costs 17,279 16,284
Product revenue 169,979 169,485
-------------------------------- --------------- ---------------
Marketing costs to sales ratio 10.2% 9.6%
-------------------------------- --------------- ---------------
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:
26 weeks ended 26 weeks ended
24.09.21 25.09.20 (restated*)
GBP000 GBP000
------------------------------------- --------------- ----------------------
Total bank loans 263,683 286,576
Lease liabilities 38,389 41,533
Less cash and cash equivalents (18,162) (39,850)
------------------------------------- --------------- ----------------------
Overall net debt 283,910 288,259
------------------------------------- --------------- ----------------------
Exclude impact of IFRS 16 (37,144) (41,533)
------------------------------------- --------------- ----------------------
Overall net debt on a like-for-like
basis 246,766 246,726
------------------------------------- --------------- ----------------------
* balances have been restated as set out in note 2 to the
financial statements.
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:
26 weeks ended 26 weeks ended
24.09.21 25.09.20 (restated*)
GBP000 GBP000
Net Debt 283,910 288,259
Lease liabilities (38,389) (41,533)
Less securitisation borrowings** (224,683) (201,576)
Core net debt 20,838 45,150
---------------------------------- --------------- ----------------------
** Disclosed within bank loans.
* balances have been restated as set out in note 2 to the
financial statements.
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:
26 weeks ended 26 weeks ended
24.09.21 25.09.20
GBP000 GBP000
---------------------------------- --------------- ---------------
Funded from securitisation loans 224,683 201,576
Funded from working capital 76,680 67,192
---------------------------------- --------------- ---------------
Eligible receivables 301,363 268,768
---------------------------------- --------------- ---------------
Securitisation % 75% 75%
---------------------------------- --------------- ---------------
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 7 of the condensed consolidated
financial statements.
Studio Retail Group plc
Group Financial Information
Condensed Consolidated Income Statement
26-week period ended 24 September 2021
Before individually Individually significant Total
significant items items
Notes GBP000 GBP000 GBP000
------------------------------ ----- ----------------------------- ----------------------------- ---------
Revenue 3 169,979 - 169,979
Credit account interest 69,585 - 69,585
------------------------------ ----- ----------------------------- ----------------------------- ---------
Total revenue (including
credit interest) 239,564 - 239,564
Cost of sales (110,727) - (110,727)
Impairment losses on customer
receivables (11,351) - (11,351)
Gross profit 117,486 - 117,486
------------------------------ ----- ----------------------------- ----------------------------- ---------
Trading costs (88,895) - (88,895)
------------------------------ ----- ----------------------------- ----------------------------- ---------
Analysis of operating profit:
- EBITDA* 36,929 - 36,929
- Depreciation, amortisation
and impairment (8,338) - (8,338)
------------------------------ ----- ----------------------------- ----------------------------- ---------
Operating profit 3 28,591 - 28,591
Net finance costs (4,873) - (4,873)
------------------------------ ----- ----------------------------- ----------------------------- ---------
Profit before tax and fair
value movements on derivative
financial instruments 23,718 - 23,718
------------------------------ ----- ----------------------------- ----------------------------- ---------
Fair value movements on
derivative financial
instruments 2,847 - 2,847
------------------------------ ----- ----------------------------- ----------------------------- ---------
Profit before tax 3 26,565 - 26,565
Tax expense 6 (5,780) - (5,780)
Profit from continuing
operations 20,785 - 20,785
------------------------------ ----- ----------------------------- ----------------------------- ---------
Discontinued operation
Loss from discontinued
operation, net of tax 5 (464) (4,891) (5,355)
Profit for the period 20,321 (4,891) 15,430
Profit attributable to owners
of the parent 20,321 (4,891) 15,430
Earnings per ordinary share
from continuing operations
Basic 7 24.08
Diluted 23.47
from discontinued operation
Basic 7 (6.18)
Diluted (6.05)
total attributable to ordinary
shareholders
Basic 7 17.81
Diluted 17.42
*Earnings before interest, taxation, depreciation, amortisation
and fair value movements on derivative financial instruments.
Condensed Consolidated Income Statement
26-week period ended 25 September 2020 (restated - refer to note
2)
Before individually Individually significant items Total
significant items
Notes GBP000 GBP000 GBP000
------------------------------- ------------------------------- ------------------------------ ---------
Revenue 3 169,485 - 169,485
Credit account interest 62,546 - 62,546
------------------------------ ------------------------------- ------------------------------ ---------
Total revenue (including
credit interest) 232,031 - 232,031
Cost of sales (108,383) - (108,383)
Impairment losses on customer
receivables (16,686) - (16,686)
Gross profit 106,962 - 106,962
------------------------------ ------------------------------- ------------------------------ ---------
Trading costs (84,971) - (84,971)
------------------------------ ------------------------------- ------------------------------ ---------
Analysis of operating profit:
- EBITDA* 29,795 - 29,795
- Depreciation and
amortisation (7,804) - (7,804)
------------------------------ ------------------------------- ------------------------------ ---------
Operating profit 3 21,991 - 21,991
Net finance costs (4,565) - (4,565)
------------------------------ ------------------------------- ------------------------------ ---------
Profit before tax and fair
value movements on derivative
financial instruments 17,426 - 17,426
------------------------------ ------------------------------- ------------------------------ ---------
Fair value movements on
derivative financial
instruments (1,490) - (1,490)
------------------------------ ------------------------------- ------------------------------ ---------
Profit before tax 3 15,936 - 15,936
Tax expense 6 (3,257) - (3,257)
------------------------------ ------------------------------- ------------------------------ ---------
Profit from continuing
operations 12,679 - 12,679
------------------------------ ------------------------------- ------------------------------ ---------
Discontinued operation
Profit/(Loss) from
discontinued operation, net
of tax 5 284 (1,039) (755)
------------------------------ ------------------------------- ------------------------------ ---------
Profit for the period 12,963 (1,039) 11,924
------------------------------ ------------------------------- ------------------------------ ---------
Profit attributable to owners
of the parent 12,963 (1,039) 11,924
------------------------------ ------------------------------- ------------------------------ ---------
Earnings per ordinary share
from continuing operations
Basic 7 14.69
Diluted 14.62
from discontinued operation
Basic 7 (0.87)
Diluted (0.87)
total attributable to ordinary
shareholders
Basic 7 13.81
Diluted 13.75
*Earnings before interest, taxation, depreciation, amortisation
and fair value movements on derivative financial instruments.
