TIDMAPP
RNS Number : 4454D
Appreciate Group PLC
29 June 2021
29 June 2021
Appreciate Group plc
Final Results for the Year Ended 31 March 2021
A year of significant progress - weathering lockdowns whilst
re-focussing the business and accelerating our digital
proposition
Appreciate Group (the 'Group'), the UK's leading multi-retailer
redemption product provider to Corporate and Consumer markets,
today announces its final results for the financial year ended 31
March 2021, and provides an update on current trading for the new
financial year to date.
Financial highlights
-- Profit before tax of GBP1.3m (2020: GBP7.7m), with profit
before tax and exceptional items** of GBP2.3m (2020: GBP11.4m)
excluding e xceptional costs of GBP1.1m (2020: GBP3.7m of
exceptional items) relating to redundancy costs, goodwill and stock
impairments and profit on sale of assets held for sale.
-- Results within the range of market expectations allowing for
unaudited, non-recurring losses relating to the wind down of the
hamper packing business of GBP1.1m (GBP1.2m staff costs, GBP0.3m
lease costs and GBP0.8 other costs, offset by GBP1.2m revenue),
related marketing and customer care costs of GBP0.4m now deployed
elsewhere in the business, non-recurring costs of decommissioning
the previous head office site of GBP0.3m and FMI losses of GBP0.1m
before disposal.
-- Group billings* down marginally by 3.2% to GBP406.5m (2020:
GBP419.9m) following the early impact of the initial lockdown and
ceasing of hamper packing.
-- Revenue 5.2% lower to GBP106.8m (2020: GBP112.7m) in line with billings*.
-- Digital billings* up almost four-fold to GBP68.5m (2020: GBP17.7m)
-- Total cash balances, including monies held in trust and bank
deposits, at 31 March 2021, were GBP163.5m (2020: GBP132.3m).
-- Year end free cash (excluding monies held in trust) of GBP31.4m (2020: GBP29.6m).
-- The Board has recommended a final dividend of 0.6p, making a
full dividend for the year of 1.0p per share (2020: 0p)
Statutory results
-- Operating profit GBP0.8m (2020: GBP6.4m)
-- Operating profit before exceptional items** of GBP1.9m (2020: GBP10.1m)
-- Earnings per share of 0.46p (2020: 2.96p)
Operational and strategic highlights
A resilient divisional performance given COVID headwinds
-- Corporate
o Corporate billings* of GBP201.3m up 1.8% (2020: GBP197.7m)
o Underlying Corporate billings*, excluding free school meals,
were GBP178.3m, 9.8% lower than prior year following impact of
COVID.
o Corporate revenue increased 6.8% to GBP53.7m (2020:
GBP50.3m)
o Performance benefitted from strong Corporate demand,
particularly during peak Q3 trading period, and one-off free school
meals initiative.
o Segmental profit decreased to GBP2.6m (2020: GBP6.6m) due to
lower margin business (free school meals initiative) and higher
administration costs.
-- Consumer
o Billings* fell 7.6% to GBP205.3m (2020: GBP222.2m) due to
impact of lockdowns and reduction in Christmas Savers.
o Revenue was GBP53.1m (2020: GBP62.4m) following deferral of
redemptions due to impact of lockdowns on customers' ability to
redeem in-stores.
o Segmental profit of GBP0.5m (2020: GBP5.3m) following lower
revenue and GBP1.1m of exceptional costs relating to the closure of
the hamper business.
o Increased customers coming to us directly, with billings* via
highstreetvouchers.com 18.2% higher than prior year with
particularly strong Q3.
Momentum continues in delivery of strategic business plan
The Group made further significant progress in delivering key
elements of its strategic business plan during the year:
-- Simplified, streamlined business - t he Group underwent
considerable restructuring during the year, having disposed of, or
withdrawn from, hamper production, contract packing, operations in
the Republic of Ireland, and the brand engagement agency, FMI. The
Group is now therefore fully focused on growing the core, more
profitable business.
-- Growth in digital - d igital billings* rose almost four-fold
during the year. The Group will use its insight and learnings to
drive further growth and continue to invest in enhancing its
digital proposition. It is also placing greater focus on best
practice digital marketing and commercial planning to support these
aims.
-- Financial flexibility - GBP15m revolving credit facility
(excluding GBP10m uncommitted accordion) secured during pandemic to
underpin the Group's long-term growth plans and migration towards
digital products.
-- B2B business rebranded - part of repositioning in a market
offering significant growth opportunities. This was supported by
launch of the Group's digital gift card product to Corporate
clients. This helped deliver a strong Q3 performance including our
busiest ever December.
-- New distribution partnership with PayPoint - launched in May
2021 providing customers with access to purchase Love2shop products
via a physical network of 28,000 outlets across the UK.
-- Enterprise Resource Planning (ERP) programme - next phase
will be delivered this summer. This is a cornerstone in the Group's
plans to build a robust and scalable platform and will provide
significant benefits through enhanced resilience and workflow. The
following phase is due to be delivered in the second half of the
financial year.
-- Cultural transformation - exemplified by delivery of a range
of important change initiatives throughout the year, despite the
challenges for colleagues of working remotely.
-- Broader redemption choice - continued to diversify the range
to offer customers more flexibility between online and in store
redemptions, with the ability to choose more food, hospitality,
leisure and entertainment options alongside leading retailers. Food
outlets added such as Nando's, Bella Italia and RealFoodHub.co.uk,
alongside attractive brands such as Schuh and Superdry.
-- Prestigious external recognition - Business Culture Award for
Best Working Environment & Workplace Design, following the head
office move to Chapel Street, Liverpool, as well as attaining a
Great Place to Work accreditation with a Trust Index above that for
the average UK company.
-- Strengthened ESG commitment - we stepped up our positive
contribution to society during the pandemic by broadening our
relationship with Everton in the Community - funding equipment for
its new children's education programme in the Liverpool City
Region, supporting good causes, and helping meet the needs of tens
of thousands of school children up and down the country through our
involvement in the free school meals initiative.
Current trading and outlook
-- Trading in the first 12 weeks of the current financial year
has been slower than anticipated and continued to be impacted by
the pandemic, as customer buying and spending patterns take time to
return to normal levels. Billings* are considerably higher than the
same period last year, as expected given the initial uncertainly
created by the first lockdown. Billings* are marginally down on the
previous year of 2019 by 8.6%, reflecting the continued impact of
COVID on consumer behaviour.
-- As stated in our year-end trading update on 29 April 2021,
the Christmas Savings' order book has been held back by COVID--19
restrictions impacting face--to--face agent activity during the
crucial renewal and recruitment period, combined with higher levels
of unspent paper vouchers (up by GBP6.4m compared to last year) due
to shopping restrictions, which customers appear to intend to use
towards Christmas 2021, rather than starting a new savings plan.
Whilst initiatives to recruit Christmas savings' customers
continue, the order book is now predicted to be c.14% down
following the continued COVID uncertainty, having quoted c.11%
lower in April.
-- The Group continues to focus on costs and minimising any
unnecessary spending that is not aligned to its strategy.
* See accounting policies for a reconciliation of billings to
revenue
** See financial review for reconciliation of adjusted to
statutory profit measure
Ian O'Doherty, Chief Executive Officer, commented:
"Like other businesses, we have faced many challenges over the
past year, but I'm pleased to say we have put the Group in the best
position to weather the uncertainty. Having re-focussed the
business on its core product and delivering for our customers and
clients in the prepayment, gifting and engagement markets, and
enhanced our digital capability, we have laid strong foundations
for future years of growth.
" I am extremely proud of the dedication and commitment of our
colleagues in delivering for customers throughout the period and
want to thank them again for their extraordinary efforts.
"The speed at which levels of activity will return to normal
remains unclear, however, we believe that as the economy emerges
from lockdown, we are strongly positioned to exploit opportunities
that arise in our market and deliver sustainable growth in future
years."
Appreciate Group will host a webcast presentation for analysts
at 9.30am this morning.
If you would like to attend, please contact MHP on 020 3128 8193
or AppreciateGroup@mhpc.com .
Appreciate Group Liberum MHP Communications
plc (NOMAD and broker)
Ian O'Doherty, CEO Richard Crawley Reg Hoare
Tim Clancy, CFO Jamie Richards Katie Hunt
Charles Hirst
Andy Hammerton, Head
of Corporate Affairs Tel: 020 3100 2222 Tel: 020 3128 8193
Email: appreciategroup@mhpc.com
Tel: 0151 653 1700
The information contained within this announcement is deemed by
Appreciate Group to constitute inside information as stipulated
under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").
Notes to Editors:
Appreciate Group is one of the UK's leading gifting, pre-payment
and engagement companies, and experts at creating joyful
experiences and connecting people to the things in life they enjoy
the most.
Everything Appreciate Group does is focused on creating more joy
in the world, and it is proud to be trusted to help its customers
create moments they can treasure and remember, whether they are
giving, celebrating or rewarding.
Appreciate Group is a financial services business with a wide
portfolio of brands which provide solutions for its consumer and
business customers. Its consumer-facing brands meet a range of
prepayment and gifting needs, while its business products help
corporate customers reward and recognise their employees and
clients.
Appreciate Group is home to many of the country's most-loved
gifting, pre-payment and engagement solutions including Park
Christmas Savings, highstreetvouchers.com and Love2shop, and we are
fast-becoming the home of digital innovation in gifting.
Whether it's saving towards the perfect family Christmas or
celebrating with gift cards and vouchers, we create and supply
products that millions of people trust when it comes to giving and
receiving with family, friends or colleagues.
Park Christmas Savings: As the UK's largest family Christmas
savings club, Park Christmas Savings has helped over 2.7 million
families budget for Christmas on a short-term or year-round
basis.
Love2shop: Love2shop offers gift cards and gift vouchers
available to spend at stores and attractions across the UK. They
are also used through our Love2shop Business Services providing
corporate partners with incentives and rewards for their employees
and clients.
Appreciate Group plc's shares are traded on AIM, a market
operated by the London Stock Exchange.
The Park Prepayments Protection Trust is designed to increase
protection for customers' prepayments. The Trust has three
directors, two of whom are independent of Appreciate. Details of
the trust are set out here:
https://www.getpark.co.uk/CORPORATE/declaration.pdf
Message from the Chairman
Overview
The last year has been a period unlike any other. The pandemic
has had an impact on us all. Under the strong leadership of our
CEO, Ian O'Doherty, the Group has navigated these challenges by
making the wellbeing of our colleagues, and the needs of our
customers, the priority throughout, remaining true to our purpose
and values.
At the time of our last Annual Report I said that we were
determined to emerge strongly from the pandemic and be ready for
growth. I am pleased to say that Appreciate Group has risen to the
challenge during the year, continuing to deliver our strategy and
reshaping the business to lay the foundations for future years.
By accelerating initiatives in our long term plan, restructuring
the business to focus on our core product and delivering for our
customers in our key markets (prepayment, gifting and engagement)
and building our digital capability, we are now better positioned
to take advantage of future growth opportunities.
The onset of the pandemic caused a great deal of disruption and
uncertainty in the early months of 2020. Despite this, our business
has proved resilient as a result of the actions we have taken. We
delivered an improved second half performance with the usual swing
to profitability following a higher than normal first half loss due
to the first lockdown. Our performance in the key Q3 Trading Period
provided real signs of encouragement.
We believe this demonstrates that our response to the pandemic
was well judged, and the reshaping of the business will provide the
bedrock for future sustainable growth.
Supporting customers through lockdown
The Group strengthened its products and proposition to enable
Consumer and Corporate customers to gift and reward despite
COVID-19 related restrictions.
We were able to make an important contribution to the
Government's free school meals initiative, by working at pace to
facilitate food retailer Iceland's participation in the scheme.
Corporate clients turned to our solutions to thank their
hard-working employees during the pandemic, leading to record
levels of new business and helping us deliver an improved peak
season.
