TIDMAPP
RNS Number : 8918V
Appreciate Group PLC
12 August 2020
12 August 2020
Appreciate Group plc
Preliminary Final Results for the Year Ended 31 March 2020
Summary
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 2020, and provides an update on current trading for the new
financial year to date.
Financial highlights
-- Trading for the 11 month period to the end of February 2020
was in line with expectations with final month of the financial
year impacted by the COVID-19 lockdown
-- Billings* down marginally by 1.6 per cent to GBP419.9m (2019: GBP426.9m)
-- Revenue up by 2.1 per cent to GBP112.7m (2019: GBP110.4m)
-- Profit before tax before exceptional items** of GBP11.4m (2019: GBP12.5m)
-- Total cash balances, including monies held in trust and
deposits, of GBP132.3m (2019: GBP134.0m)
-- Year end free cash of GBP29.6m (2019: GBP36.9m) (excluding funds held in trust)
-- Exceptional items of GBP3.7m (2019: GBP1.2m) following
impairments of goodwill and the value of our former main operating
site at Valley Road
-- The Board has decided not to recommend a final dividend given
continued short-term uncertainty from COVID-19. The Board intends
to return to its dividend policy as soon as it is prudent to do
so.
Statutory results
-- Operating profit of GBP6.4m (2019: GBP9.7m)
-- Profit before tax of GBP7.7m (2019: GBP11.3m)
-- Earnings per share of 2.96p (2019: 4.78p)
Operational and strategic highlights
Divisional performance
-- Corporate
o Growth in billings* of 1.5 per cent to GBP197.7m (2019:
GBP194.8m)
o Corporate revenue decreased 2.4 per cent to GBP50.3m (2019:
GBP51.5m)
o Increased demand seen from existing and new clients recruited
prior to lockdown
o Segmental profit decreased by GBP1.2m to GBP6.6m (2019:
GBP7.8m) due to higher administration costs.
-- Consumer
o Billings* fell by 4.3 per cent to GBP222.2m (2019:
GBP232.1m)
o Revenue up 5.9 per cent to GBP62.4m (2019: GBP58.9m)
o Increased customers coming to us directly and using
digital
o Improvements in gross margin due to changing mix
o Segmental profit of GBP5.3m (2019: GBP6.8m) primarily due to
an increase in administration costs and exceptional redundancy
costs.
Strategic business plan well advanced
-- Strategic business plan now well advanced with logistics and
operations already complete; infrastructure investment has
significantly enhanced the scalability, resilience and efficiency
of the business.
-- New digital offerings have improved our appeal to customers -
including a contactless-enabled digital gift card.
-- Further progress made in move to more profitable card and
digital products - paper share of product mix fell to 41.9 per cent
(2019: 48.4 per cent).
-- Renamed business to Appreciate Group plc (from Park Group
plc) to reflect our product range and position as an innovative
payments, savings and rewards provider.
-- Relocated our offices to Chapel Street, Liverpool as part of
workplace and cultural transformation.
-- Attracting new talent into the organisation as a consequence
of our relocation, providing the skills needed for our future
business.
COVID-19 impact and response
-- Our investment in technology and work practices meant that
over 80 per cent of the Group's employees were able to seamlessly
transition to home working immediately after lockdown.
-- COVID-19 has led to an acceleration in the appeal of digital
products that will support our future plans.
-- Prioritised digital offerings to support customers through
the pandemic by adding e-codes and e-cards to our proposition on
highstreetvouchers.com.
-- Physical dispatch area operational again from May after being closed at lockdown.
-- Approximately 80 colleagues furloughed during April before a
phased reopening of fulfilment operations from May 2020.
Current trading and outlook
-- Total billings* have progressively recovered as lockdown
eases; 48 per cent down as at the end of Q1 in the new financial
year compared to Q1 in the prior year.
-- Sale of Budworth Properties Limited, a Group subsidiary which
owns the land and buildings located at Valley Road, Birkenhead,
completed on 10 August for a transaction value of GBP3.2m providing
operational flexibility.
-- Bank financing completed; GBP15m revolving credit facility
provides additional financial flexibility and sufficient cash
headroom to enable the business to trade with confidence, as well
as drive sales of higher margin products and investment in shift to
digital.
-- Proposals made to cease production of hampers.
-- New digital products launched and tested.
Ian O'Doherty, Chief Executive Officer, commented:
"We've made significant progress in implementing our strategy to
adapt our business for the future. Our focus on digital products
and delivery has intensified, and we've accelerated our development
of smarter, more efficient ways of working. This will position us
well for doing business after COVID-19.
"Our continued investment in transformation, with changes to
logistics and operations completed, is already showing significant
benefits. Whilst our performance has been interrupted by the
lockdown, we have seen trading start to recover and expect the
resumption of growth founded on the more robust and scalable
business model.
"We are confident that delivery of the strategic business plan
will be the bedrock of strong and sustained future growth."
Appreciate Group will host a webcast presentation for analysts
at 9.00am 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.
Select Digital Gift Card: The UK's first fully digital
multi-retailer gift card, available to spend online or in-store
through your mobile wallet.
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
Chairman's statement
Introduction
Our heritage stretches more than five decades, and during that
time we've weathered many storms as a business. Consistently, we
have emerged ready for growth, and we intend to do so again.
The Board, our management teams and all our colleagues have
worked with dedication and focus to develop and implement our new
strategy over the last two years; and, more recently, to manage and
mitigate the unprecedented challenges posed by the consequences of
the COVID-19 pandemic.
As well as adapting our business for the future during this
period, notably by intensifying our focus on digital products and
delivery, we have strengthened our focus on developing smarter,
more efficient ways of working that will set us up well to
capitalise on doing business after COVID-19.
Because of the foundations we have put in place over the last
two years - in particular the new office and IT investment - we
have been able to transition to home working and maintain
continuity for much of what we do. This has ensured we are well
placed to deliver on customer demands, maintain satisfaction, and
accelerate the development of new products and services, some of
which are defining our market.
During the past year, we've taken the opportunity to become a
better, stronger business, innovating in digital, building
resilience, testing new products and reaching new markets, so we
are well positioned to continue to increase our market share and
fulfil our ambition and those of our stakeholders.
Results for the year
Results are broadly in line with expectations, having been
impacted by the COVID-19 pandemic and subsequent lockdown in the
last weeks of our financial year.
Billings* decreased by 1.6 per cent in the year to 31 March 2020
to GBP419.9m (2019: GBP426.9m) despite good growth from our
Corporate business. Revenue increased slightly by 2.1 per cent to
GBP112.7m (2019: GBP110.4m) driven by a rise in Consumer
revenue.
Operating profit before exceptional items ** for the year was
GBP10.1m (2019: GBP10.9m). Interest income was GBP1.5m (2019:
GBP1.6m) on average cash balances (including cash held in trust) of
GBP177m (2019: GBP174.0m), after which profit before tax was
GBP8.3m (2019: GBP11.3m).
Profit before tax and exceptionals was GBP11.4m (2019: GBP12.5m)
before exceptional charges of GBP3.7m relating to the impairments
of goodwill, impairment of our former main operating site, and
restructuring costs (2019: GBP1.2m of exceptional items). Total
cash balances, including monies held in trust and bank deposits, at
31 March 2020 were GBP132.3m (2019: GBP134.0m).
* See accounting policies for a reconciliation of billings to
revenue
** see financial review for reconciliation of adjusted to
statutory profit measure
COVID-19 update
Whilst the timing of a return to normal market conditions
remains unclear, the impact of COVID-19 on the current financial
year ending 31 March 2021 will be significant. However, we expect
the improvement seen in trading over recent months to continue and
for performance to recover thereafter . We also recognise that this
could be tempered in the event of a second wave.
Demand in our Corporate and Consumer areas has been
approximately 48 per cent below last year since lockdown began. We
have previously stated that our Christmas Savings order book
business is approximately 10 per cent below the prior year, and
cancellation rates remain similar to previous years, and this has
remained the case. Our customers continue to benefit from their
savings being protected by the Park Prepayment Protection
Trust.
We remain focussed on driving efficiencies where possible and
delaying any discretionary spend or capital projects. We have
cancelled annual pay reviews and made no awards for FY2019/20 under
the company wide annual bonus plan.
Dividend
We reported in March that the Board had decided that it was
prudent not to pay the interim dividend of 1.05 pence per ordinary
share as previously announced and due to be paid on 6 April
2020.
The Board recognises the importance of dividends to its
shareholders and is committed to its progressive dividend policy
which seeks to reflect the Group's strong underlying cash flow and
profit generation, whilst retaining sufficient capital to fund
investment in the business.
The UK trading conditions continue to be uncertain and at this
point, despite favourable trends, the outcome of our peak Q3
trading period remains uncertain. In addition, the ongoing pandemic
poses risk to successful operational delivery. We know from
experience that an outage of any kind - people absence, system
interruption, etc. - at an inopportune time can have a
disproportionate impact. These factors combined lead the Board to
consider it prudent not to recommend a dividend for this financial
year. 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.
The Board intends to return to that policy as soon as it is
appropriate to do so.
In considering its recommendation on the dividend this year, the
Board has taken into account the fact that Appreciate Group has
received GBP243,000 through the Government's Coronavirus Job
Retention Scheme between March and June and has put in place a
financing facility of GBP15 million (a measure planned prior to the
COVID-19 crisis) to cover cash flow fluctuations reflecting its
evolving business model from the strategic changes implemented last
year.
Investing in our people to deliver growth
Board changes
In September, we strengthened the Board with the appointment of
Sally Cabrini as a non-executive director and Chair of the
Remuneration Committee. Sally brings with her a record of relevant
experience as a board member. She is Chair of the Remuneration
Committee at FirstGroup plc and was a member of audit and risk
committees and Chair of the remuneration committee of Lookers plc.
Her executive experience includes roles with Interserve Group
Limited, and United Utilities plc.
We were also pleased to announce the appointment of John
Gittins, an existing non-executive director, as Senior Independent
Director.
Our colleagues
The Board would like to thank all our colleagues for their
outstanding hard work, adaptability and resilience. Through this
challenging period, the Board and leadership team have remained
focused on doing the very best for our people; by ensuring their
safety and well-being and by providing them with the necessary
tools, support, training and development to thrive in these times
of change.