Condensed Consolidated Statement of Comprehensive Income
26-week period ended 24 September 2021
26 weeks to 24.09.2021 26 weeks to 25.09.2020
GBP000 GBP000
-------------------------------------------------------------------- ---------------------- ----------------------
Profit for the period 15,430 11,924
Other comprehensive income
Items that may be reclassified to profit or loss
Cash flow hedges 64 14
Currency translation gain arising on consolidation 32 161
-------------------------------------------------------------------- ---------------------- ----------------------
96 175
-------------------------------------------------------------------- ---------------------- ----------------------
Items that will not subsequently be reclassified to profit and loss
Remeasurements of defined benefit pension scheme (2,261) (12,931)
Tax relating to components of comprehensive income 430 2,457
-------------------------------------------------------------------- ---------------------- ----------------------
(1,831) (10,474)
-------------------------------------------------------------------- ---------------------- ----------------------
Total comprehensive income for period 13,695 1,625
-------------------------------------------------------------------- ---------------------- ----------------------
The total comprehensive income for the period is attributable to
the equity shareholders of the parent company Studio Retail Group
plc.
Condensed Consolidated Balance Sheet
At 24 September 2021
24.09.2021 25.09.2020 (restated) 26.03.2021
Notes GBP'000 GBP'000 GBP'000
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Non-current assets
Intangible assets 27,066 42,966 22,761
Property, plant and equipment 56,726 64,095 58,188
Derivative financial instruments 9 161 - -
Retirement benefit surplus 30,334 21,670 20,837
Deferred tax assets - 5,562 1,742
114,287 134,293 103,528
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Current assets
Inventories 52,889 69,593 37,769
Trade and other receivables 290,891 264,326 291,225
Derivative financial instruments 9 521 1,722 55
Cash and cash equivalents 18,162 39,850 37,443
Current tax assets 1,116 - 507
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Current assets excluding assets held for sale 363,579 375,491 366,999
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Assets classified as held for sale - - 45,287
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Total current assets 363,579 375,491 412,286
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Total assets 477,866 509,784 515,814
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Current liabilities
Trade and other payables (69,209) (95,896) (73,266)
Lease liabilities (6,118) (6,226) (6,275)
Derivative financial instruments 9 (547) - (2,927)
Provisions 8 (5,581) (1,459) (5,185)
Current tax liabilities - (2,474) -
Bank loans - - (65,000)
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Current liabilities excluding liabilities held for sale (81,455) (106,055) (152,653)
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Liabilities directly associated with the assets held for sale - - (18,715)
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Total current liabilities (81,455) (106,055) (171,368)
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Non-current liabilities
Bank loans (263,683) (286,576) (225,000)
Lease liabilities (32,271) (40,657) (34,174)
Provisions 8 (326) - (354)
Deferred tax liabilities (811) - -
(297,091) (327,233) (259,528)
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Total liabilities (378,546) (433,288) (430,896)
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Net assets 99,320 76,496 84,918
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Equity
Share capital 48,702 48,644 48,687
Translation reserve 968 482 936
Hedging reserve 58 (12) (6)
Retained earnings 49,592 27,382 35,301
Total equity 99,320 76,496 84,918
-------------------------------------------------------------- ----- ---------- --------------------- ----------
Condensed Consolidated Cash Flow Statement
26-week period ended 24 September 2021
26 weeks to 26 weeks to 25.09.2020
24.09.2021
GBP000 GBP000
------------------------------------------------------------------- ----------- ----------------------
Profit for the period 15,430 11,924
Adjustments for:
Income tax 5,780 3,030
Finance costs 4,873 4,704
Depreciation of property, plant and equipment 5,463 7,838
Impairment of property, plant and equipment - 519
Amortisation of intangible assets 2,875 1,101
Share-based payment expense 707 875
Loss on disposal of subsidiary 4,794 -
Fair value movements on financial instruments net of premiums paid (2,847) 1,490
Pension contributions less income statement charge (11,500) (2,499)
Operating cash flows before movements in working capital 25,575 28,982
Increase in inventories (17,723) (10,768)
Decrease/(Increase) in receivables 4,859 (19,086)
(Decrease)/Increase in payables (7,839) 18,845
Increase/(Decrease) in provisions 368 (2,876)
-------------------------------------------------------------------- ----------- ----------------------
Cash generated from operations before interest and tax paid 5,240 15,097
Income taxes (paid)/refunded (3,405) 1,229
Interest paid (5,223) (3,689)
Net cash (used in)/from operating activities (3,388) 12,637
-------------------------------------------------------------------- ----------- ----------------------
Investing activities
(Loss)/Proceeds on disposal of property, plant and equipment (1) 10
Purchases of property, plant and equipment (3,693) (1,627)
Purchases of software and IT development costs (7,304) (4,926)
Proceeds on sale of subsidiary 23,788 -
Net cash from/(used in) investing activities 12,790 (6,543)
-------------------------------------------------------------------- ----------- ----------------------
Financing activities
Repayment of amounts owing under lease arrangements (2,359) (3,393)
Bank loans repaid (26,000) -
Securitisation loan (repaid)/drawn down (317) 3,985
Net cash (used in)/from financing activities (28,676) 592
-------------------------------------------------------------------- ----------- ----------------------
Net (decrease)/increase in cash and cash equivalents (19,274) 6,686
Cash and cash equivalents at the beginning of the period 37,443 33,163
Effect of foreign exchange rate changes (7) 1
Cash and cash equivalents at the end of the period 18,162 39,850
-------------------------------------------------------------------- ----------- ----------------------
Condensed Consolidated Statement of Changes in Equity
26-week period ended 24 September 2021
Translation Hedging Retained Total
Share capital reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------- ----------- -------- --------- -------
As at 26 March 2021 48,687 936 (6) 35,301 84,918
Profit for the period - - - 15,430 15,430
Other comprehensive income/(loss) - 32 64 (1,831) (1,735)
Issue of shares 15 - - (15) -
Share based payments - - - 707 707
---------------------------------- ------------- ----------- -------- --------- -------
As at 24 September 2021 48,702 968 58 49,592 99,320
---------------------------------- ------------- ----------- -------- --------- -------
Translation Hedging Retained Total
Share capital reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------- ----------- -------- --------- --------
As at 27 March 2020 48,644 321 (26) 26,442 75,381
Reversal of IFRS 5 adjustment
(restated) - - - (1,385) (1,385)
As at 27 March 2020 (restated) 48,644 321 (26) 25,057 73,996
Profit for the period - - - 11,924 11,924
Other comprehensive income/(loss) - 161 14 (10,474) (10,299)
Share based payments - - - 875 875
---------------------------------- ------------- ----------- -------- --------- --------
As at 25 September 2020 48,644 482 (12) 27,382 76,496
---------------------------------- ------------- ----------- -------- --------- --------
The total equity is attributable to the equity shareholders of
the parent company Studio Retail Group plc.