We also continued to focus on broadening the appeal of our
products, adding new sectors such as hotels, and learning options,
to the redemption choice; making essential retail available on
digital products to support customers during lockdown; and adding
some strong retail brands.
We extended expiry dates on paper vouchers, which could only be
redeemed in-store, to ensure that customers did not lose the
opportunity to spend them because of lockdown.
Digital growth
A key component of our long-term strategy has been to build our
digital offering and capability. As the pandemic led to an
acceleration in the adoption of digital by customers seeking
alternative ways to gift and reward during lockdowns, we
intensified, and brought forward many of our strategic initiatives.
This included launching new digital solutions and broader choices
for both the Corporate and Consumer segments that do not require
physical cards.
We will continue to invest in our digital proposition to exploit
future growth opportunities and use the important insights and
learnings to sharpen our offering and enhance the customer
experience.
Colleagues, culture and ESG
We have been fortunate to have the commitment of so many
dedicated and resilient colleagues. The majority have adapted
remarkably to home-working; whilst those working in our fulfilment
operations have embraced the changes of working in a COVID-secure
environment. I want to thank all of our people for their efforts
over the last year.
I have no doubt we would not have adapted so flexibly to the
challenges over the last 12 months had we not made the earlier
investments in infrastructure and our workplace.
We underlined our commitments to colleagues and to being a
responsible business over the past year, by making tangible
progress with a number of initiatives.
Our approach to fully embed the company purpose - to create joy
- in our new head office was recognised with a prestigious Business
Culture Award.
We strengthened our work with Everton in the Community by
becoming an official partner. Through this partnership w e became
the main supporter in a new education programme that will help
teach young people in the Liverpool City Region digital skills,
such as coding.
Despite remote working, our colleagues have continued to explore
opportunities to fund-raise for important causes, including
Children in Need and Zoe's Place (a Liverpool-based children's
hospice and long-term charity of choice for colleagues) as well as
through activities to celebrate Red Nose Day.
We chose to repay all the funds received under the UK
Government's Coronavirus Job Retention Scheme when it became clear
that our performance had recovered sufficiently.
Financial strength
Our balance sheet remains robust, with good levels of liquidity,
which we continue to manage due to swings in free cash from month
to month, driven by the timings of monies being moved in and out of
trusts, and the purchasing of third party, single retailer
redemption products. This is supported by our revolving credit
facility with Santander that was put in place last year, a notable
achievement in itself at such a time.
Dividend
Following our decision not to pay a dividend for the previous
financial year in light of uncertainty at the time, we reinstated
the interim dividend in November as it became clear that trading
had improved.
As this improvement has been maintained in the second half of
the financial year, the Board has recommended a proposed final
dividend of 0.6p making a total dividend for the year of 1.0p per
share (2020: 0p)
The dividend will be paid on 1 October 2021 to shareholders on
the register on 27 August 2021, with an ex-dividend date of 26
August 2021.
Regulation
As a regulated organisation we take our responsibility to our
customers seriously and we always seek to comply with all
applicable regulation. We welcome increased focus on the regulation
of e-money issuers through annual audits of their safeguarding
practices. The Board is committed to making improvements to
controls and administrative and procedural practices in line with
regulation.
Summary
We are now a leaner, more digital-focused business, and we have
shown we can respond to the toughest of challenges with agility and
resilience. We have made considerable progress in reshaping the
business over the last two years, which will provide the
foundations on which to grow in future years.
We are determined to build on this momentum by enhancing our
products and proposition to attract new customers, in line with
regulation. The speed at which normal levels of activity will
return is unclear, we believe that, as the economy emerges from
lockdown, we are better positioned to support customers following
the accelerated adoption of digital products.
We have a clear strategy of innovation-led growth to capture the
potential in our markets and we are confident our approach and
expertise will drive strong and sustainable growth for the
long-term.
Laura Carstensen
Chairman
28 June 2021
Chief Executive's Review
Introduction
Although the pandemic has had a significant impact on everybody,
I have seen it bring the best out of our business and our people.
We are now a more agile and resilient company than we were before
COVID-19 struck and I am extremely proud of the dedication that our
colleagues have shown to support our customers, as well as each
other.
Importantly, the decisions taken by the leadership team to
respond to the crisis have been guided by our company purpose and
trademark behaviours, providing the compass to ensure we have
always focused on driving outcomes that are aligned to the
long-term interests of all our stakeholders.
Results for the year
I am pleased to report that, despite the challenges we have
faced as a business during the pandemic, we achieved a solid
performance for the year, with strong corporate demand, increased
digital sales and the benefits of previous restructuring actions
partially mitigating the impacts of COVID, which were especially
acute in the early months of the first national lockdown.
Profit before tax and exceptional items** was GBP2.3m (2020:
GBP11.4m) excluding exceptional costs of GBP1.1m (2020: GBP3.7m of
exceptional items) relating to the impairments and redundancies,
net of profit on disposal of assets held for sale. This performance
reflected a robust second half when we saw the usual swing to
profitability that is typical for the seasonal nature of our
business.
A number of operating costs incurred in the year will no longer
be incurred going forward, including restructuring costs incurred
in relation to the wind down of hamper production, contract packing
and the Republic of Ireland business as well as the sale of
FMI.
Group billings* decreased by 3.2% to GBP406.5m (2020: GBP419.9m)
despite growth from our Corporate business. Revenue decreased by
5.2% to GBP106.8m (2020: GBP112.7m) due to lower billings with a
greater level of deferred revenue following delays in spending
whilst customers had fewer options to redeem their products in
stores. Some of this deferred revenue is expected to come through
in the next financial year .
Operating profit before exceptional items** for the year was
GBP1.9m (2020: GBP10.1m), of which GBP7.2m was delivered in H2. Net
interest income fell to GBP0.4m (2020: GBP1.3m) following lower
interest rates on average cash balances (including cash held in
trust) of GBP181.2m (2020: GBP177.0m).
Digital billings rose four-fold, from GBP17.7m in 2020 to
GBP68.5m, driven by the introduction of a broad choice of Love2shop
e-codes and the launch of a Love2shop Contactless Digital Gift Card
to Corporate clients.
Total cash balances, including monies held in trust and bank
deposits, at 31 March 2021, were GBP163.5m (2020: GBP132.3m).
Following the solid second half performance, and after the
reintroduction of the dividend at half year, we are pleased to be
in a position to declare a final dividend of 0.6p.
* See accounting policies for a reconciliation of billings to
revenue
** see financial review for reconciliation of adjusted to
statutory profit measure
Divisional review
We operate in dynamic markets, serving customers in both
corporate and consumer channels. The UK gift card market was
estimated to be worth approximately GBP7bn annually(1) in 2019 and
predicted to grow to GBP8.7bn by 2025. The market in 2020 was
impacted by COVID with data indicating trends of a move from stores
to online; from physical to digital; and from B2C to B2B. Some of
these trends were already present, with the pandemic serving to
accelerate their development.
(1) Source: UK Gift Card and Voucher Association
Corporate (50.2% (2020: 44.6%) of Group revenue in the year
ended 31 March 2021)
Appreciate Group's Corporate business provides around 39,000
business customers with market-leading incentive, recognition and
rewards options for an estimated two million recipients to use with
around 190 redemption partners with almost 24,000 outlets.
Corporate billings of GBP201.3m were 1.8% higher than the prior
year (2020: GBP197.7m), a stable performance having been driven by
record levels of new business, a strong Q3 performance and billings
through the free school meals scheme of GBP23.0m. Corporate revenue
was GBP53.7m (2020: GBP50.3m) representing an increase of 6.8%.
Segmental profit decreased by GBP4.0m to GBP2.6m (2020: GBP6.6m)
reflecting the lower margin on billings through the free school
meals initiative and higher administration costs.
In the year we continued to increase the clients we work with by
adding organisations such as B&Q, Halfords and Sharps Bedrooms
as new partners.
Consumer (49.8% (2020: 55.4%) of Group revenue in the year ended
31 March 2021)
Consumers can access Appreciate Group's multi-retailer
redemption product directly from our website highstreetvouchers.com
or via our leading Christmas savings offering, which currently
helps approximately 350,000 families budget for Christmas.
Our Consumer business billings were GBP205.3m compared to
GBP222.2m in the prior year. Consumer revenue was GBP53.1m (2020:
GBP62.4m) with a segmental profit of GBP0.5m versus GBP5.3m in the
prior year, which was impacted by the increase in deferred revenue
due to lockdowns.
To support customers in lockdown, a broad range of e-codes were
introduced, providing more appealing options to customers spending
more time at home, such as Just Eat, xBox Live, Uber Eats and
ASOS.
The Christmas Savings' order book for 2020 finished down 8%
overall, with most savings' plans in place before COVID struck. The
book is currently predicted to be c.14% lower for 2021, having been
held back by lockdown restrictions impacting face-to-face agent
activity. In addition, unspent paper vouchers are GBP6.4m higher
compared to last year due to shopping restrictions and we believe
that some customers intend to use them towards Christmas 2021,
rather than starting a new savings plan.
In response to this reduced predicted order book for 2021, a
number of initiatives are underway to encourage customers to save
and incentivise agents. We held a virtual event to engage agents in
May and introduced a regular prize draw to encourage customers to
add to their savings' plans. We also introduced new agency
commission structure in 2020 to support plans.
The focus on digital has also led to growth in billings through
highstreetvouchers.com in the second half, up by over a third (36%)
in our peak third quarter. We continued to optimise traffic, with
visitors increasing 31.8% in the second half against the previous
year; and a continued focus on conversion, with rates up from 3.5%
in H2 2020 to 4.7% in H2 2021.
Strategic progress
Since late 2018, Appreciate Group has been delivering a
transformation focused on building a robust and scalable business
model to support future growth. The strategy is underpinned by four
strategic pillars of Productivity, Appeal, Clarity and Experience.
Significant investments in infrastructure and technology had been
made prior to the pandemic - including the head office move;
rebranding to Appreciate Group; launching a digital gift card and
cloud technology. The Group focused on accelerating key elements of
its business plan over the past year and has made excellent
progresses in a number of areas:
Digital growth
It is important that we have solutions that meet the demands of
customers in an increasingly digital world. The pandemic has led to
a more rapid advancement of consumer digital adoption and we
responded by intensifying our own focus on digital.
Investments to strengthen our digital offering and capability
helped us respond to the pandemic and boost digital billings during
the year, which almost quadrupled. Digital billings represented
17.3% of the overall product mix, up from 4.4% in the previous
year. We have also gained significant insight and learnings which
will help us enhance our approach further, and we plan to make
further investments to support growth in our digital offering.
Paper billings were down 46% year on year to 22.5% of the overall
product mix, although this will have been partially helped by
lockdown.
Simplifying our business
Our long-term strategy is to focus on our core product and
delivering for our customers and clients in the Prepayment; Gifting
and Engagement markets which provide the vast majority of the
Group's profits. During the year we accordingly disposed of, or
withdrew from, a number of non-core activities including hamper
production, contract packing, our operations in the Republic of
Ireland, and the brand engagement agency, FMI. Management focus is
now dedicated to improving and driving the core business where we
see opportunities for scale and growth.
A sale of the land and buildings at Valley Road, Birkenhead, was
completed for GBP3.1m during the first half of the year, freeing up
funds for investment in the core business.
Continuing to invest in IT
The next phase of the Enterprise Resource Planning (ERP)
programme remains on track to be delivered during the summer, with
the following phase scheduled in the second half of the financial
year. This is a cornerstone of our target to build a robust and
scalable platform and will provide significant benefits through
enhanced resilience and workflow. The scope of the project has
evolved as the Group has accelerated and prioritised its digital
focus during the pandemic, which together with the impact of COVID
restrictions, has resulted in additional programme costs.