Central to this is a strong culture that supports everyone in
working together with clarity and purpose as we deliver our growth
plans. We have significantly improved the working environment and
technology used by colleagues and made a commitment to improving
employee engagement along with our ability to communicate, driving
openness and dialogue, as well as enhancing collaboration.
Outlook
The Board remains positive about the prospects of the business
and the long-term benefits of the Group's strategic business plan,
which is now well advanced with elements such as logistics and
operations already complete.
The Board has reviewed five financial scenarios of the potential
impact of COVID-19 on the business. We remain focused on managing
liquidity 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. To
support this , a bank financing exercise has been completed, which
will provide the additional financial flexibility to protect
against downside risk in the short term; whilst enabling longer
term growth, as well as investing in the continued switch to
digital products. Further details are contained within our going
concern disclosures.
The investment in transformation that we have been undertaking
has already shown benefit, although this has inevitably been
interrupted by the lockdown. We continue to expect good future
growth prospects founded on the more robust and scalable business
model we are creating.
In summary, we are pleased with the considerable progress that
we have made and are making, and we are confident that delivery of
the strategic business plan will lay the foundations for strong and
sustained growth in future years.
Laura Carstensen
Chairman
12 August 2020
Chief Executive's Review
Introduction
This was another year in which Appreciate Group has taken a
number of important steps forward, as we continued to build upon
our position as one of the UK's leading gifting, pre-payment and
engagement companies.
Our consumer-facing brands meet a range of prepayment and
gifting needs, while business products support engagement by
helping corporate customers reward and recognise their employees
and clients.
We are pleased to report that we have made tangible progress on
the strategic business plan announced in December 2018. During last
year we relocated our offices, implemented new technologies,
trialled new digital products and changed the company name and
brand. All of this has contributed to the development of a robust
and scalable business model that will enable us to take advantage
of the growth opportunities in our markets.
We remain confident in our strategy and in the medium to
long-term opportunity, particularly as the current pandemic is
leading to an acceleration to digital in all areas of consumer and
business activity. We continue to believe that the steps we are
taking will strengthen the Group's proposition for consumers,
businesses and redemption partners alike. Our ability to capitalise
on opportunities in the fast-evolving markets that we serve has
increased, but the timing of this has been set back by the COVID-19
pandemic.
Thankfully, work completed and investments made during the
recent past, particularly in technology, the ability to work from
home and business continuity, have meant that we have been better
positioned to cope with the challenges of the pandemic than we
would otherwise have been. We are already seeing improvements in
the efficiency of our operations, which will lead to enhanced
profitability in future years. Our continued progress implementing
the strategic business plan and pivoting to digital products has
positioned the Group well to emerge from the lockdown a stronger
business.
COVID-19 impact and response
Trading for the 11-month period to the end of February 2020 was
in line with our expectations. The final month of the financial
year brought the COVID-19 lockdown; the market challenges of this
period are well documented, but the business responded well to the
disruption and there are some encouraging signs for the future.
The safety of our colleagues, their families, our customers and
our communities is our first priority. In line with Government
guidelines at year end, we initially closed all our facilities,
including our fulfilment and reconciliation operation. The
investment in technology we have made over the last year meant that
over 80 per cent of the Group's employees were able to work from
home immediately and effectively. We have supported those
colleagues unable to fulfil their role from home through parental
leave or furloughing under the Government's Coronavirus Job
Retention Scheme.
Group trading websites continued to accept and fulfil orders,
but our emphasis shifted to digital delivery only. Without the
ability to dispatch physical product, our products available for
sale were initially limited. We have addressed this by prioritising
our digital offerings and adding e-codes and e-cards to our
proposition on highstreetvouchers.com (HSV). However, many
corporate clients continue to request physical product and we have
been able to accommodate this with a phased easing of restrictions
on fulfilment from May 2020 (all the time adhering to Government
guidelines and ensuring the safety of colleagues).
In our year end trading update, issued on 30 April 2020, we
acknowledged the initial impact of lockdown by stating that "demand
in our Corporate and Other Consumer areas is approximately 70 per
cent below last year." I am pleased to report that we have seen
trading gradually improve in the new financial year. Total billings
have started to recover; they were down 47 per cent year on year in
May, and 35 per cent down in June to give a year to date position
of 48 per cent down for the first quarter. We also stated that
"current cancellation rates (for our Christmas Savings business)
are similar to previous years" and this has remained the case as at
the end of July 2020.
The redemption rates of our products currently in circulation
have also been affected, as the number of outlets open to use our
products decreased, although we continue to see customers redeeming
products in high street stores that are open and at online
retailers. We made the decision to extend the date of products
which were due to expire at the end of March 2020 for a period of
several months whilst many shops were closed to help mitigate this
and support our customers.
Lower redemption rates in March 2020 have had an adverse
financial impact on the results for the year ended 31 March 2020.
Conversely, this delay in spending has a positive impact on cash
flow. Overall redemptions in the new financial year starting 1
April 2020 are down year-on-year by approximately 39 per cent as at
31 July 2020. Within that, not surprisingly, redemptions in
physical shops are down and redemptions online are up
(approximately -75 per cent and +44 per cent respectively).
Part of our overall strategy has been to promote our own
products as much as possible, with the result that overall billings
of our multi-redemption products are 91 per cent of the total from
April 2020 to July 2020, up from 84 per cent at the same point last
year. The same is true within Corporate, where billings of our
multi-redeemer products increased to 89 per cent from 83 per
cent.
On HSV we have promoted all available digital products, which
has included many single-store e-codes. This has resulted in the
percentage of digital products jumping to 45 per cent since their
introduction last year. We have also seen billings of our
multi-redemption products increasing from 76 per cent to 79 per
cent for the first four months of the new financial year.
As well as adding to the range on HSV, we have taken steps to
optimise the flow of traffic to our website. During the month of
April there were 279,684 visits to HSV, down 25 per cent on last
year. May was 8 per cent lower; whilst June and July both saw
slightly more visits than the previous year following the measures
taken and recovery from lockdown.
We have also taken steps to improve the conversion of sales
opportunities created. Since the end of March, the conversion rate
on HSV has improved. The average conversion rate over the last five
days of March - in the immediate aftermath of lockdown - was 2.78
per cent; while the average over the months from May to July 2020
has been around 5 per cent.
These are encouraging signs regarding number of visitors and
conversion to sales. Work to optimise the flow of traffic and
conversion rate continues.
Divisional review
We continue to operate in dynamic and growing markets, serving
customers in both corporate and consumer channels. There has been
an encouraging rate of growth in the UK gift card market during the
calendar year 2019, with growth in the second half at 12 per cent
and the market now estimated to be worth approximately GBP7bn
annually.#
#Source: UK Gift Card and Voucher Association
Corporate (44.6 per cent of Group revenue in the year ended 31
March 2020)
Appreciate Group's Corporate business provides around 42,000
business customers with market-leading incentive, recognition and
rewards options for an estimated two million recipients through
around 190 redemption partners with almost 24,000 outlets.
Corporate billings of GBP197.7m were 1.5 per cent ahead of the
prior year (2019: GBP194.8m). Corporate revenue was GBP50.3m (2019:
GBP51.5m) representing a decrease of 2.4 per cent. Segmental profit
decreased by GBP1.2m to GBP6.6m (2019: GBP7.8m) due to higher
administration costs. The pre-exceptionals performance from our
Corporate business was driven through a combination of billings
growth and a more profitable product mix.
In the year we strengthened the businesses we work with by
adding organisations such as BP, Britvic and Howdens as prestigious
new partners.
Consumer (55.4 per cent of Group revenue in the year ended 31
March 2020)
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 GBP222.2m compared to
GBP232.1m in the prior year. Consumer revenue was GBP62.4m (2019:
GBP58.9m) which produced a segmental profit of GBP5.3m versus
GBP6.8m in the prior year. This fall in profit was primarily due to
an increase in administration costs and exceptional redundancy
costs of GBP0.4m.
Appreciate Group has continued to attract increasing numbers of
customers directly. However, the challenges with the legacy agency
model in the Christmas savings business persist, and we are taking
actions to mitigate this.
Significant improvements have been made in the customer offering
during the period. We have taken our core product into the mobile
era, creating a contactless-enabled digital gift card, which can be
loaded into the wallet app on a smartphone. This can be delivered
by various means - email, SMS or WhatsApp - and is simple,
transparent and easy to use. This development allows instant
celebration and reward of moments that matter to customers, with a
wide range of redemption partners, both online and contactless
in-store using a mobile device.
Progress with our strategic business plan
We have made good progress during the year, continuing the
implementation of our strategic business plan, as set out in
December 2018, in building a robust and scalable platform from
which to grow.
Productivity
We have taken numerous steps to become more efficient and
effective. During the year, we s uccessfully completed a
large-scale office relocation to Liverpool city centre,
establishing a modern, collaborative working culture; we migrated
to cloud-based computing and digital collaboration and workflow
solutions (Office 365); we introduced new technologies to
facilitate agile working; and we invested in our team and
talent.
The project to implement a new Enterprise Resource Planning
(ERP) system is progressing well, despite some COVID-19 related
delays. This will provide the scalability, resilience and
efficiency required for more seamless and automated back office
support functions across the business.
In addition to facilitating the move to Liverpool, we
streamlined the remaining operations based at Valley Road in
Birkenhead to enable the sale of the site, as well as harnessing
efficiencies through new channels. One example of this is a
stronger focus on promoting chat for Customer Care, which has led
to a 31 per cent increase in chat sessions and 8 per cent fewer
voice calls year on year.
On 10 August we announced that we had completed the sale of our
land and premises at Valley Road in Birkenhead to HP (Valley Road)
Limited for GBP3.2m. The site had been substantially vacated since
the relocation to Liverpool, but continues to house our fulfilment
and reconciliation operations. A limited amount of space for these
activities will be leased back as part of the agreement.
Appeal
In terms of broadening our customer appeal, we have s
uccessfully tested two new products - Select Digital Gift Card and
Giftli - as part of work to target currently untapped demand from a
broader audience. We are using these learnings to further develop
our digital strategy.
Leading our industry, we took gifting into the mobile era with
the contactless-enabled digital gift card, which can be loaded into
the wallet app on mobile devices and allow instant celebration and
reward of moments that matter to customers. Important learnings
from these trials are being incorporated into an enhanced
proposition for Corporate clients.