Notes to the Condensed Consolidated Financial Statements
1. General Information
The condensed consolidated financial statements have been
approved by the board on 24 November 2021.
Statement of compliance
These condensed consolidated financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the United Kingdom ("UK") and the Disclosure Guidance
and Transparency Rules of the United Kingdom's Financial Conduct
Authority. As required by the latter, the condensed consolidated
financial statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of
the Company's published consolidated financial statements for the
52 weeks ended 26 March 2021, except for the segmental analysis
which is explained in note 3. They do not include all of the
information required for full annual financial statements and
should be read in conjunction with the Group's consolidated
financial statements as at and for the 52 weeks ended 26 March
2021.
The financial information for the period ended 26 March 2021 is
not the Company's statutory accounts for that financial year. Those
accounts, which were prepared under IFRS as adopted by the UK
("adopted IFRS"), have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor draws attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under sections 498(2) or (3) of the Companies Act 2006.
The financial information included in this interim financial report
for the six months ended 24 September 2021 is unaudited. The
comparative information for the six months ended 25 September 2020
is also unaudited.
Going concern basis
The directors have adopted the going concern basis in preparing
these condensed consolidated financial statements after assessing
the principal risks and having considered the impact of severe but
plausible downside scenarios for COVID-19. These remain the same as
those set out the Group's annual report and accounts for the period
ended 26 March 2021. The Group is financed by a securitisation
facility and a Revolving Credit Facility ("RCF") as disclosed in
note 18 to the consolidated financial statements for the period
ended 26 March 2021. The directors considered the impact of the
current Covid-19 environment on the business for the next 12 months
for the purposes of their going concern assessment. Whilst there is
inherent uncertainty in forecasts caused by COVID-19, the directors
have considered severe but plausible downside scenarios 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 31 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 condensed
consolidated financial statements. They therefore consider it
appropriate to adopt the going concern basis of accounting in
preparing the condensed consolidated financial statements.
Risks and uncertainties
The principal risks and uncertainties which could impact the
Group's short and long-term performance are:
-- Pressures on the levels of disposable income available to
lower socio-economic groups, who form a core part of Studio's
customer base;
-- The risk of financial crime being attempted or committed
against Studio, its customers or employees;
-- Potential disruption to our business support systems and the
storage and protection of our customers' data;
-- A material interruption to the product supply chain could
reduce the level of retail trading;
-- Execution and liquidity risks from a substantial three-year
plan of transformation and growth at Studio;
-- Attracting and retaining the right talent in the business,
particularly in the highly competitive areas of digital marketing,
IT development and cyber security, to support the development of
our high growth digital strategy;
-- Failure to comply with legal and regulatory developments
could result in significant financial penalties, including fines or
sanctions and could also lead to reputational damage and/or
restrictions on Studio's ability to trade; and
-- Any inability to operate from one of our key warehouse facilities centres.
For further details please refer to pages 48 to 49 of the
Group's annual report and accounts for the 52-week period ended 26
March 2021, a copy of which is available on the Group's website
www.studioretail.group .
These risks remain valid with regards to their potential to
impact the Group during the second half of the current financial
year.
Brexit
The principal challenge that continues to be faced by the
business as a result of the United Kingdom leaving the European
Union is in respect of the Northern Ireland Protocol. The Protocol
was agreed by the UK Government in October 2019 and was aimed at
avoiding the introduction of a hard border on the island of
Ireland. The Protocol requires that the UK authorities apply EU
customs rules to goods entering Northern Ireland, with the effect
that the sales made to customers in Northern Ireland are now
effectively treated as exports. This is a substantial operational
change for a business that historically has only made sales to UK
customers. Whilst the enforcement of the Protocol by HMRC has been
delayed, we continue to work with our distribution partners to make
the necessary system and data changes to allow us to be able to
comply with the requirements of the Protocol and continue to serve
customers in Northern Ireland.
Impact of Covid-19
Studio business was able to trade continuously throughout the
year and saw strong levels of trading and new customer recruitment.
Studio put in place the necessary steps to ensure that colleagues
were able to either work remotely or in a Covid-secure workplace
environment as appropriate. Additional resources were put in place
for hygiene and screens, with extra deep-cleaning of warehouse
premises from time to time.
At the outset of the pandemic, whilst the implications of how
trading could continue for a non-essential retailer were being
assessed, the businesses made use of short-term cash flow supports
offered by HMRC. All of this support was repaid later in the
year.
Additional forbearance measures were put in place for Studio's
credit customers on request, including offering up to two 90-day
payment holidays where necessary for the customer's
circumstances.
The Studio business continues to retain a cautious approach to
the number of colleagues being on site, in part because its offices
and warehouses are located in Greater Manchester and Lancashire,
where infection rates have often been higher than the national
averages.
Seasonality
The nature of the businesses within the Studio Retail Group mean
that profits have shown, and will continue to show, a significant
seasonal bias with the majority of product revenue being earned in
the second half due to peak trading season of Black Friday and
Christmas.