Cumulative project costs total c.GBP5.9m, of which GBP3.5m was
incurred in the financial year ended 31 March 2021.
The first phase involves replacing current back office systems
for highstreetvouchers.com with Microsoft Dynamics 365, leading to
enhanced efficiencies and improvements in the customer
experience.
We migrated to a new state-of-the-art, out-sourced data centre
in April 2021. This provides increased reliability and
resilience.
The Group plans to continue to invest in enhancing its digital
proposition to exploit future growth opportunities.
Growth in Corporate
We repositioned our B2B business to support our plans for
growth, rebranding it to 'Appreciate: The home of Love2shop'. This
places us as experts in rewards and recognition whilst retaining
the well-recognised Love2shop brand. The business enjoyed a
successful Q3 peak period including our busiest ever December, as
clients explored alternatives to reward their workforces, leading
to record levels of new business with GBP19.3m during the year.
We launched a Love2shop Contactless Gift Card, our in-wallet
digital gift card, to Corporate clients in September building on
insight from its consumer launch. Overall billings for this were
GBP1.8m for the year.
Through our successful partnership with Iceland, we helped
provide thousands of children with free school meals. By working at
pace when the date of the scheme was extended, we were able to
ensure recipients could shop at the supermarket.
Our Corporate business continues to achieve high customer
satisfaction scores on Trustpilot with an average of 4.6 out of 5
and 83% of reviews rating as excellent, demonstrating the strength
of our proposition in this growing market.
Workplace culture
During the year we received external recognition for the
progress we are making on our workplace culture. I am proud that we
became an accredited Great Place To Work and that our office
relocation to Liverpool received a prestigious Business Culture
Award.
Strengthened marketing
We are placing a greater focus on digital marketing and
commercial planning as we seek to deliver future growth. The
Marketing team has been restructured to support this and make
better use of insight to provide analysis for product development,
campaigns and strategy. A new Commercial Planning function will
help deliver targets and campaigns alongside best practice planning
and digital marketing.
Improving customer choice
We continued to expand our redemption partner range to offer a
broader choice to customers. Food options such as Nando's, Bella
Italia and RealFoodHub.co.uk have been added, alongside attractive
brands such as Schuh and Superdry. Customers now have more
flexibility between online and in store redemptions, and the
ability to choose from food, hospitality, leisure and entertainment
alongside leading retailers.
Regulation
We are committed to complying with all relevant regulations. All
e-money providers are now required to undertake an annual audit of
their safeguarding practices, with many of these initial
sector-wide audits expected to identify areas for improvement to
meet updated safeguarding regulations. Our safeguarding audit is
ongoing. Findings to date have identified areas of administrative
and procedural practices that should be improved, none of which
resulted in any loss of funds. As a result, we have made changes,
or are in the process of doing so, to improve these, whilst also
strengthening our controls environment.
Improved distribution
In May 2021, we entered into a new distribution partnership with
PayPoint that will provide consumers with the opportunity to
purchase Love2shop e-codes from a network of 28,000 locations
across the UK. This now gives us a physical presence to offer our
products to customers in the heart of communities for millions of
people across the UK. We are working with PayPoint to develop a
marketing strategy to leverage this exciting, new partnership.
Looking ahead
The actions taken to respond to the pandemic have helped us
deliver a resilient performance during one of the most uncertain
periods in the history of our business.
Appreciate Group remains well positioned in its markets with
differentiated product and service offerings. Following the
accelerated investments in digital and infrastructure, we now look
forward to building on the progress we have made and navigating
further uncertainties in the economic recovery.
Whilst there is optimism following the success of the vaccine
rollout, uncertainty about the speed at which normal levels of
activity will return remains. Despite a slower than anticipated
start to the new financial year, we expect a recovery for the year
overall with an increasing benefit from the investments and
innovations we have made over the last two years.
Overall, we have a clear strategic plan and our business model
is better positioned than ever to deliver sustainable growth as the
economy emerges from lockdown. The Board is, therefore, confident
of the Group's future success.
Ian O'Doherty
Chief Executive
28 June 2021
C hief Financial Officer Review
Impact of COVID-19
The impact of COVID-19 has had a significant impact on the
financial results for the year.
For the majority of the first quarter, we were in the first
lockdown and our priority was to protect the safety of our
employees and partners. Consequently, we closed our physical
despatch facility that had an impact on our ability to sell
products at that time.
To protect the financial health of the business, whilst the
economic outlook was unclear, the Board took the decision to cancel
the dividend relating to 2019/20, preserving GBP6.0m of cash. In
November 2020, we announced our intention to reintroduce the
dividend for 2020/21. Initially we furloughed up to 79 employees,
receiving GBP0.3m from the Government's Job Retention Scheme,
however the Board chose to repay these funds in December 2020.
Whilst demand levels remained low throughout Q1, as the UK came
out of lockdown in Q2, business levels began to recover, and
improved further during Q3, which included a record month for
billings in December. Our billings benefitted from inclusion in the
Government's Free School Meals campaign, where we supported Iceland
and achieved billings of GBP23.0m in the year.
The order book for our Christmas Savers business is normally
complete by March and this did not experience any significant level
of cancellations, and finished, as expected 8% lower than the prior
year.
A number of strategic projects were delivered during the year.
In August we completed a bank financing exercise of an unsecured 5
year revolving credit facility (RCF) with Santander UK of GBP15m
plus an additional uncommitted accordion of GBP10m. This facility
will provide additional financial flexibility enabling longer term
growth, as well as investing in the continued switch to digital
products. This facility has not yet been utilized.
We completed the sale of the land and buildings of our former
head office in Valley Road, Birkenhead for GBP3.1m, in line with
the net book value of the asset. At the same time we announced the
closure of our hamper production and third party packing business.
The redundancy and stock impairment costs of GBP1.1m are included
within exceptional items. There are further losses relating to our
hamper packing business, costs of decommissioning our previous head
office and losses in FMI that suppress the underlying result this
year but will be non-recurring next year.
In Q3 we concluded the disposal of FMI, our brand engagement
agency, reporting a profit on the sale of GBP0.2m.
In the final quarter of the year, as the UK entered another
national lockdown, non-essential retail businesses were temporarily
closed again, which limited the opportunity for our customers to
use their products. This meant that redemption levels during Q4
were lower than expected, leading to higher unspent balances.
Whilst this preserved cash relating to unregulated products, it
created a much higher level of deferred revenue (GBP11.2m in 2021
vs 7.4m in 2020). This is because revenue and profit are recognised
when products are redeemed. We expect some of this deferred revenue
to come through in the next financial year.
Billings* and Revenue
The Group's products are split into the following
categories:
-- Multi-retailer redemption products - Love2shop vouchers,
flexecash(R) cards, Mastercards and e-codes
-- Single retailer redemption products - third party retailer vouchers, cards and e-codes
-- Other - hampers, merchandise and consultancy fees. Hampers
and merchandise operations were closed during the year.
Multi-retailer redemption product billings are the gross value
of goods and services shipped and invoiced to customers during the
year. Revenue for multi-retailer redemption products is the net
service fee received on redemption, cardholder fees and breakage
which are recognised when multi-retailer redemption products are
redeemed.
For single retailer redemption products and other, both billings
and revenue are the gross value of goods and services shipped and
invoiced to customers during the year.
* See accounting policies for a reconciliation of billings to
revenue
Billings 2021 2020 Change
GBPm GBPm %
Multi-retailer redemption
products 351.8 354.3 -0.7
Single retailer redemption
products 50.8 52.9 -4.0
Other 3.9 12.7 -69.3
Total 406.5 419.9 -3.2
Multi-retailer redemption product billings includes billings in
respect of e-codes which are capable of being converted into either
multi-retailer redemption products or single retailer redemption
products. Revenue figures below reflect the product into which the
e-code is converted by the cardholder.
Revenue 2021 2020 Change
GBPm GBPm %
Multi-retailer redemption
products 24.7 37.9 -34.8
Single retailer redemption
products 78.2 62.1 +25.9
Other 3.9 12.7 -69.3
Total 106.8 112.7 -5.2
The mix of in-house, multi-retailer products remains high within
billings, in line with the strategy of promoting our own products.
The mix of multi-retailer redemption products was 86.5% of total
billings, marginally higher than last year's 84.4%.
Revenue decreased by 5.2% to GBP106.8m. There was a greater mix
of single retailer redemption products that are reported gross in
revenue as opposed to multi-retailer redemption products that are
reported net. This was due to a high level of conversions of
digital e-codes that are categorised as multi retailer products
when billed to customer but later converted to single store use.
The increase in single store revenue was offset by lower
multi-retailer product revenue, due to more conversions, and lower
other income due to the cessation of hamper production and contract
packing.
Profit from operations
The Group's operations are divided into two principal operating
segments:
-- Consumer - which represents sales to consumers, utilising the
Group's Christmas savings offering and our website,
highstreetvouchers.com; and
-- Corporate - comprising sales to businesses, offering
primarily sales of the Love2shop voucher, flexecash(R) cards,
Mastercards and e-codes in addition to other retailer vouchers.
All other segments comprise central costs and property costs
which are shown separately in order to give a more meaningful view
of divisional performance.
2021 2020 Change
GBP'000 GBP'000 GBP'000
------------------- -------- -------- --------
Consumer 532 5,327 (4,795)
------------------- -------- -------- --------
Corporate 2,638 6,581 (3,943)
------------------- -------- -------- --------
All other segments (2,340) (5,512) 3,172
------------------- -------- -------- --------
Operating profit 830 6,396 (5,566)
------------------- -------- -------- --------
Consumer
In the Consumer business, customer billings have decreased by
7.6% from GBP222.2m to GBP205.3m. Billings for Christmas savers
were down by 8.4%, partially offset by an improved performance in
other Consumer billings, derived through the highstreetvouchers.com
website, which were 18.2% higher. Revenue has decreased 14.9% to
GBP53.1m (2020: GBP62.4m) because of delayed redemptions by
customers due to the closure of non-essential retail in the final
quarter of the financial year.
Operating profit was GBP0.5m, a decrease of GBP4.8m from the
GBP5.3m achieved in the prior year. This was primarily due to lower
revenue and an increase in administration costs, as explained
below, relating to the closure of our hamper packing business.
Corporate
In the Corporate business customer billings have increased by
1.8%, from GBP197.7m to GBP201.3m. This increase includes GBP23.0m
of Free School Meal codes redeemable through Iceland which offset
the lower demand experienced during the first half of the year
during the first lockdown. Corporate revenue increased by 6.8% over
the prior year, from GBP50.3m to GBP53.7m due to higher billings
and more conversions to single retailer products that is reported
gross in revenue.
Operating profit decreased to GBP2.6m (2020: GBP6.6m) due to
lower margin business and higher administration costs.
All other segments
Central and property costs reduced from GBP5.5m to GBP2.3m. This
is due to the impairment cost of the Valley Road site at GBP1.8m
included in the prior year number.
Administration Costs
Administration costs increased from GBP20.0m to GBP21.1m due to
consultancy and advisory costs relating to projects completed in
the year.
Reconciliation of adjusted to statutory profit
The Board believes that adjusted profit excluding non-recurring
items such as impairments and redundancy costs is the best measure
of the underlying performance of the Group. This gives stakeholders
a better understanding of the Group's trading position in the year
by adjusting for items which are significant in value, infrequent
and in the case of impairments, do not have a cashflow impact in
the year.