As well as this innovation in product development, we have
enhanced the experience and journey for Park Christmas Savings
customers, streamlined our social media and marketing
communications and added e-codes and e-cards to
highstreetvouchers.com and offered digital gift card to corporate
clients.
Clarity
To bring clarity to our offer for all customers, we have r
edefined and rationalised our brand architecture, which included
renaming Park Group plc to Appreciate Group plc. We believe this
more accurately reflects the Group's product range and position as
an innovative payments, savings and rewards provider to Corporate
and Consumer markets. This allows the Group to take full advantage
of the growth opportunities available in an expanding market. We
also refreshed the Park Christmas Savings brand through all
channels including the website and app.
Key to supporting this has been the development of clear brand
guidelines and a company tone of voice, as well as significantly
boosting our Group brand activation and awareness activities, with
targeted social media postings and community partnerships.
Our core business functions are now focused around products and
market segment, centralising some of the activity previously
conducted separately within the business units, and we have a
robust and disciplined approach to new product development.
The number of product variants we offer has been consolidated
and simplified, in particular reducing the number of single
retailer physical products on sale through all channels.
We are now proposing to cease production of hampers and
merchandise. This decision was initially taken for the Christmas
2020 season to protect the health of our workforce and provide our
customers with certainty given the potential for disruption in the
supply chain during the ongoing lockdown and potential of further
restrictions. This enabled us to carry out a longer term review of
the future of the hamper business, and we have commenced
consultation with colleagues about proposals to close this part of
our business. Whilst hampers were the roots from which we grew as a
business more than 50 years ago, they now only equate for less than
2 per cent of billings and are no longer considered part of our
future strategy. All hamper customers will be offered the chance to
migrate to other Appreciate Group products so that we can help them
continue to budget and pay for Christmas.
Experience
We have taken significant steps to make us easier to work with
for all of our customers, particularly in the digital space.
During the year we have created an end-to-end, fully digital
experience for gift-card purchase, delivery and redemption, with
contactless capability in a mobile phone wallet, working with
Mastercard and CleverCards. We believe this has been, in many ways,
a real game-changer for our industry, as it completely reimagines
how gift cards should work in a mobile-enabled world.
We've also improved the digital and physical experience for our
customers; enhanced the client on-boarding journey;
worked to optimise the conversion rates on our websites;
launched new ERP solutions, developed resilience and security in
our networks, standardised our complaints process and established a
Customer Committee to help drive improvements in the customer
experience.
Looking ahead
I am extremely proud to lead a team of colleagues who are
dedicated to our purpose of creating joyful experiences and
connecting people to the things in life they enjoy. This unwavering
commitment has never been more evident than in recent months when
they have risen to the challenge to support our customers and
partners. Their commitment gives me confidence that, combined with
our strategy, we are strongly positioned for the future.
Ian O'Doherty
Chief Executive
12 August 2020
Financial Review
Impact of Covid-19
At the start of lockdown in March 2020, just like many
businesses across the UK, the Group followed Government guidance
and temporarily closed its distribution and warehouse facilities to
help stop the spread of coronavirus. With no means to fulfil
physical orders at that time the Group's focus shifted to digital
products.
In May 2020 the Valley Road facility reopened with social
distancing procedures in place. Demand in our Corporate and Other
Consumer areas reduced during the lockdown period with April demand
70 per cent lower than prior year. We have seen trading gradually
improve in the new financial year; billings were down 47 per cent
year on year in May, and 35 per cent down in June to give a year to
date position of -48 per cent at the end of Q1.
Although the Christmas Savers order book is currently 9 per cent
below the prior year, most customer plans are normally in place by
March and we have seen normal cancellations trends since then, so
this part of the business has to date, been unaffected.
Redemptions have also significantly fallen, with an 80 per cent
decrease for vouchers and 61 per cent decrease for cards and
e-codes compared to quarter one of the prior year. Despite this
overall reduction in redemptions, which beneficially reduces cash
outflow, we have a seen a significant shift to online redemption
partners and grocery retail, reflecting the flexibility of our
products.
The Group has taken several actions to conserve cash by reducing
discretionary expenditure. These actions include the following:
-- Furloughing employees - The Group has utilised the
Government's Job Retention Scheme with a number of employees being
furloughed, whose pay has been topped up to 100 per cent by the
Group. In quarter one of the financial year ending 31 March 2021,
there were an average of 65 employees on furlough per month, for a
total saving of GBP243,000.
-- Dividend cancellation - The Group decided to cancel the
dividend payment for 2020, which has conserved GBP6m of cash.
-- Deferral of VAT payments - The Group has deferred GBP936,000
of VAT payments between March and June 2020. These are now payable
by 31 March 2021.
-- Employee remuneration revisions - The decision was made to
cancel all annual pay reviews and bonuses.
The Board has reviewed five forecast scenarios, covering a range
of likely outcomes: base case plus two downside and two upside
scenarios. The Group is currently trading slightly ahead of the
base case and has carefully considered the base case, downside
scenarios, current trading and trends since the year end and the
assessment of reverse stress tests. Having secured a GBP15m
revolving credit facility we have adequate flexibility to provide
sufficient cash headroom to enable the business to trade with
confidence. Further details are contained within our going concern
disclosures.
The Board continues to actively manage the risks of the business
which have been updated for the impact of Covid-19. We are planning
for a peak season which will be delivered whilst adhering to social
distancing guidelines. The decision to close our hamper and third
party packing business will give additional operational flexibility
to achieve this. Following our technology investments over the last
year, which further strengthen our business continuity plan, the
majority of employees continue to effectively work from home.
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
Following the adoption of IFRS15 in the prior financial 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.
Billings* 2020 2019 Change
GBPm GBPm %
Multi-retailer redemption
products 354.3 362.4 -2.2
Single retailer redemption
products 52.9 50.8 +4.2
Other 12.7 13.7 -7.3
Total 419.9 426.9 -1.6
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 2020 2019 Change
GBPm GBPm %
Multi-retailer redemption
products 37.9 41.1 -7.9
Single retailer redemption
products 62.1 55.6 +11.7
Other 12.7 13.7 -7.3
Total 112.7 110.4 +2.1
The mix of in-house, multi-retailer products remains high, in
line with the strategy of promoting our own products. The mix of
multi-retailer redemption products was 84.4 per cent of total
billings, marginally lower than last year's 84.9 per cent.
Revenue increased by 2.1 per cent to GBP112.7m due to a greater
mix of single retailer redemption products which are reported gross
in revenue as opposed to multi-retailer redemption products which
are reported net in revenue. The value of multi-retailer revenue
has decreased by 7.9 per cent offset by strong demand for single
retailer redemption products which were 11.7 per cent higher, due
to higher online demand, particularly e-codes which can be
converted to single retailer products.
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.
2020 2019 Change
GBP'000 GBP'000 GBP'000
------------------- -------- -------- --------
Consumer 5,327 6,809 (1,482)
------------------- -------- -------- --------
Corporate 6,581 7,789 (1,208)
------------------- -------- -------- --------
All other segments (5,512) (4,866) (646)
------------------- -------- -------- --------
Operating profit 6,396 9,732 (3,336)
------------------- -------- -------- --------
Consumer
In the Consumer business, customer billings have decreased by
4.3 per cent from GBP232.1m to GBP222.2m. Billings for Christmas
savers were down by 4 per cent and there was a similar performance
in other Consumer billings, derived through the
highstreetvouchers.com website, which were also 4 per cent lower
than last year, offset by other products which were 1.5 per cent
lower. Revenue has increased by 5.9 per cent to GBP62.4m (2019:
GBP58.9m), primarily due to a higher mix of single retailer
redemption products.
Operating profit was GBP5.3m, a decrease of GBP1.5m (22.1 per
cent) from the GBP6.8m achieved in the prior year. This was
primarily due to an increase in administration costs, as explained
below, and exceptional redundancy costs of GBP0.4m.
Corporate
In the Corporate business customer billings have increased by
1.5 per cent, from GBP194.8m to GBP197.7m. This growth was due to
GBP7.5m of new business, continuing good retention rates of
existing clients (95 per cent) and strong online billings which
were 13 per cent higher than prior year. Corporate revenue fell by
2.4 per cent over the prior year, from GBP51.5m to GBP50.3m due to
a higher mix of card and digital products (66.6 per cent vs 60.0
per cent last year) which have more deferred revenue.
Operating profit decreased by 15.4 per cent to GBP6.6m (2019:
GBP7.8m) due to higher administration costs, as explained
below.
All other segments
Central and property costs increased by 12.2 per cent from
GBP4.9m to GBP5.5m. This increase is due to the higher impairment
cost of the Valley Road site at GBP1.8m (2019: GBP1.2m).
Administration Costs
Administration costs increased from GBP17.4m to GBP20.0m due the
costs of strategy implementation and additional management and
professional fees. Strategy implementation costs of GBP1.5m relate
to the office relocation and rebranding and will be
non-recurring.
Reconciliation of adjusted to statutory profit
The Board believes that adjusted profit excluding exceptional
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
2020 profit before after tax
tax
GBP'000 GBP'000 GBP'000
Profit before exceptional items 10,072 11,376 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 7,700 5,511
---------- -------- -----------
2019
Profit before exceptional items 10,942 12,514 10,092
Impairment of property, plant and
equipment (1,210) (1,210) (1,210)
---------- -------- -----------
Statutory profit 9,732 11,304 8,882
---------- -------- -----------
Exceptional Costs
In September 2019, the Group relocated its head office from
Birkenhead to Liverpool. Following this move, we have now
successfully sold the freehold land and building at Valley Road,
Birkenhead whilst securing a lease-back for the space still
occupied by a small number of operational staff. Our balance sheet
reflects the expected disposal of this asset, which is classified
as an 'asset held for sale', following the previously announced
impairment charge to the P&L account of GBP1.8m.
We have reviewed our brand engagement agency, FMI, acquired in
2016, which is reliant on one large client and also involved in
business relating to event management which is heavily impacted by
restrictions following lockdown. We have concluded that the
goodwill is impaired relating to this acquisition, totalling
GBP0.9m.