Customer balances typically move in line with the seasonal
patterns of product purchases. It is normal for balances to peak at
Christmas before gradually reducing from then until the following
summer. Customers receive a monthly statement and can then choose
whether to repay their balance in full each month, in which case
they do not incur any interest charges, or whether to pay an amount
they choose between a minimum level and the outstanding
balance.
2. Accounting Policies
As required by the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority, this condensed
set of financial statements has been prepared applying the same
accounting policies and computation methods that were applied in
the preparation of the Company's published consolidated financial
statements for the period ended 26 March 2021.
Findel Education's classification as discontinued operation
The Group completed the disposal of Findel Education Limited on
16 April 2021. Consequently, the comparative figures given in the
condensed consolidated income statement for the 26 week period
ended 25 September 2020 have been restated to show the results from
this discontinued operation separately, in accordance with the
requirements of IFRS 5 Non-current assets held for sale and
discontinued operations. The comparative condensed consolidated
balance sheet has not been restated in accordance with IFRS 5.
Changes in classification of costs
During the current period management has changed the
presentation of Studio's payroll costs previously classified within
distribution costs so that these are now presented within
administration costs. The comparative figures have been restated to
reduce distribution costs by GBP3,178,000 and increase
administration costs by GBP3,178,000. These adjustments have no
effect on the profit for the year. There is no presentational
impact in the interim financial statements.
Reclassification of software
During the prior 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 of at 27 March 2020
was reclassified from property plant and equipment to intangible
assets. A subsequent reclassification of GBP21,953,000 was made to
the 25 September 2020 balance sheet. This is a balance sheet
reclassification only and has no impact on the income statement or
net assets.
The restated Condensed Consolidated Income Statement and
Condensed Consolidated Balance Sheet shown below summarise the
restatements made.
Restated Condensed Consolidated Income Statement
26-week period ended 25 September 2020
As reported Restatement of discontinued operation Total
Notes GBP000 GBP000 GBP000
----------------------------------------- ----- ------------ ------------------------------------- ---------
Revenue 3 205,485 (36,000) 169,485
Credit account interest 62,546 - 62,546
----------------------------------------- ----- ------------ ------------------------------------- ---------
Total revenue (including credit interest) 268,031 (36,000) 232,031
Cost of sales (131,769) 23,386 (108,383)
Impairment losses on customer receivables (16,686) - (16,686)
Gross profit 119,576 (12,614) 106,962
----------------------------------------- ----- ------------ ------------------------------------- ---------
Trading costs (98,428) 13,457 (84,971)
----------------------------------------- ----- ------------ ------------------------------------- ---------
Analysis of operating profit:
- EBITDA* 30,606 (811) 29,795
- Depreciation, amortisation and
impairment (9,458) 1,654 (7,804)
----------------------------------------- ----- ------------ ------------------------------------- ---------
Operating profit 3 21,148 843 21,991
Net finance costs (4,704) 139 (4,565)
----------------------------------------- ----- ------------ ------------------------------------- ---------
Profit before tax and fair value
movements on derivative financial
instruments 16,444 982 17,426
----------------------------------------- ----- ------------ ------------------------------------- ---------
Fair value movements on derivative
financial instruments (1,490) - (1,490)
----------------------------------------- ----- ------------ ------------------------------------- ---------
Profit before tax 14,954 982 15,936
Tax expense 6 (3,030) (227) (3,257)
Profit for the period 11,924 755 12,679
----------------------------------------- ----- ------------ ------------------------------------- ---------
Discontinued operation
Loss from discontinued operation, net of
tax 5 - (755) (755)
Profit for the period 11,924 - 11,924
Profit attributable to owners of the
parent 11,924 - 11,924
Earnings per ordinary share
from continuing operations
Basic 14.69
Diluted 14.62
from discontinued operation
Basic (0.87)
Diluted (0.87)
total attributable to ordinary
shareholders
Basic 13.81
Diluted 13.75
*Earnings before interest, taxation, depreciation, amortisation
and fair value movements on derivative financial instruments.
Restated Condensed Consolidated Balance Sheet
at 25 September 2020
As reported Software reclassification Restated
25.09.2020 25.09.2020 25.09.2020
Notes GBP'000 GBP'000 GBP'000
--------------------------------- ----- ----------- ------------------------- ----------
Non-current assets
Intangible assets 21,013 21,953 42,966
Property, plant and equipment 86,048 (21,953) 64,095
Retirement benefit surplus 21,670 - 21,670
Deferred tax assets 5,562 - 5,562
134,293 - 134,293
--------------------------------- ----- ----------- ------------------------- ----------
Current assets
Inventories 69,593 - 69,593
Trade and other receivables 264,326 - 264,326
Derivative financial instruments 9 1,722 - 1,722
Cash and cash equivalents 39,850 - 39,850
Total current assets 375,491 - 375,491
--------------------------------- ----- ----------- ------------------------- ----------
Total assets 509,784 - 509,784
--------------------------------- ----- ----------- ------------------------- ----------
Current liabilities
Trade and other payables (95,896) - (95,896)
Lease liabilities (6,226) - (6,226)
Provisions 8 (1,459) - (1,459)
Current tax liabilities (2,474) - (2,474)
Total current liabilities (106,055) - (106,055)
--------------------------------- ----- ----------- ------------------------- ----------
Non-current liabilities
Bank loans (286,576) - (286,576)
Lease liabilities (40,657) - (40,657)
(327,233) - (327,233)
--------------------------------- ----- ----------- ------------------------- ----------
Total liabilities (433,288) - (433,288)
--------------------------------- ----- ----------- ------------------------- ----------
Net assets 76,496 - 76,496
--------------------------------- ----- ----------- ------------------------- ----------
Equity
Share capital 48,644 - 48,644
Translation reserve 482 - 482
Hedging reserve (12) - (12)
Retained earnings 27,382 - 27,382
Total equity 76,496 - 76,496
--------------------------------- ----- ----------- ------------------------- ----------
In addition to the above, the deferred tax balance at 25
September 2020 has been adjusted by GBP325,000 relating to the
reinstatement of depreciation and amortisation that was not charged
for the 26-week period to 27 March 2020. Further details are
included within the consolidated financial statements for the
period ended 26 March 2021.