Operating Profit Profit
2021 profit before after tax
tax
GBP'000 GBP'000 GBP'000
Profit before exceptional items 1,896 2,319 1,917
Impairment of goodwill (218) (218) (218)
Redundancy costs (639) (639) (639)
Impairment of obsolete stock (414) (414) (414)
Profit on sale of assets held for
sale 205 205 205
Statutory profit 830 1,253 851
---------- -------- -----------
2020
Profit before exceptional items 10,072 11,446 9,187
Impairment of property, plant and
equipment and available for sale
assets (1,813) (1,813) (1,813)
Impairment of goodwill (1,316) (1,316) (1,316)
Impairment of obsolete stock (124) (124) (124)
Redundancy costs (423) (423) (423)
---------- -------- -----------
Statutory profit 6,396 7,770 5,511
---------- -------- -----------
Exceptional Costs
Exceptional costs for the year were GBP1.1m compared with
GBP3.7m in the prior year. In the year, we closed hamper production
and our contract packing business based at Valley Road. Following
consultation with staff we made 40 roles redundant and have
incurred exceptional costs of GBP0.6m. Additionally, we impaired
the value of hamper stock by GBP0.4m.
Finance income
Finance income decreased to GBP0.8m from GBP1.5m due to the
lowering of the Bank of England base rate. Average total cash held
by the Group, including cash held in trust during the year
increased by 2.4% to GBP185.0m (2020: GBP177m).
Taxation
The effective tax rate for the year was 32.1% (2020: 28.4%) of
profit before tax. The rate is higher than the standard rate of
corporation tax of 19% due primarily to legal fees, property, plant
and equipment additions and the share option charge not attracting
tax relief.
VAT deferral
The Company took advantage of the government's COVID-19 VAT
deferral scheme, and owed GBP697,954 as at 31 March 2021. This will
be repaid in full during the new financial year.
Earnings per share
Basic earnings per share (EPS) fell by 84.5% from 2.96p in 2020
to 0.46p. Excluding the exceptional charge basic EPS is 1.03p
(2020: 4.93p), down 79.1%.
Dividends
It has been the Board's policy to distribute just over half of
post-tax profit as dividend, with one third of that as an interim
dividend and the remaining two thirds as a final dividend.
Following the cancellation of the dividend for the financial year
2019/20, the Board is pleased to reintroduce this policy for the
current year and recommends a full year dividend of 1.0p (2020:
nil).
Cash flows and treasury
Cash flows from operating activities were GBP4.9m, GBP2.0m
(29.0%) lower than the prior year, due to the decrease in profit
and an increase in monies held in trust, offset by a working
capital cash inflow. Monies in trust grew from GBP102.7m in 2020 to
GBP132.1m. This growth was primarily in the Park Card Services
Limited e-money Trust (PCSET) to support the e-money float in
accordance with regulatory requirements. This increased by GBP25.2m
to GBP69.4m due to higher levels of card and digital business.
In addition, GBP51.5m (2020: GBP55.1m) was held by the Park
Prepayments Trustee Company Limited. The trust holds payments
received in respect of orders for delivery the following Christmas.
The conditions for the release of this money to the Group are
detailed in the trust deed, which is available at
www.getpark.co.uk.
Also, at 31 March 2021, the Group held GBP11.1m of other ring
fenced funds (2020: GBP3.4m).
At the end of March 2021, GBP31.4m (2020: GBP29.6m) of cash was
held by the Group. This was GBP1.8m (6.1%) higher than last year
due to lower redemptions by customers offset partly by lower
profit.
The total amount of cash and deposits net of any overdraft
position held by the Group, combined with the monies held in trust,
has increased in the year by 23.6% to GBP163.5m from GBP132.3m.
These total balances peaked at just under GBP236m in the year,
representing a marginal increase of GBP1.3m from the prior
year.
During the financial year, we completed a bank financing
exercise of an unsecured 5 year revolving credit facility (RCF)
with Santander UK of GBP15m plus an additional uncommitted
accordion of GBP10m. This facility will provide additional
financial flexibility enabling longer term growth, as well as
investing in the continued switch to digital products.
Intangible Assets
As part of the Board's strategy to develop a scalable and
resilient platform to enable future growth, we have continued to
invest in our technology platform in the year with GBP5.0m of
additions (prior year GBP3.3m). This included investment in a new
ERP platform, Microsoft Dynamics 365, of GBP3.5m in the year,
taking cumulative spend on this project to GBP5.9m.
Trade and other payables
Included within trade and other payables is deferred income in
respect of multi-retailer redemption products (vouchers, cards and
e-codes). Revenue is deferred for service fees and breakage, net of
discount. The amount of revenue deferred at March 2021 has
increased to GBP11.2m from GBP7.4m in the prior year due the
closure of non-essential retail in Q4 causing much slower
redemptions by customers.
Provisions
At 31 March 2021, provisions have increased to GBP77.9m from
GBP53.8m. This was mainly due to an increase in the amounts
provided in respect of flexecash(R) cards of GBP20.0m and an
increase in the amounts provided for unspent vouchers of
GBP4.1m.
Pensions
The Group continues to operate two defined benefit pension
schemes, where pensions at retirement are based on service and
final salary. These schemes are now closed to future accrual of
benefit arising from service with the Group. These schemes have a
combined net pension surplus of GBP2.1m based on the valuation
under IAS19 performed at 31 March 2021 (2020: surplus of
GBP4.2m).
Following a High Court ruling in November 2020 in respect of
Guaranteed Minimum Payments (GMP) equalisation uplifts to historic
transfer values, our actuaries have calculated that the expected
impact of this for the group is GBP73,000 and this has been
recognised in the statement of profit or loss.
The Group has recognised net interest income of GBP99,000 (2020:
GBP44,000) in the statement of profit or loss in respect of the
pension schemes. In addition, the Group has recognised a
re-measurement loss in the statement of comprehensive income (SOCI)
of GBP1.7m (2020: gain of GBP1.9m) net of tax.
In the year ended 31 March 2021, there were no contributions by
the Group to the schemes (2020: nil). The latest triannual scheme
funding reports, performed as at 31 March 2019, indicated that one
scheme had a technical provisions deficit (reflecting the
liabilities to pay pension benefits in relation to past service as
they fall due) of GBP0.1m and one had a surplus on the same basis
of GBP1.6m. No further contributions to either scheme are currently
required. The next triannual valuation will be undertaken as at 31
March 2022 when the positions will be reassessed.
Tim Clancy
Chief Financial Officer
28 June 2021
Going Concern Disclosures
The financial statements are prepared on a going concern
basis.
The Group has access to a GBP15m Revolving Credit Facility
("RCF") that is available until August 2025. A further GBP10m of
uncommitted funds is available via an accordion facility attached
to the RCF however this is uncommitted. The Group has not drawn
down on the RCF in the year to 31 March 2021 nor to the date of
signing these financial statements.
The Group is required to comply with covenants attached to the
RCF. These covenants are:
-- Interest Cover (the ratio of EBITDA to Finance Charges) in
respect of any relevant period ending on or after 31 March 2021,
shall not be less than 4.0:1.
-- Adjusted Leverage (the ratio of Total Net Debt to Adjusted
EBITDA) in respect of any relevant period ending on or after 30
September 2020 must not exceed 3.0:1.
-- PPPT Balance (the ratio of PPPT Balance to Monies in Advance
Balance) on each Quarter Date must not be less than 1.0:1.
The Directors have modelled management's best estimate of
financial results for the Going Concern assessment period to 31
December 2022 (the "Going concern period") and adopted the plan as
the Board approved budget. Alongside the Board approved budget, the
Board have identified and approved cost control measures; and
together these form our Base Case.
The Base Case assumes:
-- A decrease in Year 1 billings compared to 2020/2021 actuals,
with then an 8% increase in Year 2 (over Year 1).
-- Christmas savers order book GBP170m in both years.
-- A reduction in paper redemptions compared to 2020/2021,
followed by a significant decrease in Year 2 in line with the
decrease in paper product mix. Increased card and digital
redemptions in both years.
-- Product Mix: Paper billings for Consumer assumed to be 21% in
Year 1 and 15% in Year 2; paper billings for Corporate assumed to
be 7% in Year 1, with minimal levels assumed in Year 2. Remaining
billings are assumed to be card / digital.
-- A flat cost base compared to the prior year for
administrative expenses and staff costs in both years.
-- Capital spend is restricted to that required to complete the
ERP system and only further essential IT development in Year 2.
-- Dividend payment of GBP1.5m is assumed in October 2021 in
line with our stated divided policy, with future dividend payments
subject to trading results and so not modelled in the Base
Case.
The Base Case requires the group to draw down on the RCF in the
period, with the lowest headroom being GBP4.9m in September
2022.
The Directors have modelled six plausible downside scenarios to
test the sensitivity of the Base Case. The scenarios are as
follows:
1. Corporate and Gifting billings remain flat against the 2020/2021 actuals.
2. Christmas Savers order book GBP165m in Year 1 and GBP150m in Year 2.
3. A combination of 1 and 2 above.
4. An additional 10% shift from paper to digital products above the Base Case in Year 1 and 2.
5. 25% faster redemption of paper products and 25% slower
redemption of card and digital products than Base Case in Year 1
and 2.
6. A combination of 3, 4 and 5 above.
In scenarios 1 to 5 the Group would not breach its headroom in
the period to 31 December 2022, and would be fully compliant with
all of its RCF covenants. In the most extreme downside scenario 6,
the Group would breach its headroom by GBP2.3m, but would be fully
compliant with all of its RCF covenants in the period to 31
December 2022.
Current trading for the year to mid-June 2021 shows billings
levels lower than the Base Case. When the % reduction in current
billings versus Base Case are run in conjunction with current
trends on product mix and redemptions, the outcome is not as severe
as sensitivity 6, and the Group remains compliant with its
covenants and does not breach its headroom.
Management have identified mitigating actions, additional to
those in the Base Case, to provide headroom, if necessary, during
the going concern period. These include:
-- cost saving initiatives that would result in cash savings of
GBP2.3m in the going concern period, relating to reductions in
administrative and staff costs. A decision will be taken at the end
of July 2021, dependent on trading, with implementation from
October 2021 should they be deemed necessary.
-- two strategy changes, which could generate significant
additional headroom in key months. The first reduces marketing
spend in respect of Christmas Savers whilst maintaining the paper
voucher mix; and the second maintains the paper voucher mix
currently being experienced in our Corporate customer base by
avoiding moving Corporate accounts away from paper vouchers. These
will be implemented with immediate effect.
When overlaying these mitigating actions and assumed outcomes,
which includes an associated reduction in Christmas Savers Year 2
order book to GBP145m; these provide significant headroom across
the going concern period, with the lowest forecast headroom in Year
1 being GBP5.2m in September 2021, and lowest forecast headroom in
Year 2 being GBP6.3m in July 2022.
Management have modelled a number of reverse stress tests which
consider whether the reduced marketing spend could more severely
impact Year 2 Christmas Savers billings; and consider adverse
movements on the Christmas Savers product mix in Year 1. Assuming
product mix remains in line with base case and the current Year 1
order book then it would take a 40% reduction against base case in
the order book in year one and 56% reduction against base case in
Year 2 for the Group to run out of headroom. The Group would remain
compliant with its covenants, as they are less sensitive than the
liquidity headroom to these changes in billings and product mix.
The Board consider those variances over Base Case to be
implausible.
Conclusion
Having carefully considered the Base Case, downside scenarios,
current trading and trends since the year-end, and further
mitigating actions available, as well as the GBP15m committed RCF,
the directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
period to 31 December 2022. Therefore, the directors continue to
adopt the going concern basis of accounting in preparing the
consolidated financial statements.
Risk Factors
Financial risks
Risk area Potential impact Mitigation
------------------------------------- ------------------------------------ -------------------------------------
Group funding The Group, like many other The Group manages its capital to
companies, depends on its ability to safeguard its ability to operate as a
continue to service its debts going concern.
as they fall due and to have access The 5 year RCF secured by the Group
to finance where this is necessary. last year continues to provide
additional financial flexibility.
In addition the Group has a high
level of visibility of future revenue
streams from its Consumer
business. The funding requirements of
the business are continually
reforecast to ensure that
sufficient liquidity exists to
support its operations and future
plans.