Subsequent to our year end, we have taken the decision to cease
production of hampers. We have impaired the value of stock for
hampers held at 31 March 2020 by GBP0.1m which reflects the likely
re-sale value of these stock items. Additionally, we have impaired
the value of Family Hampers customer lists by GBP0.4m.
During the year, we restructured our marketing department with
the aim of creating different roles focused on digital marketing.
The redundancy costs relating to employees made redundant following
this review amounted to GBP0.4m.
Finance income
Finance income decreased by 6.3 per cent to GBP1.5m from
GBP1.6m. Average total cash held by the Group, including cash held
in trust during the year increased by 1.7 per cent to GBP177m (2019
: GBP174m), however the yield achieved on this higher cash balance
decreased due to the decrease in base rates.
Taxation
The effective tax rate for the year was 28.4 per cent (2019:
21.4 per cent) of profit before tax. The increase compared to the
prior year was primarily due to the fact that the increased
impairment charge in respect of the Valley Road site and part of
the impairment of goodwill did not attract tax relief. In addition
to this, the cancellation of the corporation tax rate reduction to
17 per cent, which was due to be effective from 1 April 2020, has
resulted in an increase in deferred tax charges in the current
year.
Earnings per share
Basic earnings per share (EPS) fell by 38.1 per cent from 4.78p
in 2019 to 2.96p. Excluding the exceptional charge basic EPS is
5.04p (2019: 5.43p), down 7.2 per cent.
Dividends
The Board has reviewed five forecast scenarios, covering a range
of outcomes, and have carefully considered the base case scenario,
current trading and trends since the year end and the assessment of
reverse stress tests. The UK trading conditions continue to be
uncertain and at this point, before the outcome of our peak Q3
trading period, the Board consider it prudent not to recommend a
dividend for this financial year (prior year 3.20p per share).
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. The
Board intends to return to that policy as soon as it is appropriate
to do so.
Cash flows and treasury
Cash flows from operating activities were GBP5.6m, GBP1.2m (17.6
per cent) lower than the prior year, due to an increase in monies
held in trust and higher tax payments, offset by a working capital
cash inflow. Monies in trust grew from GBP99.3m in 2019 to
GBP102.7m. 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 GBP7.6m
to GBP44.2m due to higher levels of card and digital business.
In addition, GBP55.1m (2019: GBP60.9m) 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 2020, the Group held GBP3.4m of other ring
fenced funds (2019: GBP1.8m).
At the end of March 2020 GBP29.6m (2019: GBP36.9m) of cash was
held by the Group. This was GBP7.2m (19.6 per cent) lower than the
prior year due to the switch to a higher mix of regulated products
which is cash consumptive in the short term plus higher capital
expenditure relating to strategy implementation.
The total amount of cash and deposits net of any overdraft
position held by the Group, combined with the monies held in trust,
has decreased in the year by 1.3 per cent to GBP132.3m from
GBP134.0m. These total balances peaked at just under GBP234m in the
year, representing a marginal decrease of GBP1.2m from the prior
year.
We have 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 the additional financial flexibility to protect
against downside risk in the short term; whilst enabling longer
term growth, as well as investing in the continued switch to
digital products. The RCF has 3 covenant requirements, as detailed
within the going concern disclosures.
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 GBP3.1m of
additions (prior year GBP0.8m). This included investment in a new
ERP platform, Microsoft Dynamics 365.
IFRS16
With effect from 1 April 2019 we adopted IFRS16 relating to
leases. The standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires
lessees to recognise most leases on the statement of financial
position. Under IFRS16 the Group recognises a right-of-use-asset
(ROUA) and a lease liability (LL) at the lease commencement date.
At the balance sheet date this balance was GBP3.8m and further
details are available in note 13.
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 2020 has
increased to GBP7.4m from GBP7.0m in the prior year due to an
increase in card mix and slower redemption of paper vouchers. The
increase in card mix, where breakage levels are higher, has
resulted in greater deferred revenue.
Provisions
At 31 March 2020, provisions have decreased to GBP53.8m from
GBP58.3m. This was mainly due to an increase in the amounts
provided in respect of flexecash(R) cards of GBP1.1m and a decrease
in the amounts provided for unspent vouchers of GBP6.1m. The value
of unspent vouchers included in the provision, arises primarily
from sales in the Corporate business.
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 GBP4.2m based on the valuation
under IAS19 performed at 31 March 2020 (2019: surplus of
GBP1.9m).
The Group has recognised net interest income of GBP44,000 (2019:
GBP73,000) in the statement of profit or loss in respect of the
pension schemes. In addition, the Group has recognised a
re-measurement gain in the statement of comprehensive income (SOCI)
of GBP1.9m (2019: loss of GBP0.8m) net of tax.
In the year ended 31 March 2020, there were no contributions by
the Group to the schemes (2019: GBP0.5m). 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
12 August 2020
* See accounting policies for a reconciliation of billings to
revenue
Going Concern
The financial statements are prepared on a going concern
basis.
At the start of lockdown in March 2020, just like many
businesses across the UK, the Group followed Government guidance
and temporarily closed its distribution and warehouse facilities to
help stop the spread of coronavirus. With no means to fulfil
physical orders at that time the Group's focus shifted to digital
products. In May 2020 the Valley Road facility reopened with social
distancing procedures in place.
There has been a negative impact on trading for quarter one of
the financial year ending 31 March 2021, with reductions in
billings compared to the same period in the prior year of 45 per
cent for corporate and 65 per cent for HSV, our website where we
service both consumer and corporate customers. Redemptions have
also significantly fallen, with an 80 per cent decrease for
vouchers and 61 per cent decrease for cards and e-codes compared to
quarter one of the prior year.
Despite this, as the year has progressed the month-on-month
trend in billings has been encouraging, with significant
improvement being shown in each successive month's results.
Corporate and HSV billings for April 2020 were 35 per cent and 19
per cent respectively of April 2019 billings, whereas for June 2020
were 68 per cent and 54 per cent of the levels seen in June
2019.
The Group has taken action to conserve cash during this
uncertain time and support its position as a going concern. These
actions include the following:
-- Furloughing employees - The Group has utilised the
Government's Job Retention Scheme with a number of employees being
furloughed, whose pay has been topped up to 100 per cent by the
Group. In quarter one of the financial year ending 31 March 2021,
there were an average of 65 employees on furlough per month, for a
total saving of GBP243,000 in the quarter.
-- Dividend cancellation - The Group decided to cancel the
dividend payment for 2020, which has conserved GBP6m of cash.
-- Deferral of VAT payments - The Group has deferred GBP936,000
of VAT payments between March and June 2020. These are now payable
by 31 March 2021.
Employee remuneration revisions - The decision was made to
cancel all annual pay reviews, make no awards for FY2019/20 under
the company wide annual bonus plan, and to postpone the leadership
team's share incentive awards for the year ended 31 March 2020.
In addition to the above actions that have already been taken,
management have reviewed the cost base of the business in order to
identify any further potential savings.
Forecasting
Five scenarios have been modelled in order to assess the
potential impact of the Covid-19 pandemic on the results of the
Group going forward. The key variables that are altered between
scenarios are: corporate and HSV demand, Christmas Savers order
book cancellations and reductions, and paper and card redemptions.
The scenarios model the upcoming two year period, with specific
focus on the twelve months from the signing of the annual report
and accounts. The base case was approved by the Board. Management
concluded that this base case reflected their best estimate of the
likely impact of Covid-19, with initial trading slightly ahead, and
this base case has also been used in the financing discussions with
the banks.
Base case scenario
The base case scenario, assumes decreases in corporate and HSV
billings against the initial forecast of 60 per cent in quarter one
of the year ending 31 March 2021, with a gradual recovery through
the financial year to 25 per cent down in quarter four. In quarter
one and two of the year ending 31 March 2022 (which goes just
beyond the twelve month going concern window from signing of the
accounts), growth of 40 per cent against the 2021 forecast is
assumed. The reduction in Christmas Savers in year one is 11 per
cent.
The actual results for quarter one are slightly ahead of the
base case, with overall corporate and HSV billings decreasing by 48
per cent compared to the 60 per cent assumed. In addition, July
trading is ahead of forecast. This gives the Group confidence that
the base case scenario is currently the best estimate and minimises
the likelihood of any downside risks modelled within the other
scenarios.
From a going concern perspective, the monthly forecasting of the
Group's free cash balance in this scenario is the key area for
consideration, as liquidity is the principal going concern risk.
The base case, before usage of the RCF, shows a negative free cash
balance in July 2021, recovering by September 2021.
Downside scenario
In addition to the base case, management also considered the
downside scenario that assumed decreases in corporate and HSV
billings against the initial forecast of 75 per cent in quarter one
of the year ending 31 March 2021, with a gradual recovery through
the financial year to 25 per cent down in quarter four. In quarter
one and two of the year ending 31 March 2022, growth of 40 per cent
against the 2021 forecast is assumed. The reduction in Christmas
Savers in year one is 14 per cent. This forecast a negative free
cash balance, before usage of the RCF, in June 2021.
Further actions possible
Management has identified further actions which could be freely
implemented in order to conserve cash. These actions do not include
any staff redundancies other those being consulted on in respect of
the closure of the fulfilment business.
These savings include:
-- reduction in discretionary consultancy and IT costs;
-- delaying the implementation of the new ERP system; and
-- cancelling the bonus for the year ending 31 March 2021.
These were overlaid net of additional costs, including those
associated with the closure of the fulfilment business.
The overall impact of these actions is to bolster the cash
position of the Group, with the base case, before usage of the RCF,
showing a small shortfall in August 2021.
New financing
The Group has access to a recently agreed committed RCF of
GBP15m, with an additional uncommitted accordion of GBP10m.
With the RCF in place, and having cancelled the final dividend
payment, the directors consider that sufficient headroom exists to
cover any negative sensitivities of COVID-19 in both the base case
and downside scenario.
The following covenants are in place with regards to the
RCF:
-- Leverage/net debt cover - debt must not be greater than three
times the last twelve months (LTM) rolling earnings before
interest, taxation, depreciation and amortisation (EBITDA);
-- Interest cover - LTM rolling EBITDA must not be less than
four times the LTM rolling interest charge. This is expected to be
approximately GBP50,000 per month, resulting in a LTM rolling
interest charge of GBP0.6m, meaning LTM rolling EBITDA must not
fall below GBP2.4m; and
-- Christmas Savers cash - requires that Christmas Savers cash
cannot be lower than monies in advance.