Estimates
The preparation of condensed consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expenses. Actual
results may differ from these estimates.
In preparing the condensed consolidated financial statements,
the significant judgements made by management in applying the
Group's accounting policies and key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements for the period ended 26 March 2021 except as
noted below.
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 24 September 2021 trade receivables with a gross value of
GBP365.2m (2020: GBP314.8m) were recorded on the balance sheet,
less a provision for impairment of GBP94.0m (2020: GBP90.2m).
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 driven mainly by the expected
recovery of the UK Economy from Covid-19, in particular the
recovery in unemployment.
We consider four economic scenarios, and apply a weighting based
on probability. These are:
-- Upside
Assumes unemployment has already experienced the peak in Q4
2021at 5.2%, and recovery will continue until levelling off in Q2
2022 at 3.9%
-- Baseline
Unemployment is expected to rise modestly to 5.1%. GDP is not
expected to be back to pre-crisis levels until December. Growth
slows through 2022 as high inflation crimps consumer spending.
-- Downside
The Economy underperforms as households lock in some of the
saving gains made over the last year. The fallout from leaving the
EU, which has been largely hidden by COVID - constrains output.
Many firms affected find they are unviable as government support
unwinds and protection from creditors is ended. Unemployment rises
to just above 6%
-- Stress
Vaccines prove ineffective against new variants. The Economy
contracts early next year as people voluntarily social distance.
Supply-side constraints see inflation rise sharply peaking at well
above 5% at the start of 2022. This increase in inflation could cut
into real incomes and exacerbate the recession. Unemployment peaks
at 8.1% in H2 of 2022
The table below summarises the peak employment levels assumed
within each scenario; with the weightings we have applied to
each.
September 2021 March 2021 September 2020
Scenario Unemployment Weighting Unemployment Weighting Unemployment Weighting
peak applied peak applied peak applied
-------------- ---------- ------------- ---------- ------------- ----------
Upside c 4% 5% c 5% 5% c 6% 5%
-------------- ---------- ------------- ---------- ------------- ----------
Baseline c 5% 50% c 6% 50% c 8% 50%
-------------- ---------- ------------- ---------- ------------- ----------
Downside c 6% 35% c 8% 35% c 10% 35%
-------------- ---------- ------------- ---------- ------------- ----------
Stress c 8% 10% c 10% 10% c 14% 10%
-------------- ---------- ------------- ---------- ------------- ----------
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. 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 at the balance sheet date than will
ultimately be appropriate. Judgement has therefore been applied in
determining the half-year 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 24 September 2021 the Group's defined benefit pension scheme
showed a surplus of GBP30.3m (25 September 2020: GBP21.7m, 26 March
2021: GBP20.8m).
The defined benefit obligation at 24 September 2021 was
GBP152.6m (25 September 2020: GBP153.6m, 26 March 2021: GBP146.8m).
During the period, an interest expense relating to the defined
benefit obligation of GBP1.4m was recognised in the condensed
consolidated income statement, GBP7.0m of remeasurements were
recognised in other comprehensive income, primarily relating to
financial assumptions, and benefit payments of GBP2.6m were made,
resulting in a gross increase in the defined benefit obligation of
GBP5.9m.
The fair value of scheme assets at 24 September 2021 was
GBP183.0m (25 September 2020: GBP175.3m, 26 March 2021: GBP167.6m).
During the period, interest income relating to scheme assets of
GBP1.7m was recognised in the condensed consolidated income
statement, GBP4.8m of remeasurements were recognised in other
comprehensive income, benefit payments of GBP2.6m were made, and
GBP11.5m of employer contributions were received by the scheme,
resulting in a gross increase in the fair value of scheme assets of
GBP15.4m.
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.
Management makes use of the PwC Single Agency corporate bond
yield curve to derive the discount rate applied to the scheme's
projected cash flows, in the calculation of its liabilities under
IAS 19. Changes to the discount rate applied could lead to
significant changes in the level of liabilities recognised.
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.
3. Segmental analysis
Operating segment
Following the disposal of Findel Education, the Group now has
one principal operating segment, Studio, plus a central cost
centre. The income statement below is presented in the same format
as that presented to the CODM (Chief Operating Decision Maker) and
the prior period has been restated on an equivalent basis to enable
a like for like comparison.
Inter-segmental trading and profitability is not included in the
information provided to the CODM and consequently is not disclosed
below. Reportable segmental profits are adjusted for inter-segment
profits and as such are stated using costs to the Group.
26 weeks to 26 weeks to
24 September 2021 25 September 2020 (restated)
Total Total
GBP000 GBP000
------------------- ------------------------------
Product revenue 169,979 169,485
Other financial services revenue 6,883 7,507
Credit account interest 62,702 55,039
------------------- ------------------------------
Financial services revenue 69,585 62,546
Reportable segment revenue 239,564 232,031
Product cost of sales (110,727) (108,383)
Financial services cost of sales (11,351) (16,686)
Total cost of sales (122,078) (125,069)
Gross profit 117,486 106,962
------------------- ------------------------------
Marketing costs (17,279) (16,284)
Distribution costs (16,277) (16,858)
Administrative costs (46,180) (43,581)
Central costs (821) (444)
------------------- ------------------------------
EBITDA* 36,929 29,795
------------------- ------------------------------
Depreciation and amortisation (8,338) (7,804)
------------------- ------------------------------
Operating profit before individually significant items 28,591 21,991
------------------- ------------------------------
Individually significant items - -
------------------- ------------------------------
Operating profit 28,591 21,991
------------------- ------------------------------
Finance costs (4,873) (4,565)
------------------- ------------------------------
Profit before tax and fair value movements on derivative
financial instruments 23,718 17,426
------------------- ------------------------------
Fair value movements on derivative financial instruments 2,847 (1,490)
------------------- ------------------------------
Profit before tax from continuing operations 26,565 15,936
------------------- ------------------------------
*Earnings before interest, tax, depreciation, amortisation and
fair value movements on derivative financial instruments.