------------------------------------- ------------------------------------ -------------------------------------
Treasury risks The Group has significant funds on The Group treasury policy ensures
deposit and as such is exposed to that funds are only placed with and
interest rate risk, counterparty spread between high
risk and exchange rate movements. quality counterparties and where
appropriate any exchange rate
exposure is managed, utilising
forward contracts, to minimise any
potential impact. Some funds are
placed on fixed term deposits
to mitigate interest rate
fluctuations.
Our exit from the Ireland market has
considerably reduced our exchange
rate exposure.
------------------------------------- ------------------------------------ -------------------------------------
Banking system Disruption to the banking system The Group seeks wherever possible to
would adversely impact on the offer the widest possible range of
Group's ability to collect payment options to
payments from customers and could customers to reduce the potential
adversely affect the Group's cash impact of failure of a single payment
position. route.
------------------------------------- ------------------------------------ -------------------------------------
Pension funding The Group may be required to The Group's pension schemes are
increase its contributions to cover closed to future benefit accrual
any funding shortfalls. related to service. Funding
rates are in accordance with the
agreements reached with the trustees
after consultation with
the scheme actuary.
------------------------------------- ------------------------------------ -------------------------------------
Financial services and other market The business model may be The Group has a regulatory team that
regulation compromised by changes in existing monitors and enforces compliance with
regulation or by the introduction existing regulations
of new regulation or expectations of and keeps the Group up to date with
regulators expressed in guidance. impending regulation. The Group
shares the objectives
Possible new regulation could of Government in treating customers
include a requirement to ring fence fairly and in the protection of
funds for vouchers sold customer prepayments.
to consumers. This would adversely The Group operates a number of trusts
affect the Group's cash position. to safeguard funds held on behalf of
customers. The
The FCA has recently been carrying Board has oversight of the regulated
out a review of the e-money and business and safeguarding practices.
payment service provider Following an ongoing
sector into the effects of the audit of safeguarding practices,
coronavirus pandemic on non-bank which identified some specific
payment providers, with a administrative and procedural
focus on ensuring customer funds are practices that did not comply with
appropriately protected. applicable regulations or meet FCA
expectations as set
out in its Approach Document, the
Board has increased its scrutiny of
the safeguarding practices.
Part of management's action plan has
either already made changes necessary
to address the
matters identified or is in the
process of doing so .
------------------------------------- ------------------------------------ -------------------------------------
Credit risks Failure of one or more customers and Customers are given an appropriate
the risk of default by credit level of credit based on their
customers due to reduced trading history and financial
economic activity. status, and a prudent approach is
adopted towards credit control.
Credit insurance is used in the
majority of cases where customers do
not pay in advance.
------------------------------------- ------------------------------------ -------------------------------------
Operational risks
Risk area Potential impact Mitigation
------------------------------------- ------------------------------------- ------------------------------------
Business continuity Failure to provide adequate service The Group has a hybrid technology
levels to customers, retail partners resiliency strategy incorporating on
or other suppliers, premise and Cloud high
resulting in a failure to maintain availability services. We have three
services that generate revenue. separate data/comms centres and a
remote recovery site
for core data and infrastructure to
ensure that service is maintained in
the event of a site
loss event. We have implemented
Microsoft Office 365 which supports
full remote working capability
for all office based staff.
The Group has decided to upgrade its
IT Systems by implementing a new ERP
system, Microsoft
Dynamics, which will provide
scalability, resilience and
efficiency.
The Group plans and tests its
business continuity procedures in
preparation for catastrophic
events and also to deal with the
There is a risk that an attack on our existence of counterfeit vouchers or
infrastructure by an individual or cards.
Group could be successful
and impact the availability of To further enhance our readiness and
critical systems. resilience, the Group has
established a Business Continuity
Steering Group embedded as a formal
governance routine to implement a BC
Cyber security Incorrect data retention, data Management System.
management or data loss with
customer, financial, regulatory,
reputational impact Our infrastructure has a layered
approach to cybersecurity with
proactive external and internal
monitoring and alerting designed to
prevent unauthorised access and
Data management active defence to reduce
Hardware and software obsolescence the likelihood and impact of a
causing system failure with customer, successful attack. We are ISO 27001
financial, regulatory, certified.
reputational impact
We have implemented a new Data
Warehouse with automated data
cleansing and active data management
Implementation of new hardware, per GDPR rules; we have Active Data
software, managed services causing loss prevention protocols in
Technology risk system failure with customer, messaging platforms and have
financial, regulatory, reputational deployed Microsoft Office 365 with
impact higher encryption standards; we are
PCI and ISO 27001 certified
The Group is actively addressing
hardware and software obsolescence
and is implementing a
new ERP system, Microsoft Dynamics
as well as hybrid Cloud solutions
which will improve scalability,
resilience and efficiency
Developed and purchased software and
services are extensively tested
prior to implementation.
There is a robust vendor management
process for critical service
suppliers.
------------------------------------- ------------------------------------- ------------------------------------
Loss of key management The Group depends on its directors Existing key appointments are
and key personnel. The loss of the rewarded with competitive
services of any directors remuneration packages including long
or other key employees could damage term incentives linked to the
the Group's business, financial Group's performance and shareholder
condition and results. return.
------------------------------------- ------------------------------------- ------------------------------------
Relationships with high street and The Group is dependent upon the The Group has a dedicated team of
online retailers success of its Love2shop products and managers whose role it is to ensure
flexecash(R) card. These that the Group's products
products only operate provided the have a full range of retailers. They
participating retailers continue to also work closely with all retailers
accept them as payment to promote their
for goods or services provided. The businesses to our customers who use
failure of one or more participating our vouchers and cards to drive
retailers could make forward incremental sales
these products less attractive to to their retail outlets. Contracts
customers. which provide minimum notice periods
for withdrawal are
in place with all retailers and are
designed to mitigate any potential
impact on our business.
We are a Mastercard issuer and use
the services of a transaction
processor for some of our
products to be accepted at
retailers.
------------------------------------- ------------------------------------- ------------------------------------
Failure of the distribution network The failure of the distribution Wherever possible the Group seeks to
network during the Christmas period, utilise a wide range of
for example a Post Office geographically spread carriers
strike, road network disruption or to mitigate the failure of a single
fuel shortages could adversely impact operator.
the results and reputation
of Appreciate's brands. The strategy towards digital will
also help mitigate this risk.
------------------------------------- ------------------------------------- ------------------------------------
Brand perception and reputation Adverse market perception in relation Operation of a process of continual
to the Group's products or services, review of all marketing media,
for example, following material and websites to
the collapse of a competitor. This promote transparency to customers.
could result in a downturn in demand Extensive testing and rigorous
for its products and internal controls exist for all
services. Group systems to maintain continuity
of online customer service.
------------------------------------- ------------------------------------- ------------------------------------
Promotional activity The success of the Group's Detailed management processes that
promotional campaign is essential to are designed to optimise the cost of
ensure the continued recruitment recruiting customers
of customers. Failure to recruit are in place.
would result in loss of revenue to
the Group. Promotional
activity must also be cost effective.
------------------------------------- ------------------------------------- ------------------------------------
Competition Loss of margins or market share The Group has a broad base of
arising from increased activity from customers and no single customer
competitors. represents more than 6% of
total customer billings.
Significant resources are dedicated
to developing and maintaining strong
relationships with
customers and to developing new and
innovative products which meet their
precise needs.
------------------------------------- ------------------------------------- ------------------------------------
Coronavirus (COVID-19) Coronavirus poses a threat to both Plans for business continuity,
the health working practices, staff deployment
of employees and the businesses of and welfare across sites,
Appreciate Group. working from home and hygiene
precautions have been implemented.
They are reviewed on an ongoing
basis.
With the easing of lockdown measures
and the success of the continuing
vaccination programme,
our operations are returning to
normal, with the safety of our staff
of paramount concern
as they start returning to the
office, and as high street shops are
now open.
------------------------------------- ------------------------------------- ------------------------------------
Ian O'Doherty
Chief Executive Officer
28 June 2021
Appreciate Group plc
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR TO 31 MARCH 2021
2021 2020
Notes GBP'000 GBP'000
Billings 6 406,532 419,857
--------- ---------
Revenue 6
* Goods - Single retailer redemption products 78,154 62,142
* Other goods 259 6,240
* Services - Multi-retailer redemption products 24,736 37,870
* Other services 3,509 6,371
* Other 147 101
--------- ---------
106,805 112,724
Cost of sales excluding exceptional
items (82,055) (79,778)
Impairment of obsolete stock 10 (414) (124)
--------- ---------
Gross profit 24,336 32,822
Distribution costs (1,784) (2,838)
Administrative expenses (21,070) (20,036)
Impairment of property, plant and
equipment - (163)
Impairment of assets held for sale 11 - (1,650)
Impairment of goodwill 9 (218) (1,316)
Redundancy costs 12 (639) (423)
Profit on sale of assets held for
sale 11 205 -
--------- ---------
Operating profit 830 6,396
Finance income 783 1,481
Finance costs (360) (177)
--------- ---------
Profit before taxation 1,253 7,700
Taxation 7 (402) (2,189)
--------- ---------
Profit for the year attributable
to equity holders of the parent 851 5,511
--------- ---------
Earnings per share 8
: basic 0.46p 2.96p
: diluted 0.46p 2.96p
Appreciate Group plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR TO 31 MARCH 2021
2021 2020
GBP'000 GBP'000
Profit for the year 851 5,511
Other comprehensive (expense)/income
Items that will not be reclassified to profit
or loss:
Remeasurement of defined benefit pension
schemes (2,146) 2,235
Deferred tax on defined benefit pension schemes 408 (383)
-------- --------
(1,738) 1,852
-------- --------
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange translation differences 3 18
Other comprehensive (expense)/income for
the year net of tax (1,735) 1,870
-------- --------
Total comprehensive (expense)/income for
the year attributable to equity holders of
the parent (884) 7,381
-------- --------
Appreciate Group plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH
2021
As at As at
31.03.21 31.03.20
Notes GBP'000 GBP'000
Assets
Non-current assets
Goodwill 9 582 800
Other intangible assets 8,861 4,757
Property, plant and equipment 2,188 2,662
Right of use assets 4,373 3,799
Retirement benefit asset 2,086 4,206
18,090 16,224
-------------------- --------------------
Current assets
Inventories 10 3,638 2,840
Trade and other receivables 11,405 9,457
Tax receivable 738 266
Monies held in trust 132,054 102,693
Cash 31,415 29,632
-------------------- --------------------
179,250 144,888
Assets held for sale 11 - 3,153
179,250 148,041
-------------------- --------------------
Total assets 197,340 164,265
-------------------- --------------------
Liabilities
Current liabilities
Trade payables (52,776) (57,150)
Payables in respect of cards and
vouchers (25,302) (17,060)
Deferred income (11,152) (7,359)
Other payables (7,040) (5,294)
Provisions (77,915) (53,802)
-------------------- --------------------
(174,185) (140,665)
-------------------- --------------------
Non-current liabilities
Deferred tax liability (779) (1,121)
Lease liabilities (4,666) (4,132)
-------------------- --------------------
(5,445) (5,253)
-------------------- --------------------
Total liabilities (179,630) (145,918)
-------------------- --------------------
Net assets 17,710 18,347
-------------------- --------------------
Equity attributable to equity
holders of the parent
Share capital 3,727 3,727
Share premium 6,470 6,470
Retained earnings 7,824 8,461
Other reserves (311) (311)
Total equity 17,710 18,347
-------------------- --------------------
Appreciate Group plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Other Retained Total
capital Premium reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April 2020 3,727 6,470 (311) 8,461 18,347
Total comprehensive income for
the year
Profit - - - 851 851
Other comprehensive (expense)/income
Remeasurement of defined benefit
pension schemes - - - (2,146) (2,146)
Tax on defined benefit pension
schemes - - - 408 408
Foreign exchange translation adjustments - - - 3 3
--------- --------- ---------- ---------- --------
Total other comprehensive expense - - - (1,735) (1,735)
--------- --------- ---------- ---------- --------
Total comprehensive loss for the
year - - - (884) (884)
--------- --------- ---------- ---------- --------
Transactions with owners, recorded
directly in equity
Equity settled share-based payment
transactions - - - 247 247
Total contributions by and distribution
to owners - - - 247 247
--------- --------- ---------- ---------- --------
Balance at 31 March 2021 3,727 6,470 (311) 7,824 17,710
--------- --------- ---------- ---------- --------
Balance at 1 April 2019 3,727 6,470 (311) 6,824 16,710
Total comprehensive income for
the year
Profit - - - 5,511 5,511
Other comprehensive expense
Remeasurement of defined benefit
pension schemes - - - 2,235 2,235
Tax on defined benefit pension
schemes - - - (383) (383)
Foreign exchange translation adjustments - - - 18 18
--------- --------- ---------- ---------- --------
Total other comprehensive income - - - 1,870 1,870
--------- --------- ---------- ---------- --------
Total comprehensive income for
the year - - - 7,381 7,381
--------- --------- ---------- ---------- --------
Transactions with owners, recorded
directly in equity
Equity settled share-based payment
transactions - - - 233 233
Tax on equity settled share-based
payment transactions - - - (14) (14)
Dividends - - - (5,963) (5,963)
--------- --------- ---------- ---------- --------
Total contributions by and distribution
to owners - - - (5,744) (5,744)
--------- --------- ---------- ---------- --------
Balance at 31 March 2020 3,727 6,470 (311) 8,461 18,347
--------- --------- ---------- ---------- --------
Other reserves relate to the acquisition of a minority interest
in a subsidiary.