A LTM basis is used due to the seasonality of the Group's
business. The leverage/net debt cover and interest cover covenants
are assessed on a biannual basis starting in March 2021. The
Christmas savers cash covenant is measured quarterly starting March
2021.
With the RCF in place, in line with the base case forecast, it
is not envisaged that the Group will draw down on the facility
until July 2021. The Group is forecast to be in full compliance
with the three covenants throughout the twelve month period from
the signing of the annual report and accounts, with sufficient
headroom in place in both the base case and downside scenarios.
Reverse Stress Tests
Several reverse stress tests have been completed. These allow
management to assess their current financial resources and the
likelihood that such a 'business-breaking' scenario would
occur.
Reverse stress tests were run in respect of accelerated voucher
redemption, reduced voucher billings and reduced Corporate and HSV
billings (across vouchers, cards and codes). Each stress test
brought forward the timing at which the RCF was required within the
business. In each test, with the RCF in place and in some cases
with further mitigating actions, each position could be managed,
albeit the covenants currently agreed would be breached. However,
management were satisfied that each reverse stress test was highly
unlikely due to the extreme nature of the sensitivity required.
Conclusion
The directors have carefully considered the base case, downside
scenario, current trading and trends since the year end and the
assessment of the reverse stress tests. In light of the newly
agreed GBP15m RCF, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. 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. The
as they fall due and to have access Group has access to funds for working
to finance where this is necessary. capital from the PPPT for a defined
period in the year,
although the Group has not used this
facility in either of the last two
years.
The Group have secured a 5 year RCF
which will provide additional
financial flexibility. In
addition the Group has a high level
of visibility of future revenue
streams from some of 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.
------------------------------------- ------------------------------------ -------------------------------------
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. Possible new and keeps the Group up to date with
regulation could include a impending regulation. The Group
requirement to ring fence funds shares the objectives
for vouchers sold to consumers. This of Government in treating customers
would adversely affect the Group's fairly and in the protection of
cash position. customer prepayments.
The Group operates a number of trusts
to safeguard funds held on behalf of
customers.
------------------------------------- ------------------------------------ -------------------------------------
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.
Our focus is on the elimination of
any single point of failure in our
IT systems.
The Group has decided to upgrade its
IT Systems by implementing a new ERP
system, Microsoft
Dynamics, which will provide
There is a risk that an attack on our scalability, resilience and
infrastructure by an individual or efficiency.
Group could be successful
and impact the availability of The Group plans and tests its
critical systems. business continuity procedures in
preparation for catastrophic
Cyber security events and also to deal with the
existence of counterfeit vouchers or
cards.
Incorrect data retention, data Our infrastructure has a layered
management or data loss with approach to cybersecurity with
customer, financial, regulatory, proactive external and internal
reputational impact monitoring and alerting designed to
prevent unauthorised access and
active defence to reduce
the likelihood and impact of a
Data management successful attack. We are ISO 27001
certified.
Hardware and software obsolescence
causing system failure with customer,
financial, regulatory, We have implemented a new Data
reputational impact Warehouse with automated data
cleansing and active data management
per GDPR rules; we have Active Data
loss prevention protocols in
Technology risk messaging platforms and have
Implementation of new hardware, deployed Microsoft Office 365 with
software, managed services causing higher encryption standards; we are
system failure with customer, PCI and ISO 27001 certified
financial, regulatory, reputational
impact
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 voucher 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
failure of one or more participating utilise our vouchers and cards to
retailers could make drive forward incremental
these products less attractive to sales to their retail outlets.
customers. Contracts 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.
Our brand strategy has been
thoroughly reviewed.
------------------------------------- ------------------------------------- ------------------------------------
Promotional activity The success of the Group's annual Detailed management processes that
promotional campaign is essential to are designed to optimise the cost of
ensure the continued recruiting customers
recruitment of customers. Failure to are in place.
recruit 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 4 per
cent 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.
The financial impact upon the
business is monitored closely. We
have modelled various financial
scenarios to cover, for example,
liquidity risk. They contain
mitigating actions such as obtaining
bank finance or altering the mix of
products sold. We have added to our
range of digital products
as part of our strategy. For further
details on how we model the
businesses cash requirements,
please see the Financial Review.
The closure during lockdown of high
street stores may prevent the
receipt and redemption of
our paper vouchers. We continued to
receive and redeem vouchers for
essential stores on a
limited service basis during
lockdown, with the safety of our
staff of paramount concern,
and our operations will return to
normal, again with the safety of our
staff of paramount
concern, as high street shops
re-open.
The potential impact of coronavirus
on our production, warehousing and
distribution facilities
has been assessed.
We are reviewing our "Working from
Home" policy and procedures and will
only require all staff
to return to work when it is safe to
do so.
If there is a "second wave" of the
virus we believe all relevant staff
can work from home.
If the high street is closed with
only essential shops opening then we
can offer a limited
service in order for customers to
use our products to purchase
essential items. We will also
continue to enhance our digital
product offering accordingly.
------------------------------------- ------------------------------------- ------------------------------------
Appreciate Group plc
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR TO 31 MARCH 2019
2020 2019
Notes GBP'000 GBP'000
Billings 6 419,857 426,901
--------- ---------
Revenue 6
* Goods - Single retailer redemption products 62,142 55,624
* Other goods 6,240 7,511
* Services - Multi-retailer redemption products 37,870 41,111
* Other services 6,371 6,119
* Other 101 29
--------- ---------
112,724 110,394
Cost of sales excluding exceptional
items (79,778) (79,117)
Impairment of obsolete stock 11 (124) -
--------- ---------
Gross profit 32,822 31,277
Distribution costs (2,838) (2,934)
Administrative expenses (20,036) (17,401)
Impairment of property, plant and
equipment 10 (163) (1,210)
Impairment of assets held for sale 12 (1,650) -
Impairment of goodwill 9 (1,316) -
Redundancy costs 14 (423) -
--------- ---------
Operating profit 6,396 9,732
Finance income 1,481 1,572
Finance costs (177) -
--------- ---------
Profit before taxation 7,700 11,304
Taxation (2,189) (2,422)
--------- ---------
Profit for the year attributable
to equity holders of the parent 5,511 8,882
--------- ---------
Earnings per share 8
: basic 2.96p 4.78p
: diluted 2.96p 4.77p
Appreciate Group plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR TO 31 MARCH 2020
2020 2019
GBP'000 GBP'000
Profit for the year 5,511 8,882
Other comprehensive income/(expense)
Items that will not be reclassified to profit
or loss:
Remeasurement of defined benefit pension
schemes 2,235 (1,009)
Deferred tax on defined benefit pension schemes (383) 172
-------- --------
1,852 (837)
-------- --------
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange translation differences 18 (3)
Other comprehensive income/(expense) for
the year net of tax 1,870 (840)
-------- --------
Total comprehensive income for the year attributable
to equity holders of the parent 7,381 8,042
-------- --------
Appreciate Group plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH
2020
As at As at
31.03.20 31.03.19
Notes GBP'000 GBP'000
Assets
Non-current assets
Goodwill 9 800 2,168
Other intangible assets 4,757 2,295
Property, plant and equipment 10 2,662 6,216
Right of use assets 13 3,799 -
Retirement benefit asset 4,206 1,927
16,224 12,606
-------------------- -------------
Current assets
Inventories 11 2,840 4,574
Trade and other receivables 9,457 12,582
Tax receivable 266 -
Other financial assets - 200
Monies held in trust 102,693 99,251
Cash 29,632 36,868
-------------------- -------------
144,888 153,475
Assets held for sale 12 3,153 -
148,041 153,475
-------------------- -------------
Total assets 164,265 166,081
-------------------- -------------
Liabilities
Current liabilities
Bank overdraft - (2,305)
Trade payables (57,150) (61,191)
Payables in respect of cards and
vouchers (17,060) (14,193)
Deferred income (7,359) (6,983)
Other payables (5,294) (5,280)
Tax payable - (580)
Provisions (53,802) (58,286)
-------------------- -------------
(140,665) (148,818)
-------------------- -------------
Non-current liabilities
Deferred tax liability (1,121) (553)
Lease liabilities 13 (4,132) -
-------------------- -------------
(5,253) (553)
-------------------- -------------
Total liabilities (145,918) (149,371)
-------------------- -------------
Net assets 18,347 16,710
-------------------- -------------
Equity attributable to equity
holders of the parent
Share capital 3,727 3,727
Share premium 6,470 6,470
Retained earnings 8,461 6,824
Other reserves (311) (311)
Total equity 18,347 16,710
-------------------- -------------
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 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 expense - - - 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
--------- --------- ---------- ---------- --------
Balance at 1 April 2018 3,711 6,137 (311) 4,488 14,025
Total comprehensive income for
the year
Profit as restated - - - 8,882 8,882
Other comprehensive expense
Remeasurement of defined benefit
pension schemes - - - (1,009) (1,009)
Tax on defined benefit pension
schemes - - - 172 172
Foreign exchange translation adjustments - - - (3) (3)
--------- --------- ---------- ---------- --------
Total other comprehensive income - - - (840) (840)
--------- --------- ---------- ---------- --------
Total comprehensive income for
the year - - - 8,042 8,042
--------- --------- ---------- ---------- --------
Transactions with owners, recorded
directly in equity
Equity settled share-based payment
transactions - - - 11 11
Tax on equity settled share-based
payment transactions - - - (45) (45)
Exercise of share options 12 333 - - 345
LTIP shares awarded 4 - - (4) -
Dividends - - - (5,668) (5,668)
--------- --------- ---------- ---------- --------
Total contributions by and distribution
to owners 16 333 - (5,706) (5,357)
--------- --------- ---------- ---------- --------
Balance at 31 March 2019 3,727 6,470 (311) 6,824 16,710
--------- --------- ---------- ---------- --------
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 2020
2020 2019
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 16 6,866 6,874
Interest received 1,648 1,497
Interest paid (8) -
Tax paid (2,864) (1,576)
-------- --------
Net cash generated from operating
activities 5,642 6,795
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment 1 -
Purchase of intangible assets (3,103) (781)
Purchase of property, plant and
equipment (1,927) (371)
Net cash used in investing activities (5,029) (1,152)
Cash flows from financing activities
Lease incentive payment 500 -
Payment of lease liabilities (81) -
Proceeds from exercise of share
options - 345
Dividends paid to shareholders (5,963) (5,668)
Net cash used in financing activities (5,544) (5,323)
-------- --------
Net (decrease)/increase in cash
and cash equivalents (4,931) 320
-------- --------
Cash and cash equivalents at beginning
of period 34,563 34,243
-------- --------
Cash and cash equivalents at end
of period 29,632 34,563
-------- --------
Cash and cash equivalents comprise:
Cash 29,632 36,868
Bank overdrafts - (2,305)
-------- --------
29,632 34,563
-------- --------
(1) Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS's) as adopted by
the European Union (EU) including International Financial Reporting
Interpretations Committee (IFRIC) interpretations and with those
parts of the Companies Act 2006 applicable to companies reporting
under IFRS.