24 September 2021
Other information
Discontinued Group
Continuing operations operation
----------------------------------
Studio Central Total Education Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- ---------- ----------
Additions to property plant
and equipment and software
and IT development costs 10,997 - 10,997 - 10,997
---------- ---------- ---------- ----------
Balance Sheet
Assets
Segment assets 427,989 - 427,989 - 427,989
Central adjustments - 49,877 49,877 - 49,877
---------- ---------- ---------- ----------
Consolidated total assets 427,989 49,877 477,866 - 477,866
---------- ---------- ---------- ----------
Liabilities
Segment liabilities (230,108) - (230,108) - (230,108)
Central adjustments - (148,438) (148,438) - (148,438)
---------- ---------- ---------- ----------
Consolidated total liabilities (230,108) (148,438) (378,546) - (378,546)
---------- ---------- ---------- ----------
25 September 2020
Other information
Discontinued Group
Continuing operations operation
----------------------------------
Studio Central Total Education Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- ---------- ----------
Additions to property plant
and equipment and software
and IT development costs 6,069 - 6,069 484 6,553
---------- ---------- ---------- ----------
Balance Sheet
Assets
Segment assets 398,696 - 398,696 81,971 480,667
Central adjustments - 29,117 29,117 - 29,117
---------- ---------- ---------- ----------
Consolidated total assets 398,696 29,117 427,813 81,971 509,784
---------- ---------- ---------- ----------
Liabilities
Segment liabilities (264,942) - (264,942) (64,474) (329,416)
Central adjustments - (103,872) (103,872) - (103,872)
---------- ---------- ---------- ----------
Consolidated total liabilities (264,942) (103,872) (368,814) (64,474) (433,288)
---------- ---------- ---------- ----------
Central adjustments primarily relate to the elimination of
intercompany balances on consolidation, intangible assets arising
on consolidation, defined benefit pension surplus as well as
current tax balances and deferred tax.
4. Individually significant items
An analysis of individually significant items arising during the
current and prior periods is as follows:
During the 26-week period ended 24 September 2021, there are
GBPnil (26-week period ended 25 September 2020: GBPnil)
individually significant items from continuing operations.
Discontinued operation
26 weeks to 26 weeks to
24.09.21 25.09.20
GBP000 GBP'000
-------------------------------------------------------- ----------- -----------
Loss on disposal (4,794) -
Disposal costs (97) (1,283)
(4,891) (1,283)
Tax credit in respect of individually significant items - 244
Total (4,891) (1,039)
--------------------------------------------------------- ----------- -----------
A charge of GBP4,794,000 has been recorded as a loss on disposal
following the sale of Education, which completed on 16 April 2021.
Disposal costs of GBP97,000 were incurred during the current period
in relation to the sale of Education to West Moorland 221 Limited.
These costs have been disclosed within the result from discontinued
operation in accordance with IFRS 5.
In the prior period, disposal costs of GBP1,283,000 were
incurred aborted sale of Education to YPO. These costs have been
disclosed within the result from discontinued operation in
accordance with IFRS 5.
5. 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
facility was repaid in full on 30 September 2021. 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.
Findel Education's results for the 3 week period to 16 April
2021, 26 week period to 25 September 2020 and the 52 week period to
26 March 2021 have been presented to show the discontinued
operation separately from continuing operations and are summarised
below:
3 week period to 16.04.21 26 weeks 52 weeks
ended ended
25.09.20 26.03.21
GBP000 GBP000 GBP000
------------------ ------------------------- --------- ---------
Revenue 2,810 36,000 71,432
Expenses* (8,165) (36,982) (85,706)
Loss before tax (5,355) (982) (14,274)
Tax credit - 227 2,979
------------------- ------------------------- --------- ---------
Loss for the year (5,355) (755) (11,295)
------------------- ------------------------- --------- ---------
*including individually significant charges of GBP4,891,000 (26
week period to 25 September 2020: GBP1,283,000).
The major classes of assets and liabilities of Findel Education
as at 16 April 2021, 25 September 2020 and 26 March 2021 were as
follows:
16.04.21 25.09.20 26.03.21
GBP000 GBP000 GBP000
----------------------------- -------- -------- --------
Assets
Intangible assets 11,136 21,006 11,012
Tangible assets 5,356 7,780 5,420
Deferred tax asset 5,514 2,884 5,514
Inventories 14,058 14,741 11,455
Trade and other receivables 7,361 17,226 11,886
------------------------------- -------- -------- --------
43,425 63,637 45,287
----------------------------- -------- -------- --------
Liabilities
Trade and other payables (9,846) (15,800) (13,622)
Lease liabilities (5,093) (5,350) (5,093)
(14,939) (21,150) (18,715)
Net assets of disposal group 28,486 42,487 26,572
------------------------------- -------- -------- --------
The net cash flows (used in)/generated from Findel Education
were as follows:
3 week period to 16.04.21 26 weeks 52 weeks
ended ended
25.09.20 26.03.21
GBP000 GBP000 GBP000
--------------------- ------------------------- --------- ---------
Operating cash flows (3,430) (9,764) (5,259)
Investing cash flows - (484) (897)
Financing cash flows 1,052 5,244 5,028
----------------------- ------------------------- --------- ---------
Net cash flow (2,378) (5,004) (1,128)
----------------------- ------------------------- --------- ---------
6. Taxation
Income tax from for the 26-week period ended 24 September 2021
is based on an estimated effective tax rate for the full year of
21.8% (26-week period ended 25 September 2020 - restated: 20.4%),
giving rise to a tax charge of GBP5,780,000 in the period (26-week
period ended 25 September 2020 - restated: GBP3,257,000).
The deferred tax assets and liabilities at 24 September 2021
have been calculated at 25% (2020: 19%), being the corporation tax
rate substantively enacted at the balance sheet date (effective 1
April 2023). This will increase the Group's future current tax
charge accordingly.