Appreciate Group plc
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR TO 31 MARCH 2021
2021 2020
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 14 4,918 6,866
Interest received 784 1,648
Interest paid (351) (8)
Tax paid (599) (2,864)
-------- --------
Net cash generated from operating
activities 4,752 5,642
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment 6 1
Sale of assets held for sale 11 3,116 -
Purchase of intangible assets (5,164) (3,103)
Purchase of property, plant and
equipment (585) (1,927)
Net cash used in investing activities (2,627) (5,029)
Cash flows from financing activities
Lease incentive payment - 500
Payment of lease liabilities (342) (81)
Dividends paid to shareholders - (5,963)
Net cash used in financing activities (342) (5,544)
-------- --------
Net (decrease)/increase in cash
and cash equivalents 1,783 (4,931)
-------- --------
Cash and cash equivalents at beginning
of period 29,632 34,563
-------- --------
Cash and cash equivalents at end
of period 31,415 29,632
-------- --------
Cash and cash equivalents comprise:
Cash 31,415 29,632
-------- --------
(1) Basis of preparation
The financial statements have been prepared in accordance with
international accounting standards in conformity with the Companies
Act 2006 .
Appreciate Group plc is incorporated and domiciled in the United
Kingdom. The financial statements have been prepared under the
historical cost convention, as modified by the accounting for
financial instruments at fair value where required by IAS 39
Financial Instruments: Recognition and Measurement. The Group
financial statements are presented in sterling and all values are
rounded to the nearest thousand (GBP'000) except where otherwise
stated.
The accounting policies have been applied consistently to all
periods presented in these financial statements and by all Group
entities.
Further to the year end, in addition to the normal operational
transfers and to further establish the amounts held in Monies held
in trust, the Group made a one-off transfer of GBP4.8m on 19 May
2021 from Cash to Monies held in trust.
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 March 2021 or
2020 but is derived from those accounts.
Statutory accounts for 2020 have been delivered to the registrar
of companies. The auditor, Ernst & Young LLP, has reported on
the 2020 accounts; the report (i) was unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498(2) or (3) of
the Companies Act 2006.
The statutory accounts for 2021 will be delivered to the
registrar of companies following the AGM. The auditors have
reported on these accounts; their report is unqualified and does
not include a statement under either section 498(2) or (3) of the
Companies Act 2006.
The annual report will be posted to shareholders on or before 30
July 2021 and will be available from that date on the Group's
website: www.appreciategroup.co.uk.
(2) Going concern
The financial statements are prepared on a going concern
basis.
The Group has access to a GBP15m Revolving Credit Facility
("RCF") that is available until August 2025. A further GBP10m of
uncommitted funds is available via an accordion facility attached
to the RCF however this is uncommitted. The Group has not drawn
down on the RCF in the year to 31 March 2021 nor to the date of
signing these financial statements.
The Group is required to comply with covenants attached to the
RCF. These covenants are:
-- Interest Cover (the ratio of EBITDA to Finance Charges) in
respect of any relevant period ending on or after 31 March 2021,
shall not be less than 4.0:1.
-- Adjusted Leverage (the ratio of Total Net Debt to Adjusted
EBITDA) in respect of any relevant period ending on or after 30
September 2020 must not exceed 3.0:1.
-- PPPT Balance (the ratio of PPPT Balance to Monies in Advance
Balance) on each Quarter Date must not be less than 1.0:1.
The Directors have modelled management's best estimate of
financial results for the Going Concern assessment period to 31
December 2022 (the "Going concern period") and adopted the plan as
the Board approved budget. Alongside the Board approved budget, the
Board have identified and approved cost control measures; and
together these form our Base Case.
The Base Case assumes:
-- A decrease in Year 1 billings compared to 2020/2021 actuals,
with then an 8% increase in Year 2 (over Year 1).
-- Christmas savers order book GBP170m in both years.
-- A reduction in paper redemptions compared to 2020/2021,
followed by a significant decrease in Year 2 in line with the
decrease in paper product mix. Increased card and digital
redemptions in both years.
-- Product Mix: Paper billings for Consumer assumed to be 21% in
Year 1 and 15% in Year 2; paper billings for Corporate assumed to
be 7% in Year 1, with minimal levels assumed in Year 2. Remaining
billings are assumed to be card / digital.
-- A flat cost base compared to the prior year for
administrative expenses and staff costs in both years.
-- Capital spend is restricted to that required to complete the
ERP system and only further essential IT development in Year 2.
-- Dividend payment of GBP1.5m is assumed in October 2021 in
line with our stated divided policy, with future dividend payments
subject to trading results and so not modelled in the Base
Case.
The Base Case requires the group to draw down on the RCF in the
period, with the lowest headroom being GBP4.9m in September
2022.
The Directors have modelled six plausible downside scenarios to
test the sensitivity of the Base Case. The scenarios are as
follows:
1. Corporate and Gifting billings remain flat against the 2020/2021 actuals.
2. Christmas Savers order book GBP165m in Year 1 and GBP150m in Year 2.
3. A combination of 1 and 2 above.
4. An additional 10% shift from paper to digital products above the Base Case in Year 1 and 2.
5. 25% faster redemption of paper products and 25% slower
redemption of card and digital products than Base Case in Year 1
and 2.
6. A combination of 3, 4 and 5 above.
In scenarios 1 to 5 the Group would not breach its headroom in
the period to 31 December 2022, and would be fully compliant with
all of its RCF covenants. In the most extreme downside scenario 6,
the Group would breach its headroom by GBP2.3m, but would be fully
compliant with all of its RCF covenants in the period to 31
December 2022.
Current trading for the year to mid-June 2021 shows billings
levels lower than the Base Case. When the % reduction in current
billings versus Base Case are run in conjunction with current
trends on product mix and redemptions, the outcome is not as severe
as sensitivity 6, and the Group remains compliant with its
covenants and does not breach its headroom.
Management have identified mitigating actions, additional to
those in the Base Case, to provide headroom, if necessary during
the going concern period. These include:
-- cost saving initiatives that would result in cash savings of
GBP2.3m in the going concern period, relating to reductions in
administrative and staff costs. A decision will be taken at the end
of July 2021, dependent on trading, with implementation from
October 2021 should they be deemed necessary.
-- Two strategy changes, which could generate significant
additional headroom in key months. The first reduces marketing
spend in respect of Christmas Savers whilst maintaining the paper
voucher mix; and the second maintains the paper voucher mix
currently being experienced in our Corporate customer base by
avoiding moving Corporate accounts away from paper vouchers. These
will be implemented with immediate effect.
When overlaying these mitigating actions and assumed outcomes,
which includes an associated reduction in Christmas Savers Year 2
order book to GBP145m; these provide significant headroom across
the going concern period, with the lowest forecast headroom in Year
1 being GBP5.2m in September 2021, and lowest forecast headroom in
Year 2 being GBP6.3m in July 2022.
Management have modelled a number of reverse stress tests which
consider whether the reduced marketing spend could more severely
impact Year 2 Christmas Savers billings; and consider adverse
movements on the Christmas Savers product mix in Year 1. Assuming
product mix remains in line with base case and the current Year 1
order book then it would take a 40% reduction against base case in
the order book in year one and 56% reduction against base case in
Year 2 for the Group to run out of headroom. The Group would remain
compliant with its covenants, as they are less sensitive than the
liquidity headroom to these changes in billings and product mix.
The Board consider those variances over Base Case to be
implausible.
Conclusion
Having carefully considered the Base Case, downside scenarios,
current trading and trends since the year-end, and further
mitigating actions available, as well as the GBP15m committed RCF,
the directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
period to 31 December 2022. Therefore, the directors continue to
adopt the going concern basis of accounting in preparing the
consolidated financial statements.
(3) Changes to International Financial Reporting Standards
Interpretations and standards which became effective during the
year
The following accounting standards and interpretations, that are
relevant to the Group, became effective during the year:
Effective from accounting
period beginning
on or after:
IAS 1 and Definition of Material (amendments) 1 Jan 2020
IAS 8
IFRS 3 Definition of a Business (amendments) 1 Jan 2020
Conceptual Framework for Financial 1 Jan 2020
Reporting (amendments)
In October 2018, the IASB issued amendments to IAS 1
Presentation of Financial Statements and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors to align the definition
of 'material' across the standards and to clarify certain aspects
of the definition. The new definition states that, 'Information is
material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of
general purpose financial statements make on the basis of those
financial statements, which provide financial information about a
specific reporting entity.'. The amendments to the definition of
material have not had a significant impact on the Group's
consolidated financial statements.
The amendment to IFRS 3 Business Combinations clarifies that to
be considered a business, an integrated set of activities and
assets must include, at a minimum, an input and a substantive
process that, together, significantly contribute to the ability to
create output. Furthermore, it clarifies that a business can exist
without including all of the inputs and processes needed to create
outputs. These amendments had no impact on the consolidated
financial statements of the Group, but may impact future periods
should the Group enter into any additional business
combinations.
Interpretations and standards which have been issued and are not
yet effective
The following accounting standards and interpretations, that are
relevant to the Group, have been issued but are not yet effective
for the year ended 31 March 2021 and have not been applied in
preparing the financial statements.
Effective from
accounting period
beginning on or
after:
IFRS 16 COVID-19 Related Rent Concessions (amendments) 1 Apr 2021
IFRS 3 Reference to the Conceptual Framework 1 Jan 2022
(amendments)
IAS 16 Property, Plant and Equipment - Proceeds 1 Jan 2022
before Intended Use (amendments)
IAS 8 Definition of accounting estimates (amendments) 1 Jan 2023
IAS 1 and Disclosure of accounting policies (amendments) 1 Jan 2023
IFRS Practice
Statement
2
IAS 12 Deferred Tax relates to Assets and Liabilities 1 Jan 2023
arising from a Single Transaction (amendments)
Each amendment has been considered by management and the first
five are not expected to have a significant impact on the Group's
future consolidated financial statements.
The amendments to IAS 12 require companies, at the beginning of
the earliest comparative period presented to recognise deferred tax
on particular transactions that, on initial recognition, give rise
to equal amounts of taxable and deductible temporary differences.