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.
(2) Going concern
The financial statements are prepared on a going concern
basis.
At the start of lockdown in March 2020, just like many
businesses across the UK, the Group followed Government guidance
and temporarily closed its distribution and warehouse facilities to
help stop the spread of coronavirus. With no means to fulfil
physical orders at that time the Group's focus shifted to digital
products. In May 2020 the Valley Road facility reopened with social
distancing procedures in place.
There has been a negative impact on trading for quarter one of
the financial year ending 31 March 2021, with reductions in
billings compared to the same period in the prior year of 45 per
cent for corporate and 65 per cent for HSV, our website where we
service both consumer and corporate customers. Redemptions have
also significantly fallen, with an 80 per cent decrease for
vouchers and 61 per cent decrease for cards and e-codes compared to
quarter one of the prior year.
Despite this, as the year has progressed the month-on-month
trend in billings has been encouraging, with significant
improvement being shown in each successive month's results.
Corporate and HSV billings for April 2020 were 35 per cent and 19
per cent respectively of April 2019 billings, whereas for June 2020
were 68 per cent and 54 per cent of the levels seen in June
2019.
The Group has taken action to conserve cash during this
uncertain time and support its position as a going concern. These
actions include the following:
-- Furloughing employees - The Group has utilised the
Government's Job Retention Scheme with a number of employees being
furloughed, whose pay has been topped up to 100 per cent by the
Group. In quarter one of the financial year ending 31 March 2021,
there were an average of 65 employees on furlough per month, for a
total saving of GBP243,000 in the quarter.
-- Dividend cancellation - The Group decided to cancel the
dividend payment for 2020, which has conserved GBP6m of cash.
-- Deferral of VAT payments - The Group has deferred GBP936,000
of VAT payments between March and June 2020. These are now payable
by 31 March 2021.
-- Employee remuneration revisions - The decision was made to
cancel all annual pay reviews, make no awards for FY2019/20 under
the company wide annual bonus plan, and to postpone the leadership
team's share incentive awards for the year ended 31 March 2020.
In addition to the above actions that have already been taken,
management have reviewed the cost base of the business in order to
identify any further potential savings.
Forecasting
Five scenarios have been modelled in order to assess the
potential impact of the Covid-19 pandemic on the results of the
Group going forward. The key variables that are altered between
scenarios are: corporate and HSV demand, Christmas Savers order
book cancellations and reductions, and paper and card redemptions.
The scenarios model the upcoming two year period, with specific
focus on the twelve months from the signing of the annual report
and accounts. The base case was approved by the Board. Management
concluded that this base case reflected their best estimate of the
likely impact of Covid-19, with initial trading slightly ahead, and
this base case has also been used in the financing discussions with
the banks.
Base case scenario
The base case scenario, assumes decreases in corporate and HSV
billings against the initial forecast of 60 per cent in quarter one
of the year ending 31 March 2021, with a gradual recovery through
the financial year to 25 per cent down in quarter four. In quarter
one and two of the year ending 31 March 2022 (which goes just
beyond the twelve month going concern window from signing of the
accounts), growth of 40 per cent against the 2021 forecast is
assumed. The reduction in Christmas Savers in year one is 11 per
cent.
The actual results for quarter one are slightly ahead of the
base case, with overall corporate and HSV billings decreasing by 48
per cent compared to the 60 per cent assumed. In addition, July
trading is ahead of forecast. This gives the Group confidence that
the base case scenario is currently the best estimate and minimises
the likelihood of any downside risks modelled within the other
scenarios.
From a going concern perspective, the monthly forecasting of the
Group's free cash balance in this scenario is the key area for
consideration, as liquidity is the principal going concern risk.
The base case, before usage of the RCF, shows a negative free cash
balance in July 2021, recovering by September 2021.
Downside scenario
In addition to the base case, management also considered the
downside scenario that assumed decreases in corporate and HSV
billings against the initial forecast of 75 per cent in quarter one
of the year ending 31 March 2021, with a gradual recovery through
the financial year to 25 per cent down in quarter four. In quarter
one and two of the year ending 31 March 2022, growth of 40 per cent
against the 2021 forecast is assumed. The reduction in Christmas
Savers in year one is 14 per cent. This forecast a negative free
cash balance, before usage of the RCF, in June 2021.
Further actions possible
Management has identified further actions which could be freely
implemented in order to conserve cash. These actions do not include
any staff redundancies other those being consulted on in respect of
the closure of the fulfilment business.
These savings include:
-- reduction in discretionary consultancy and IT costs;
-- delaying the implementation of the new ERP system; and
-- cancelling the bonus for the year ending 31 March 2021.
These were overlaid net of additional costs, including those
associated with the closure of the fulfilment business.
The overall impact of these actions is to bolster the cash
position of the Group, with the base case, before usage of the RCF,
showing a small shortfall in August 2021.
New financing
The Group has access to a recently agreed committed RCF of
GBP15m, with an additional uncommitted accordion of GBP10m.
With the RCF in place, and having cancelled the final dividend
payment, the directors consider that sufficient headroom exists to
cover any negative sensitivities of COVID-19 in both the base case
and downside scenario.
The following covenants are in place with regards to the
RCF:
-- Leverage/net debt cover - debt must not be greater than three
times the last twelve months (LTM) rolling earnings before
interest, taxation, depreciation and amortisation (EBITDA);
-- Interest cover - LTM rolling EBITDA must not be less than
four times the LTM rolling interest charge. This is expected to be
approximately GBP50,000 per month, resulting in a LTM rolling
interest charge of GBP0.6m, meaning LTM rolling EBITDA must not
fall below GBP2.4m; and
-- Christmas Savers cash - requires that Christmas Savers cash
cannot be lower than monies in advance.
A LTM basis is used due to the seasonality of the Group's
business. The leverage/net debt cover and interest cover covenants
are assessed on a biannual basis starting in March 2021. The
Christmas savers cash covenant is measured quarterly starting March
2021.
With the RCF in place, in line with the base case forecast, it
is not envisaged that the Group will draw down on the facility
until July 2021. The Group is forecast to be in full compliance
with the three covenants throughout the twelve month period from
the signing of the annual report and accounts, with sufficient
headroom in place in both the base case and downside scenarios.
Reverse Stress Tests
Several reverse stress tests have been completed. These allow
management to assess their current financial resources and the
likelihood that such a 'business-breaking' scenario would
occur.
Reverse stress tests were run in respect of accelerated voucher
redemption, reduced voucher billings and reduced Corporate and HSV
billings (across vouchers, cards and codes). Each stress test
brought forward the timing at which the RCF was required within the
business. In each test, with the RCF in place and in some cases
with further mitigating actions, each position could be managed,
albeit the covenants currently agreed would be breached. However,
management were satisfied that each reverse stress test was highly
unlikely due to the extreme nature of the sensitivity required.
Conclusion
The directors have carefully considered the base case, downside
scenario, current trading and trends since the year end and the
assessment of the reverse stress tests. In light of the newly
agreed GBP15m RCF, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. 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:
IFRIC 23 Uncertainty over Income Tax Treatment 1 Jan 2019
IFRS 16 Leases 1 Jan 2019
The impact of IFRS 16 on the financial statements is shown in
the leases accounting policy below.
IFRIC 23 has not had a material impact upon the Group's
financial performance or position.
Interpretations and standards which have been issued and are not
yet effective
Amendments to IAS 1 and IAS 8: Definition of Material
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 are not expected to
have a significant impact on the Group's consolidated financial
statements.
(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 2019,
except for those policies described below. The annual report and
accounts for the year ended 31 March 2019 can be found on our
website at www.appreciategroup.co.uk .
Assets held for sale
On initial classification as held for sale, assets are measured
at the lower of their present carrying amount and the fair value
less costs to sell, with any adjustments taken to the statement of
profit or loss. These assets are not depreciated.
Assets are classified as held for sale when they satisfy the
following criteria:
-- management is committed to a plan to sell
-- the asset is available for immediate sale
-- an active programme to locate a buyer is initiated
-- the sale is highly probable, within 12 months of
classification as held for sale (subject to limited exceptions)
-- the asset is being actively marketed for sale at a sales
price reasonable in relation to its fair value
-- actions required to complete the plan indicate that it is
unlikely that plan will be significantly changed or withdrawn
Provisions - Dilapidations
An amount is provided to cover the future cost of removing
leasehold improvements and restoring the Group's leased offices to
their previous condition. Per IAS16.16, if an entity installs
leasehold improvements that it is later obligated to remove, the
obligating event is the installation of the leasehold improvements,
and therefore the debit side of this provision is recorded as part
of the leasehold improvements in the property, plant and equipment
note.
Leases
With effect from 1 April 2019 the Group has adopted IFRS 16,
Leases which supersedes IAS 17: Leases, IFRIC 4: Determining
Whether an Arrangement Contains a Lease, SIC 15: Operating Leases -
Incentives and SIC 27: Evaluating the Substance of Transactions in
the Legal Form of a Lease. The standard sets out the principles for
the recognition, measurement, presentation and disclosure of leases
and requires lessees to recognise most leases on the statement of
financial position.
The Group has applied a modified retrospective approach when
transitioning to the new standard. Under this approach, the
standard is applied retrospectively and the cumulative effect of
initial application of the standard is recognised at the date of
adoption, and no restatements have been made in respect of prior
periods, as the modified retrospective method eliminates the need
to restate comparative information on transition.