7. Earnings per share
Weighted average number of shares
--------------------------------------------- ----------------------- -------------
26 weeks to 24.09.2021 26 weeks to
25.09.2020
No. of shares No. of shares
---------------------------------------------- ---------------------- -------------
Ordinary shares in issue 86,867,534 86,442,534
Effect of share issue 39,254 -
Effect of own shares held (283,460) (114,808)
---------------------------------------------- ---------------------- -------------
Weighted Average Number of Shares - basic 86,623,328 86,327,726
---------------------------------------------- ---------------------- -------------
Impact of potentially dilutive share options 1,946,164 412,383
---------------------------------------------- ---------------------- -------------
Weighted Average Number of Shares - diluted 88,569,492 86,740,109
---------------------------------------------- ---------------------- -------------
From continuing operations
Earnings attributable to ordinary shareholders
-----------
26 weeks to 24.09.2021 26 weeks to
25.09.2020
GBP000 GBP000
------------------------------------------------------------------------------- ---------------------- -----------
Net profit attributable to equity holders for the purposes of basic earnings
per share 20,785 12,679
------------------------------------------------------------------------------- ---------------------- -----------
Fair value movements on derivative financial instruments (net of tax) (2,306) 1,208
------------------------------------------------------------------------------- ---------------------- -----------
Net profit attributable to equity holders for the purposes of adjusted earnings
per share 18,479 13,887
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share (pence)
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - basic 24.08 14.69
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - adjusted* basic 21.33 16.09
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - diluted 23.47 14.62
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - adjusted* diluted 20.86 16.01
------------------------------------------------------------------------------- ---------------------- -----------
* Adjusted to remove the impact of fair value movements on
derivative financial instruments.
From discontinued operation
(Loss)/earnings attributable to ordinary shareholders
-----------
26 weeks to 24.09.2021 26 weeks to
25.09.2020
GBP000 GBP000
------------------------------------------------------------------------------- ---------------------- -----------
Net loss attributable to equity holders for the purposes of basic earnings per
share (5,355) (755)
------------------------------------------------------------------------------- ---------------------- -----------
Individually significant items (net of tax) 4,891 1,039
Net (loss)/profit attributable to equity holders for the purposes of adjusted
earnings per
share (464) 284
------------------------------------------------------------------------------- ---------------------- -----------
(Loss)/earnings per share (pence)
------------------------------------------------------------------------------- ---------------------- -----------
Loss per share - basic (6.18) (0.87)
------------------------------------------------------------------------------- ---------------------- -----------
(Loss)/earnings per share - adjusted* basic (0.54) 0.33
------------------------------------------------------------------------------- ---------------------- -----------
Loss - diluted (6.05) (0.87)
------------------------------------------------------------------------------- ---------------------- -----------
(Loss)/earnings per share - adjusted* diluted (0.52) 0.33
------------------------------------------------------------------------------- ---------------------- -----------
* Adjusted to remove the impact of individually significant
items.
Total attributable to ordinary shareholders
Earnings attributable to ordinary shareholders
-----------
26 weeks to 24.09.2021 26 weeks to
25.09.2020
GBP000 GBP000
------------------------------------------------------------------------------- ---------------------- -----------
Net profit attributable to equity holders for the purposes of basic earnings
per share 15,430 11,924
------------------------------------------------------------------------------- ---------------------- -----------
Individually significant items (net of tax) 4,891 1,039
Fair value movements on derivative financial instruments (net of tax) (2,306) 1,208
------------------------------------------------------------------------------- ---------------------- -----------
Net profit attributable to equity holders for the purposes of adjusted earnings
per share 18,015 14,171
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share (pence)
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - basic 17.81 13.81
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - adjusted* basic 20.80 16.42
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - diluted 17.42 13.75
------------------------------------------------------------------------------- ---------------------- -----------
Earnings per share - adjusted* diluted 20.34 16.42
------------------------------------------------------------------------------- ---------------------- -----------
* 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.
8. Provisions and contingent liabilities
(i) Provisions
Studio financial services redress and refunds
Onerous leases VAT provision Total
GBP000 GBP000 GBP000 GBP000
--------------------------- ---------------- --------------------------------------------- ------------- ------
At 26 March 2021 575 1,112 3,852 5,539
Provided during the period - - 500 500
Utilised in the period (66) (66) - (132)
At 24 September 2021 509 1,046 4,352 5,907
---------------------------- ---------------- --------------------------------------------- ------------- ------
At 24 September 2021
Analysed as:
Current 183 1,046 4,352 5,581
Non-current 326 - - 326
---------------------- --- ----- ----- -----
509 1,046 4,352 5,907
--------------------- --- ----- ----- -----
At 26 March 2021
Analysed as:
Current 221 1,112 3,852 5,185
Non-current 354 - - 354
------------------ --- ----- ----- -----
575 1,112 3,852 5,539
----------------- --- ----- ----- -----
Studio financial services redress and refunds
Onerous leases Total
GBP000 GBP000 GBP000
----------------------- ---------------- --------------------------------------------- -------
At 27 March 2020 192 4,143 4,335
Utilised in the period (116) (2,760) (2,876)
At 25 September 2020 76 1,383 1,459
------------------------ ---------------- --------------------------------------------- -------
All balances provided at 25 September 2020 were disclosed within
current liabilities.
Onerous lease provisions
The onerous lease provision at 24 September 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 to the Group's financial services activities is
restricted). As at 24 September 2021, the Group held a provision of
GBP4.4m (September 2020: GBPnil, GBP1.9m previously presented
within accruals, March 2021: GBP3.9m), 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 prior year, the Group undertook 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.