The proposed amendments will typically apply to transactions such
as leases for the lessee and decommissioning obligations. The
amendments should be applied on a modified retrospective basis. The
cumulative effect of initially applying the amendments will be
recognised as an adjustment to the opening balance of retained
earnings (or other component of equity, as appropriate). Management
are currently assessing the impact of the amendment to IAS 12 on
the group but expect it to result in the recognition of additional
deferred tax assets and liabilities due to the group having
substantial balances of right-of-use assets and lease
liabilities.
(4) Accounting policies
The financial information in this preliminary announcement has
been prepared in accordance with the accounting policies described
in the annual report and accounts for the year ended 31 March 2020.
The annual report and accounts for the year ended 31 March 2020 can
be found on our website at www.appreciategroup.co.uk .
Billings
Billings represents the value of goods and services shipped and
invoiced to customers during the year and is recorded net of VAT,
rebates and discounts. Billings is an alternative performance
measure, which the directors believe provides a more meaningful
measure of the level of activity of the Group than revenue. This is
due to revenue from multi-retailer redemption products being
reported on a 'net' basis, whilst revenue from single retailer
redemption products and other goods are reported on a 'gross'
basis.
The reconciliation between billings and revenue is as
follows:
2021 2020
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
Billings 406,532 419,857
Multi-retailer redemption products - gross
to net revenue recognition (295,816) (306,574)
Timing of revenue recognition (3,911) (559)
-------------------------------------------- ---------- ----------
Revenue 106,805 112,724
-------------------------------------------- ---------- ----------
(5) Key judgements and estimates
The preparation of financial statements in conformity with IFRS
requires the use of estimates and judgements that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results ultimately may differ from those
estimates.
Judgements
In applying the accounting policies, management has made the
following judgements:
Pensions
The Group has two defined benefit pension schemes where the fair
value of plan assets exceeds the present value of the scheme
liabilities. The Group has determined, based on an evaluation of
the rules of each of the pension schemes and legal advice, that it
has a right to a refund during the life of the plan or when the
plan is settled, that is not conditional upon factors beyond the
entity's control.
Revenue
In applying the principles of IFRS 15, management have
considered whether the Group is a principal or agent when it
supplies multi-retailer redemption products. Having assessed the
nature of the Group's contractual relationships with retailers, the
directors have concluded that the Group acts as an agent in
exchange for a service fee as it does not control the transfer of
goods or services by the retailer to the product holder upon
redemption. This results in 'net' revenue recognition as described
in the revenue recognition accounting policy.
For cardholder fees and breakage associated with multi-retailer
redemption products, the Group acts as a principal in its
contractual relationship with the product holders. This results in
'gross' revenue recognition as described in the revenue recognition
accounting policy.
Under IFRS 15, e ntities are required to disclose disaggregated
revenue information to illustrate how the nature, amount, timing
and uncertainty about revenue and cash flows are affected by
economic factors. Management have considered this requirement and
have disclosed information with regard to type of good or service,
market or type of customer, timing of transfer of goods or services
and geographical region. Management believe that this level of
disaggregation is sufficient to satisfy the disclosure requirements
of the standard.
Unredeemed cards
The directors have assessed the features of the Group's
multi-retailer redemption products and concluded that unredeemed
balances on corporate gifted cards do not meet the definition of a
financial liability within the scope of IFRS 9. This is because the
cards have expiry dates after which the card cannot be redeemed.
The cards can also be redeemed with the Group for certain goods or
services and cannot be redeemed in cash. As a result, the
liabilities relating to these products are not within the scope of
IFRS 9 and are instead measured in accordance with IAS 37
Provisions, Contingent Liabilities and Contingent Assets.
Determining the lease term of contracts with renewal and
termination options - Group as lessee
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has two material lease contracts that include
extension and termination options. One of these is the lease of
floor 3 and 4, 20 Chapel Street Liverpool. The Group included the
renewal period as part of the lease term, as the majority of the
Group's operations are based in this site in Liverpool City Centre.
As a result of this, the lease extension is reasonably certain to
be exercised.
The other lease is for rack space and data hosting services,
which has an initial term of one year with an automatic rolling 12
month extension option if not cancelled. It has been estimated the
lease will be renewed for a further two years, however the exact
length of the extension is dependent on the progress of the Group's
cloud migration project, and may be shorter. As the racks and data
hosting are critical to the operation of the business, a two year
extension renewal period has been included as part of the lease
term, as it is reasonably certain that the lease extension will be
exercised for this period of time.
Estimates
The key assumptions and other sources of estimation uncertainty
at the reporting date are described below:
Provisions for unredeemed vouchers and cards
A provision is made in respect of unredeemed vouchers and cards.
The provision is calculated by estimating anticipated amounts
payable to retailers on redemption and the expected timing of
payments. Historical data over a number of years and current trends
are regularly reviewed and are used to prepare these estimates. Any
differences to the estimates may necessitate a material adjustment
to the level of the provision held in the statement of financial
position. Management have considered the sensitivities of the key
estimates and do not foresee that any likely change in these
estimates will have a material impact on the size of the
provision.
In the base case scenario, voucher redemptions are assumed to
slightly decrease in Year 1 against the prior year, and then
significantly decrease in Year 2 in line with the fall in the paper
voucher mix. Card redemptions are assumed to increase in Year 1
against the prior year, and increase again in Year 2, in line with
the shift in product mix towards card and digital products.
Post year end redemptions for the first quarter of the financial
year ended 31 March 2022 have been lower than the levels forecasted
by the Group. The actual increase compared to the corresponding
quarter in the prior year in voucher redemptions was 300%, and the
actual increase in card redemptions was 183%, due to the majority
of high street retailers being closed due to the lockdown in the
first quarter of the prior year. It is assumed redemptions will
come in line with the base case by the end of the year, so any
impact of this would be negligible.
Breakage
For multi-retailer redemption products where the end user has no
right of redemption (corporate gifted cards and vouchers), the
Group may expect to earn a breakage amount. In order to calculate
the expected breakage amount, the Group estimates how many products
will be fully redeemed and how many will be partially redeemed. For
those which are partially redeemed, the Group estimates projected
balances remaining on the products at expiry. Historical data and
current trends regarding patterns of redemption and expiry are used
to prepare the estimates. As redemption behaviour may differ by
market, historical data and current trends are reviewed at this
level. If the expected level of breakage were to change by 1.0%,
the impact on revenue for the reporting period would be GBP0.1m.
Management have considered the sensitivity of this estimate and do
not foresee that any likely change to the estimate will have a
material impact on either the level of deferred income held in the
statement of financial position or the amount of revenue for the
reporting period.
Deferred income - Love2shop voucher redemption timing
As described in the revenue recognition accounting policy
revenue for multi-retailer redemption products is recognised in
proportion to actual redemption timing, generating deferred income
balances until the point of redemption. For Love2shop vouchers,
there is a time delay between the point of redemption and when they
are physically returned to the Group for validation and accounting
purposes. To negate the effects of this delay, an adjustment is
made at the end of the reporting period, which estimates the value
of vouchers already redeemed but not yet returned to the Group and
records the associated revenue. Historical data over a number of
years and current trends are used to prepare the estimate.
Management have considered the sensitivity of this estimate and do
not foresee that any likely change to the estimate will have a
material impact on either the level of deferred income held in the
statement of financial position or the amount of revenue for the
reporting period.
Goodwill
Goodwill arising on acquisition represents the difference
between the consideration and the fair value of net assets
acquired. Goodwill is not amortised, but is reviewed annually for
impairment and whenever events or changes in circumstances indicate
that the carrying value of the goodwill may not be receivable. The
impairment review relies on a number of assumptions (see note 9 for
details). Any differences to the assumptions made may necessitate a
material adjustment to the level of goodwill held in the statement
of financial position.
Other intangible Assets
The Group applies judgement in assessing whether the costs
incurred, both internal and external, will generate future economic
benefits and therefore should be capitalised. Any redundant costs
are not capitalised, but are expensed during the period in which
they are incurred. Amortisation commences when management determine
the asset is available for use i.e. when it is in the location and
condition necessary for it to be capable of operating in the manner
intended by management. This is estimated to be August 2021 for the
new ERP system (GBP5.9m), when phase 1 is expected to be in a
position to go live.
Significant judgements and estimates are applied in determining
the carrying value of the assets, including assumptions made in
respect of the status of the programme each asset relates to, and
there may be a range of possible outcomes when a programme is
complex. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the
asset are considered to modify the amortisation period or method,
as appropriate, and are treated as changes in accounting estimates.
At each reporting date the Group reviews the carrying value of its
tangible and intangible assets, including those not yet in use, to
determine whether there is any indication that those assets have
suffered an impairment loss.
Incremental borrowing rate (IBR)
The Group cannot readily determine the interest rate implicit in
the lease, therefore, it uses its incremental borrowing rate (IBR)
to measure lease liabilities. The IBR is the rate of interest that
the Group would have to pay to borrow over a similar term, and with
a similar security, the funds necessary to obtain an asset of a
similar value to the right-of-use asset in a similar economic
environment. Management have used rates ranging from 3.3% to 4.9%
in respect of leases entered in to during the year.
(6) Segmental analysis
The Group's operations are divided into two principal operating
segments:
-- Consumer - which represents sales to consumers, utilising the
Group's Christmas savings offering and our website,
highstreetvouchers.com; and
-- Corporate - comprising sales to businesses.
Both segments offer primarily sales of the Love2shop voucher,
flexecash(R) cards, Mastercards and e-codes in addition to other
retailer vouchers.
All other segments are those items relating to the corporate
activities of the Group which it is felt cannot be reasonably
allocated to either business segment.
Finance income, finance costs and taxation are not allocated to
individual segments as they are managed on a Group basis.
The Group operates in only one geographical segment, being the
UK. The Group's operations in Ireland were immaterial to the
results and assets of the Group for the year ended 31 March
2021.
All other
Consumer Corporate segments Group
2021 GBP'000 GBP'000 GBP'000 GBP'000
Billings
Total billings 205,282 201,250 - 406,532
----------- ------------ ---------- --------
Revenue
Total revenue 53,138 53,667 - 106,805
----------- ------------ ---------- --------
Results
Segment operating profit/(loss) 532 2,638 (2,340) 830
----------- ------------ ---------- --------
Finance income 783
Finance costs (360)
--------
Profit before taxation 1,253
Taxation (402)
--------
Profit 851
--------
All other segments loss comprises primarily of staff costs and
professional fees.
In arriving at segment operating profit/(loss) exceptional costs
have been charged to the segments as follows:
All other
Consumer Corporate segments Group
GBP'000 GBP'000 GBP'000 GBP'000
Exceptionals
Impairment of obsolete
stock (414) - - (414)
Impairment of goodwill (218) - - (218)
Redundancy costs (639) - - (639)
Profit on sale of assets
held for sale 205 - - 205
----------- ------------ ---------- --------
(1,066) - - (1,066)
----------- ------------ ---------- --------
An analysis of the Group's external revenue is as follows:
Consumer Corporate Group
GBP'000 GBP'000 GBP'000
Revenue from contracts
with customers
Goods - Single retailer
redemption products 38,610 39,544 78,154
Other goods 153 106 259
Services - Multi-retailer
redemption products 13,493 11,243 24,736
Other services 739 2,770 3,509
Other 143 4 147
----------- ------------ ---------
53,138 53,667 106,805
----------- ------------ ---------
The majority of revenue from contracts with customers is
recognised at a point in time.
The reason for the fall in revenue from other goods compared to
the prior year was the Group's decision to cease the production and
sale of hampers. The fall in revenue from other services was due to
the disposal of FMI during the period (see note 11).