Policy applicable before 1 April 2019
Operating lease rentals are charged to the statement of profit
or loss on a straight-line basis over the period of the lease.
Policy applicable from 1 April 2019
At inception of a contract the Group assesses whether a contract
is, or contains, a lease. A contract is, or contains a lease if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. This
policy is applied to contracts entered into, or modified on or
after 1 April 2019.
At inception or on reassessment of a contract that contains a
lease component, the Group allocates the consideration in the
contact to each lease component on the basis of their relative
standalone price. However, for leases of land and buildings in
which it is a lessee, the Group has elected not to segregate
non-lease components and account for the lease and non-lease
components as a single lease component.
Definition of a lease
Previously the Group determined at inception whether an
arrangement is, or contains a lease under IFRIC 4. Under IFRS16,
the Group assesses whether a contract is or contains a lease based
on the definition of a lease.
On transition, the Group performed a review of all major
contracts to determine whether any contracts not defined as a lease
under IAS17 and IFRIC 4, should be reassessed as a lease under
IFRS16. After a comprehensive contract review the Group determined
that there were no contracts not defined as a lease under IAS17 and
IFRIC 4 that should be redefined as a lease under IFRS16.
As a lessee
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred significantly all of the risks and rewards incidental
to ownership of the underlying asset to the Group.
Under IFRS 16 the Group recognises a right-of-use-asset (ROUA)
and a lease liability (LL) at the lease commencement date. The
right-of-use-asset is initially measured at cost, which
comprises:
-- The amount of the initial measurement of the LL;
-- Any lease payments made at or before the commencement date, less any lease incentives;
-- Any initial direct cost incurred by the lessee;
-- An estimate of costs to be incurred by the lessee in
restoring the site on which the assets are located.
The right-of-use-asset is subsequently depreciated using the
straight-line method from the commencement date to the end of the
lease term. In addition, the right-of-use-asset is periodically
tested for impairment (see 'Impairment of property, plant and
equipment and intangibles' accounting policy) , and adjusted for
certain remeasurements of the lease liability.
At transition, right-of-use-assets were measured at an amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
Lease payments included in the measurement of the lease
liability comprise the following:
-- fixed payments including in substance fixed payments, less any lease incentives receivable;
-- variable lease payments that depend on an index or rate,
initially measured using the index or rate as at the commencement
date;
-- amounts expected to be payable under a residual value guarantee; and
-- the exercise price under a purchase option that the Group is
reasonably certain to exercise an option, and penalties for early
termination unless the Group is reasonably certain not to terminate
early.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change of index or rate, if
there is a change in future lease payments arising from a change in
the Group's estimate of the amount payable under a residual value
guarantee, if there is a change in lease term, or if the Group
changes its assessment of whether it will exercise a purchase
extension or termination option.
At transition, lease liabilities were measured at the present
value of the remaining lease payments, discounted at the Group's
incremental borrowing rate as at 1 April 2019.
Practical expedients taken
The Group used the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
IAS 17.
-- Applied a single discount rate for a portfolio of leases with
reasonably similar characteristics.
-- Relied on its assessment of whether leases are onerous
immediately before the date of initial application
-- Applied the short-term leases exemptions to leases with a
lease term that ends within 12 months of the date of initial
application.
-- Excluded initial direct costs from measuring the
right-of-use-assets and liabilities at the date of initial
application.
-- Used hindsight in determining the lease term where the
contract contained options to extend or terminate the lease.
Short term leases and leases of low value assets
The Group has elected not to recognise right-of-use-assets and
lease liabilities for short term leases of plant & machinery
that have a lease term of 12 months or less and leases of low value
assets of less than GBP5,000 (being mainly storage space). The
Group recognises the lease payments associated with these leases as
an expense on a straight-line basis over the lease term.
Under IAS 17
In the comparative period, as a lessee the leases were operating
leases and were not recognised in the Group's statement of
financial position. Payments made under operating leases were
recognised on a straight-line basis over the term of the lease.
Lease incentives received were recognised as an integral part of
the lease expense, over the term of the lease.
As a lessor
When the Group acts as a lessor, it determines at lease
inception whether each lease is a finance lease or an operating
lease.
To classify each lease, the Group makes an overall assessment of
whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is
the case, then the lease is a finance lease; if not then it is an
operating lease. As part of this assessment, the Group considers
certain indicators such as whether the lease is for the major part
of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its
interest in the head lease and sub-lease separately. It assesses
the lease classification of the sub-lease with reference to the
right-of-use-asset arising from the head lease, not with reference
to the underlying asset. If a head lease is a short-term lease to
which the Group applies the exemption described above, then it
classifies the sub-lease as an operating lease.
If an arrangement contains a lease and a non-lease component,
the Group applies IFRS 15 to allocate the consideration in the
contract.
As at the transition date the Group did not act as a lessor. In
November 2019 the Group sub-let a portion of an office building
that it occupied under a lease commenced in February 2018. Under
IFRS 16, the Group is required to assess the classification of the
sub-lease with reference to the right-of-use-asset and not the
underlying asset.
The Group applied IFRS 15 Revenue from Contracts with Customers
to allocate consideration in the contract to each lease and
non-lease component.
Impact on Financial Statements
On transition to IFRS 16, the Group recognised and presented
separately on the balance sheet GBP125k of right-of-use-assets and
GBP125k lease liabilities. The modified retrospective method
applied by the Group eliminated the need to restate this
comparative information upon transition.
When measuring lease liabilities, the Group discounted lease
payments using its incremental borrowing rate at 1 April 2019. The
weighted average applied rate is 5.25 per cent. The Incremental
Borrowing Rate was calculated based upon an indicative borrowing
rate from our bankers. In arriving at the rate charged due account
was taken of the Group's current lack of borrowing, and the fact
that the vast majority of the assets under lease were property.
Reconciliation of Prior Year Operating Lease Commitments to
Lease Liabilities
Description Land and Buildings Plant & Equipment Total
GBP'000 GBP'000 GBP'000
------------------- ------------------ --------
Operating Lease commitments
at 31 March 2019 as disclosed
in the Group's Consolidated
financial statements 127 119 246
------------------- ------------------ --------
Discount using the incremental
borrowing rate as at 31 March
2019 (6) (3) (9)
------------------- ------------------ --------
Discounted using the incremental
borrowing rate as at 31 March
2019 121 116 237
------------------- ------------------ --------
Lease payments made pre March
2019 relating to post March
2019 Period (4) - (4)
------------------- ------------------ --------
Commitments disclosed as
at 31 March 2019 for which
underlying assets and leases
became active during year
ended 31 March 2020, so included
within additions in the year - (94) (94)
------------------- ------------------ --------
Maintenance Costs in Lease
commitments (6) (6)
------------------- ------------------ --------
Short term leases (8) (8)
------------------- ------------------ --------
Lease Liabilities recognised
as at 1 April 2019 117 8 125
------------------- ------------------ --------
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:
2020 2019
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
Billings 419,857 426,901
Multi-retailer redemption products - gross
to net revenue recognition (306,574) (315,305)
Timing of revenue recognition (559) (1,202)
-------------------------------------------- ---------- ----------
Revenue 112,724 110,394
-------------------------------------------- ---------- ----------
(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.
Land and buildings
An assessment was made whether the property asset at Valley Road
was an asset held for sale at 30 September 2019. As the sale of the
property was considered to be highly probable within 12 months, the
property was classified as an asset held for sale. At 31 March
2020, a reassessment of this position took place and all of the
criterial were met for the property to continue to be classed as an
asset held for sale. This assessment included an exception to the
one-year rule being taken under IFRS 5.9, as the COVID-19 pandemic
had delayed the sale of the asset.
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 one lease contract that includes extension and
termination options. This is the new lease of floor 3 and 4, 20
Chapel Street Liverpool. The Group included the renewal period as
part of the lease term, as in the year the Group has relocated the
majority of its operations to the newly leased site in Liverpool
City Centre. As a result of this, the lease extension is reasonably
certain to be exercised.
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 updated base case scenario, card and vouchers redemptions
are assumed to decrease against the prior year redemptions for the
same period by 50 per cent in Q1, 30 per cent in Q2, and then catch
up to cumulative normal levels in Q3 and Q4, making up the Q1 and
Q2 shortfall.
Post year end redemptions for the first quarter of the financial
year ended 31 March 2021 have been lower than the 50 per cent
decrease on prior year levels forecasted by the Group. The actual
decrease in voucher redemptions was 80 per cent, and the actual
decrease in card redemptions was 62 per cent, when compared to the
corresponding quarter in the prior year. However, as redemptions
are continuing to increase, and given that the base case scenario
assumes a catch up by the end of the financial year, 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), 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 0.1 per
cent, the impact on revenue for the reporting period would be
GBP0.2m. 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
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.
Assets held for sale - Value of Valley Road site
A valuation was carried out as at 31 March 2020 in order to
determine the fair value less costs to sell of the Valley Road
site. This valuation was carried out on a vacant possession basis.
This valuation resulted in the value of the asset being written
down to GBP3,153k. Any differences to this estimate may necessitate
a material adjustment to the value of the assets held for sale in
the statement of financial position.
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
At each reporting date the Group reviews the carrying value of
its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss.
The assessment of costs capitalised as intangible assets to
generate future economic benefits: Judgement is applied in
assessing whether costs incurred, both internal and external, will
generate future economic benefits. 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.
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. This rate was determined to be 5.25 per cent.
(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, offering
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.
The amount included within the elimination column reflects
products sold by the corporate segment to the consumer segment.
They have been included in elimination so as to show the total
revenue for both segments.
Finance income, finance costs and taxation are not allocated to
individual segments as they are managed on a Group basis.
All other
Consumer Corporate segments Elimination Group
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Billings
External billings 222,207 197,650 - - 419,857
Inter-segment billings - 171,933 - (171,933) -
----------- ------------ ---------- -------------- --------
Total billings 222,207 369,583 - (171,933) 419,857
----------- ------------ ---------- -------------- --------
Revenue
External revenue 62,447 50,277 - - 112,724
Inter-segment revenue - 22,797 - (22,797) -
----------- ------------ ---------- -------------- --------
Total revenue 62,447 73,074 - (22,797) 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 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
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.