(ii) 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. Derivative financial instruments
At 24 September 2021 the Group had outstanding derivative
financial instruments as follows:
Non-current assets
24.09.2021 25.09.2020 26.03.2021
GBP000 GBP000 GBP000
------------------ ---------- ---------- ----------
Interest rate cap 161 - -
------------------ ---------- ---------- ----------
Current assets
24.09.2021 25.09.2020 26.03.2021
GBP000 GBP000 GBP000
----------------------------------- ---------- ---------- ----------
Forward foreign exchange contracts 521 1,722 55
----------------------------------- ---------- ---------- ----------
Current liabilities
24.09.2021 25.09.2020 26.03.2021
GBP000 GBP000 GBP000
----------------------------------- ---------- ---------- ----------
Forward foreign exchange contracts (547) - (2,927)
----------------------------------- ---------- ---------- ----------
Forward foreign exchange contracts
Exchange rate exposures are managed utilising forward foreign
exchange contracts. At the balance sheet date, details of the
notional value of outstanding US dollar forward foreign exchange
contracts that the Group has committed to are as follows:
24.09.2021 25.09.2020 26.03.2021
GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ----------
Notional amount - Sterling contract value 71,336 66,277 78,233
Fair value of asset recognised 521 1,722 55
Fair value of liability recognised (547) - (2,927)
------------------------------------------ ---------- ---------- ----------
Forward contracts outstanding at 24 September 2021 are
contracted at US dollar exchange rates between GBP1/$1.41 and
GBP1/$1.31 (25 September 2020: GBP1/$1.32 and GBP1/$1.18).
Changes in fair value of forward foreign exchange contracts for
the 26-week period ended 24 September 2021 amounted to a credit of
GBP2,847,000 (26-week period ended 25 September 2020: charge of
GBP1,490,000) and have been recorded in the condensed consolidated
income statement.
Interest rate cap
Under interest rate cap contracts, the Group agrees to cap the
SONIA element of its interest cost at an agreed level calculated on
agreed notional principal amounts. Such contracts enable the Group
to mitigate the risk of rising interest rates on its variable rate
debt.
The following cap was in place at 24 September 2021:
At 24 September 2021
Maturity Notional borrowing amount Cap rate Fair value
GBP000 GBP000
------------- ------------------------- -------- ----------
1 to 2 years 250,000 0.68% 161
------------- ------------------------- -------- ----------
The cap was purchased on 7 September 2021 and matures in
February 2023. The cap was designated as a cash flow hedge from
inception. The movement in the fair value of interest rate caps
during the current and prior periods was as follows:
24.09.2021 25.09.2020
GBP000 GBP000
----------------------------------------------------------------------- ---------- ----------
At the beginning of the period - 2
Purchase of interest rate cap 109 -
Movement in fair value charged to the hedging reserve 64 14
Movement in fair value of ineffective element charged to finance costs (12) (16)
------------------------------------------------------------------------ ---------- ----------
At the end of the period 161 -
------------------------------------------------------------------------ ---------- ----------
Basis for determining fair values
The fair value of both interest rate caps and forward foreign
exchange contracts is their market value at the balance sheet date.
Market values are based on the duration of the derivative
instrument together with the quoted market data including interest
rates, foreign exchange rates and market volatility at the balance
sheet date.
The financial instruments held by the Group at the balance sheet
date are valued under the Level 2 measurement basis of the fair
value hierarchy : (i.e. based on inputs other than quoted prices
included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from
prices)). There were no transfers between Level 1 and Level 2 during the period.
10. Related parties
Brands Inc. Limited
During the prior period, 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. No purchases were
made during the current period.
The value of purchases made in the current and prior periods,
and amounts (due)/owed at 24 September 2021, 25 September 2020 and
26 March 2021 were as follows:
24.09.2021 25.09.2020 26.03.2021
GBP000 GBP000 GBP000
------------ ---------- ---------- ----------
Purchases - 6 6
Amounts due - (22) -
------------ ---------- ---------- ----------
Panther Logistics Limited
During the prior 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 in the prior periods, and amounts owed at 25
September 2020 and 26 March 2021 were as follows:
24.09.2021 25.09.2020 26.03.2021
GBP000 GBP000 GBP000
------------- ----------- ---------- ----------
Purchases N/A 245 561
Amounts owed N/A 40 22
------------- ----------- ---------- ----------
Law Debenture Corporation Plc (The)
During the period, Studio Retail Limited traded with Law
Debenture Corporation Plc (The), of which Clare Askem (a
non-executive director of the Parent Company) was appointed as
director on 10 June 2021. The trading relationship was conducted on
an arm's length basis. Subsequent to the appointment date, there
were no transactions or outstanding balances.
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 disclosed in this
note. All transactions and outstanding balances between group
companies are priced on an arms-length basis and are settled in the
ordinary course of business.
11. Events after the reporting period
The Company's shareholders passed resolutions at the AGM in
September 2021 approving the repurchase and cancellation of the
non-voting deferred shares for the nominal sum of GBP1. That
process was completed in November 2021. This resulted in the
cancellation of 166,878,704 non-voting deferred shares with a value
of GBP40.0m and the creation of a capital redemption reserve of
GBP40.0m.
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed consolidated financial statements have been
prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the United
Kingdom;
(b) the interim management report and condensed consolidated
financial statements include a fair review of the information
required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
By order of the Board
S M Caldwell P R Kendrick
Chief Financial Officer Chief Executive Officer
24 November 2021 24 November 2021
INDEPENDENT REVIEW REPORT TO STUDIO RETAIL GROUP PLC
We have been engaged by Studio Retail Group plc ("the Company")
to review the financial information for the 26 (twenty six) week
period ended 24 September 2021 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated cash flow statement, the condensed
consolidated statement changes in equity and related notes. We have
read the other information contained in the interim report and
considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
issued by the Auditing Practices Board and our Engagement Letter
dated 17 November 2021. Our work has been undertaken so that we
might state to the Company those matters we are required to state
to them in an independent review report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this report, or for the conclusions we have formed.
Respective responsibilities of directors and auditor
The interim report, including the financial information
contained therein, is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the
interim report in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the United Kingdom
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express to the Company a conclusion on
the consolidated financial information in the interim report based
on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the consolidated financial information in
the interim report does not give a true and fair view of the
financial position of the Company as at 24 September 2021 and of
its financial performance and its cash flows for the 26 week period
then ended, in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the United Kingdom
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Mazars LLP
Chartered Accountants
24 November 2021
Notes:
(a) The maintenance and integrity of the Studio Retail Group
website is the responsibility of the directors; the work carried
out by us does not involve consideration of these matters and,
accordingly, we accept no responsibility for any changes that may
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END
IR DBBDBBSDDGBS
(END) Dow Jones Newswires
November 25, 2021 02:00 ET (07:00 GMT)
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