The Group has elected not to report on segment assets and
liabilities as this information is not provided to the Chief
Operating Decision Maker (CODM) and is not relevant to the CODM's
decision making. In respect of Appreciate Group plc the CODM is
regarded as the executive members of the Board of directors.
All other
Consumer Corporate segments Group
2020 GBP'000 GBP'000 GBP'000 GBP'000
Billings
Total billings 222,207 197,650 419,857
----------- ------------ ---------- --------
Revenue
Total revenue 62,447 50,277 112,724
----------- ------------ ---------- --------
Results
Segment operating profit/(loss) 5,327 6,581 (5,512) 6,396
----------- ------------ ---------- --------
Finance income 1,481
Finance costs (177)
--------
Profit before taxation 7,700
Taxation (2,189)
--------
Profit 5,511
--------
All other segments loss comprises primarily of staff costs,
professional fees and the impairment of the Valley Road Site.
All other
Consumer Corporate segments Group
GBP'000 GBP'000 GBP'000 GBP'000
Impairment of obsolete
stock (124) - - (124)
Impairment of goodwill (434) (882) - (1,316)
Redundancy costs (224) (199) - (423)
Impairment of Valley Road
site - - (1,813) (1,813)
----------- ------------ ---------- --------
An analysis of the Group's external revenue is as follows:
Consumer Corporate Group
GBP'000 GBP'000 GBP'000
Revenue from contracts
with customers
Goods - Single retailer
redemption products 31,227 30,915 62,142
Other goods 6,153 87 6,240
Services - Multi-retailer
redemption products 22,591 15,279 37,870
Other services 2,386 3,985 6,371
Other 90 11 101
----------- ------------ ---------
62,447 50,277 112,724
----------- ------------ ---------
The majority of revenue from contracts with customers is
recognised at a point in time.
(7) Taxation 2021 2020
GBP'000 GBP'000
Charge for the year - current
and deferred 402 2,189
--------- ---------
Comments on the effective tax rate can be found in the Financial
Review.
(8) Earnings per share
The calculation of basic and diluted EPS is based on the profit
on ordinary activities after taxation of GBP851,000 (2020:
GBP5,511,000) and on the weighted average number of shares,
calculated as follows:
2021 2020
Basic EPS - weighted average number
of shares 186,347,228 186,347,228
Diluting effect of employee share - -
options
------------ ------------
Diluted EPS - weighted average number
of shares 186,347,228 186,347,228
------------ ------------
109,348 shares have been considered anti-dilutive during the
year, that could potentially dilute basic EPS in the future (2020:
650,337 shares).
(9) Goodwill
GBP'000
Cost - Actual or deemed
At 1 April 2020 5,048
Disposals (1,341)
--------
At 31 March 2020 and 2021 3,707
--------
Impairment
At 1 April 2020 4,248
Impairment in year 218
Disposals (1,341)
--------
At 31 March 2021 3,125
--------
Net book amount
At 31 March 2021 582
--------
At 31 March 2020 800
--------
Cost - Actual or deemed
At 31 March 2019 and 2020 5,048
--------
Impairment
At 1 April 2019 2,880
Impairment in year 1,368
--------
At 31 March 2020 4,248
--------
Net book amount
At 31 March 2020 800
--------
At 31 March 2019 2,168
--------
Goodwill allocation to CGUs
Goodwill is allocated to the following CGUs and is tested for
impairment at this level:
Goodwill Goodwill
at Additions Impairment at
1 April 2020 31 March
2021
CGUs GBP'000 GBP'000 GBP'000 GBP'000
Consumer 800 - (218) 582
Corporate - - - -
-------------- ------------ ------------- ----------
Net book amount 800 - (218) 582
-------------- ------------ ------------- ----------
Consumer - Family (GBP582,000) & Country Hampers Franchisee
(GBPnil)
The key data and assumptions in the value in use calculations
were as follows:
-- The final order position for the previous Christmas.
-- The budgeted gross margins. These margins are forecast to be
maintained going forward.
-- Average agent retentions forecast. These are based on
historical performance of agent retention achieved. Historically,
such forecasts have been materially correct. An additional 10% fall
in retention has been factored into the forecast for the year ended
31 March 2022 to reflect the current trading environment (a 15%
fall in retention per year is typically used, which has been
increased to 25% for the year ended 31 March 2022).
-- Base case scenario revenue. This is based on average
historical order value and average agent retention rates which have
been extrapolated forward 10 years. The generally high retention
values for customers supports the adoption of a 10 year customer
life cycle value as being appropriate for the business. No revenue
growth has been factored into the data used in the calculation
(2020: nil).
The resulting cash flows were discounted using a weighted
pre-tax discount rate of 17% (2020: 16.54%).
The impairment in the year of GBP157,000 (2020: GBP434,000)
against the Family Franchisee goodwill represents the impact of a
small reduction in forecasted agents retention and a slight
decrease in margin due to the change in product mix and higher
commissions. As described above, agents retention is expected to be
lower for the year ended 31 March 2022 (75%) due to COVID 19 and
the impact of lockdowns. Each year thereafter, retention is
expected to return to more typical levels of around 85%. The
commission structure has been revised and commissions have been
increased as part of the strategy to incentivise agents and
increase orders. These changes impact each year going forward in
the impairment model. The impairment is included within exceptional
costs in the Consumer segment.
There is a reasonably possible chance that a change in one or
more of the key assumptions could give rise to an impairment. A
sensitivity analysis was performed where changes in key assumptions
were tested, those being changes in the discount rate, retention of
agents and margin. The following table summarises the impact on the
goodwill impairment at the end of the reporting period, if each of
these key assumptions were changed, in isolation.
Change in assumption Change in goodwill
impairment
Discount rate increase by 1% increase by GBP2,000
Retention of
agents decrease by 1% increase by GBP25,000
Margin decrease by 1% increase by GBP6,000
There is also a reasonably possible chance of the pre-tax
discount rate increasing to 18.8%. This would result in an
additional impairment of GBP28k.
The impairment in the year of GBP61,000 (2020: GBP52,000)
against the Country Hampers Franchisee goodwill primarily
represents the reduction in agents that were originally acquired
from Country Hampers. This reduces the Country Hampers Franchisee
goodwill to nil and is included within exceptional costs in the
Consumer segment.
The disposals during the year relate to companies that are no
longer owned by the group, FMI and Espana Villas. The goodwill
relating to these companies had been fully written down in previous
years.
(10) Inventories
2021 2020
GBP'000 GBP'000
Raw materials - 35
Finished goods 3,638 2,805
-------- --------
3,638 2,840
-------- --------
The cost of inventories recognised as an expense in the year is
GBP40,530,000 (2020: GBP55,103,000).
The write down of inventories recognised as an expense in the
period is GBP337,000 which comprises a credit of GBP77,000 in
respect of provision adjustments in the corporate part of the
business, offset by an exceptional impairment in respect of stock
in the consumer part of the business of GBP414,000 (2020: write
down of inventories recognised as an expense GBP184,000).
Following the closure of the packing operations, including
hamper packing, in the year the Group impaired raw materials and
finished goods stock by GBP414,000, which is included within the
GBP337,000 as detailed above (2020: GBP124,000).
(11) Assets held for sale
2021 2020
GBP'000 GBP'000
Asset held for sale at 1 April 3,153 -
Additions 1,024 4,803
Impairment - (1,650)
Disposals (4,177) -
-------- --------
Asset held for sale at 31 March - 3,153
-------- --------
2021 2020
GBP'000 GBP'000
Liabilities directly associated with assets held
for sale at 1 April - -
Additions 1,077 -
Disposals (1,077) -
Liabilities directly associated with assets held
for sale at 31 March - -
------------------------------------------------- -------- --------
The assets held for sale balance as at 31 March 2020 related to
the Valley Road property, held by the Group's subsidiary Budworth
Properties Limited. This subsidiary was sold on 11 August 2020 to
HP (Valley Road) Limited for cash consideration generating a profit
on sale of GBP41,000 as shown below. As part of the transaction the
Group has leased back space for the small number of remaining
operational staff. The gain is included in the profit for the year
in the statement of other comprehensive income.
2021
GBP'000
Proceeds 3,118
Less NBV of subsidiary at date of disposal (3,077)
Profit on disposal 41
-------------------------------------------- --------
The assets transferred to assets held for sale on 30 September
2020, and associated liabilities relate to the Group's subsidiary
Fisher Moy International Limited. These were both also disposed of
during the year as the Group sold Fisher Moy International on 7
December 2020 to Neon Agency Ltd for GBP50,000 cash consideration
and GBP134,000 deferred consideration. This generated a profit on
sale of GBP164,000 as shown below. This gain is included in the
profit for the year in the statement of other comprehensive
income.
2021
GBP'000
Proceeds 184
Less NBV of subsidiary at date of disposal (20)
Profit on disposal 164
-------------------------------------------- --------
At the time of its sale, FMI had cash in the bank of GBP52,000.
This has been deducted from the proceeds from the sale of Budworth
(GBP3,118,000) and cash consideration from the sale of FMI
(GBP50,000) in arriving at the Sale of assets held for sale figure
of GBP3,116,000 per the Statement of Cash Flows.
(12) Employees and directors
During the year there were redundancy costs of GBP639,000 (2020:
GBP423,000) which relate to a one-off redundancy exercise. The
driving force behind this exercise was the closure of the hamper
packing part of the business.
(13) Dividends
Amounts recognised as distributed to equity holders in the
year:
2021 2020
GBP'000 GBP'000
Interim dividend for the year ended 31 March 2020
of 0.00p (31 March 2019 : 1.05p) - 1,957
Final dividend for the year ended 31 March 2020
of 0.00p (31 March 2019 : 2.15p) - 4,006
--------- --------
- 5,963
------------------------------------------------------------- --------
An interim dividend of 0.40p per share in respect of the
financial year ended 31 March 2021 was paid on 6 April 2021 and
absorbed GBP745,000 of shareholders' funds. In addition, the
directors are proposing a final dividend in respect of the
financial year ended 31 March 2021 of 0.60p per share which will
absorb an estimated GBP1,118,000 of shareholders' funds. The final
dividend will be paid on 1 October 2021 to shareholders who are on
the register of members at the close of business on 27 August 2021.
Neither of these dividends were paid or provided for in the
year.
In the prior year, due to the outbreak of the COVID-19 pandemic
and the uncertain UK trading conditions, the Board decided it was
not prudent to recommend a dividend for the financial year ended 31
March 2020.
(14) Reconciliation of profit for the year to net cash inflow from operating activities
2021 2020
GBP'000 GBP'000
Profit for the year 851 5,511
Adjustments for:
Tax 402 2,189
Interest income (783) (1,481)
Interest expense 360 177
Research and development tax credit (98) -
Depreciation and amortisation 1,791 1,659
Impairment of property, plant and
equipment/assets held for sale - 1,813
--------- --------
Impairment of other intangibles - 21
--------- --------
Impairment of goodwill 218 1,368
--------- --------
Profit on sale of assets held for
sale (205) -
--------- --------
Loss on sale of property, plant
and equipment and other intangibles 544 4
Decrease in other financial assets - 200
(Increase)/decrease in inventories (798) 1,734
(Increase)/decrease in trade and
other receivables (1,841) 2,968
Increase/(decrease) in trade and
other payables 9,500 (1,578)
Increase/(decrease) in provisions 24,113 (4,484)
Increase in monies held in trust (29,360) (3,442)
Movement in retirement benefit
asset (26) (44)
Translation adjustment 3 18
Share-based payments 247 233
--------- --------
Net cash inflow from operating
activities 4,918 6,866
--------- --------
(15) Responsibility Statement
To the best of each director's knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
-- the management report includes a fair review of the development
and performance of the business and the position of the issuer
and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks
and uncertainties that they face.
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END
FR SELSIUEFSEEM
(END) Dow Jones Newswires
June 29, 2021 02:00 ET (06:00 GMT)
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