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. Since
the last reporting period the Group no longer segments the
Statement of Financial Position due to rationalisation of
accounting processes.
All other
Consumer Corporate segments Elimination Group
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Billings
External billings 232,096 194,805 - - 426,901
Inter-segment billings - 134,714 - (134,714) -
----------- ------------ ---------- -------------- --------
Total billings 232,096 329,519 - (134,714) 426,901
----------- ------------ ---------- -------------- --------
Revenue
External revenue 58,886 51,508 - - 110,394
Inter-segment revenue - 38,204 - (38,204) -
----------- ------------ ---------- -------------- --------
Total revenue 58,886 89,712 - (38,204) 110,394
----------- ------------ ---------- -------------- --------
Results
Segment operating profit/(loss) 6,809 7,789 (4,866) 9,732
----------- ------------ ---------- -------------- --------
Finance income 1,572
Finance costs -
--------
Profit before taxation 11,304
Taxation (2,422)
--------
Profit 8,882
--------
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
Impairment of Valley Road
site - - 1,210 1,210
------------ ------------- ---------- --------
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 30,487 25,137 55,624
Other goods 7,431 80 7,511
Services - Multi-retailer
redemption products 19,062 22,049 41,111
Other services 1,892 4,227 6,119
Other 14 15 29
----------- ------------ ---------
58,886 51,508 110,394
----------- ------------ ---------
The majority of revenue from contracts with customers is
recognised at a point in time.
(7) Taxation 2020 2019
GBP'000 GBP'000
Charge for the year - current
and deferred 2,189 2,422
--------- ---------
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 GBP5,511,000 (2019:
GBP8,882,000) and on the weighted average number of shares,
calculated as follows:
2020 2019
Basic EPS - weighted average number
of shares 186,347,228 185,964,433
Diluting effect of employee share
options - 112,540
------------ ------------
Diluted EPS - weighted average number
of shares 186,347,228 186,076,973
------------ ------------
650,337 shares have been considered anti-dilutive during the
year, that could potentially dilute basic EPS in the future.
(9) Goodwill
GBP'000
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
--------
Cost - Actual or deemed
At 31 March 2018 and 2019 5,048
--------
Impairment
At 1 April 2018 2,863
Impairment in year 17
--------
At 31 March 2019 2,880
--------
Net book amount
At 31 March 2019 2,168
--------
At 31 March 2018 2,185
--------
Goodwill Goodwill
at Additions Impairment at
1 April 2019 31 March
2020
CGUs GBP'000 GBP'000 GBP'000 GBP'000
Consumer 1,286 - (486) 800
Corporate 882 - (882) -
Net book amount 2,168 - (1,368) 800
The Group tests annually for impairment of goodwill. The
recoverable amounts of CGUs are determined using value in use
calculations, which are considered higher than the fair value less
costs to sell.
Consumer - Family (GBP739,000) & Country Hampers Franchisee
(GBP61,000)
The key data and assumptions in the value in use calculations
were as follows:
-- The final order position for the previous Christmas.
-- The base case scenario 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 12 per
cent fall in retention has been factored into the forecast for the
year ended 31 March 2021 to reflect the current trading environment
(an 11 per cent fall in retention per year is typically used, which
has been increased to 23 per cent for the year ended 31 March
2021).
-- 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
(2019: nil).
The resulting cash flows were discounted using a weighted
pre-tax discount rate of 16.54 per cent (2019: 6.25 per cent).
The impairment in the year of GBP434,000 (2019: nil) against the
Family Franchisee goodwill represents the impact of excluding
hamper contribution from the value in use calculations combined
with a higher pre-tax discount rate. This is included within
exceptional costs in the Consumer segment.
A sensitivity analysis was performed where changes in key
assumptions were tested, those being changes in pre-tax discount
rate and retention of agents.
An increase in pre-tax discount rate of 1 per cent would lead to
further impairment of an additional GBP23,000.
A decrease in retentions of 1 per cent (to 78 per cent for the
year ended 31 March 2021 and 88 per cent per year after this) would
lead to further impairment of an additional GBP32,000.
The impairment in the year of GBP52,000 (2019: GBP17,000)
against the Country Hampers Franchisee goodwill represents the
reduction in agents that were originally acquired from Country
Hampers. This is included within administrative expenses.
Corporate - Fisher Moy International (GBPnil)
The key assumptions in the value in use calculations were as
follows:
-- Forecast revenue. This is based on the current order book,
average customer retention and expected new business, which has
been extrapolated forward 10 years. This has been sensitised to
consider the worst case scenario impact of COVID-19. No revenue
growth has been factored into the calculation.
-- Forecast gross margins. These are based on forecasts of
profit resulting from the forecast revenue, which have been
sensitised to consider the worst case scenario impact of the
COVID-19 pandemic on the business for the coming year. These
margins have then been forecast to be maintained going forward.
The resulting cash flows were discounted using a pre-tax
discount rate of 16.54 per cent (2019: 6.25 per cent).
Management have carefully considered the base case forecast, the
worst case sensitivities, the customer base (which consists of one
dominant customer) and the entity specific circumstances relating
to its industry.
In light of these considerations, there has been an impairment
in the year of GBP882,000, which reduces the Corporate Goodwill to
a value of GBPnil (2019: GBP882,000). This is recognised as an
exceptional item in the year ended 31 March 2020.
(10) Property, plant and equipment
Land and Leasehold Fixtures
buildings improvements and equipment Vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost of valuation
At 1 April 2019 15,636 - 3,996 20 19,652
Additions at cost - 1,649 279 - 1,928
Transfer to Assets held
for sale (14,531) - - - (14,531)
Disposals - - (33) - (33)
----------- -------------- --------------- ----------- ---------
At 31 March 2020 1,105 1,649 4,242 20 7,016
----------- -------------- --------------- ----------- ---------
Accumulated depreciation
At 1 April 2019 10,620 - 2,799 17 13,436
Charge in year 50 57 403 1 511
Impairment 163 - - - 163
Transfer to Assets held
for sale (9,728) - - - (9,728)
Disposals - - (28) - (28)
----------- -------------- --------------- ----------- ---------
At 31 March 2020 1,105 57 3,174 18 4,354
----------- -------------- --------------- ----------- ---------
Net book amount
At 31 March 2020 - 1,592 1,068 2 2,662
----------- -------------- --------------- ----------- ---------
At 31 March 2019 5,016 - 1,197 3 6,216
----------- -------------- --------------- ----------- ---------
Cost of valuation
At 1 April 2018 15,636 - 8,261 20 23,917
Additions at cost - - 371 - 371
Disposals - - (4,636) - (4,636)
----------- -------------- --------------- ----------- ---------
At 31 March 2019 15,636 - 3,996 20 19,652
----------- -------------- --------------- ----------- ---------
Accumulated depreciation
At 1 April 2018 9,176 - 7,041 16 16,233
Charge in year 234 - 394 1 629
Impairment 1,210 - - - 1,210
Disposals - - (4,636) - (4,636)
----------- -------------- --------------- ----------- ---------
At 31 March 2019 10,620 - 2,799 17 13,436
----------- -------------- --------------- ----------- ---------
Net book amount
At 31 March 2019 5,016 - 1,197 3 6,216
----------- -------------- --------------- ----------- ---------
At 31 March 2018 6,460 - 1,220 4 7,684
----------- -------------- --------------- ----------- ---------
At 30 September 2019, an assessment was made as to whether the
Valley Road property was an Asset held for sale. All of the
criteria were met, and the property was transferred from Property,
plant and equipment to Assets held for sale (see note 12). Prior to
the transfer to Assets held for sale the property was impaired by
GBP163,000.
During the year, the Group relocated its head office to
Liverpool city centre. There were several additions to Property,
plant and equipment which relate to fit-out costs and equipment
purchased for the new office. These have been classed as leasehold
improvements.
(11) Inventories
2020 2019
GBP'000 GBP'000
Raw materials 35 252
Finished goods 2,805 4,322
-------- --------
2,840 4,574
-------- --------
The cost of inventories recognised as an expense in the year is
GBP55,103,000 (2019: GBP52,435,000).
The write down of inventories recognised as an expense in the
period is GBP184,000 (2019: GBP49,000).
Following the announcement in August 2020 that the Group would
be consulting on the closure of the packing operations, including
hamper packing, the Group impaired raw materials and finished goods
stock held at 31 March 2020 by GBP124,000, which is included within
the GBP184,000 as detailed above.
(12) Assets held for sale
2020 2019
GBP'000 GBP'000
Transfer from property, plant and equipment 4,803 -
Impairment (1,650) -
-------- --------
3,153 -
-------- --------
An assessment was carried out at 30 September 2019 as to whether
the Valley Road property was an Asset held for sale. All of the
criteria were met, and since that time the property has been
classed as such. Depreciation was stopped at this point and the
property was held at fair value. As at 31 March 2020 a reassessment
of this position took place and all of the criteria were met for
the property to continue to be classed as an Asset held for sale.
This assessment included an exception to the one-year rule being
taken under IFRS 5.9, as the Covid-19 pandemic had delayed the sale
of the asset, meaning that the sale may not occur within the
original 12-month period. This exception was allowable as the Group
has taken the necessary actions to respond to this change in
circumstance and the asset remains available for immediate
sale.
A valuation was carried out as at 31 March 2020 in order to
determine the fair value less costs to sell of the asset. This
resulted in an impairment of GBP1,650,000. This impairment was in
addition to an impairment of GBP163,000 made prior to the transfer
of the property to Assets held for sale, taking the total
impairment in the year to GBP1,813,000.
(13) Leases
Group as a lessee
The Group leases many assets including land and buildings and
plant and machinery. Information about leases for which the Group
is a lessee is presented below.
Right of Use Assets
Land and Plant
buildings and equipment Total
GBP'000 GBP'000 GBP'000
Cost or valuation
At 1 April 2019 117 8 125
Additions 3,904 67 3,971
Disposals (18) - (18)
----------- --------------- --------
At 31 March 2020 4,003 75 4,078
----------- --------------- --------
Accumulated depreciation
At 1 April 2019 - - -
Charge in year 268 17 285
Disposals (6) - (6)
----------- --------------- --------
At 31 March 2020 262 17 279
----------- --------------- --------
Net book amount
At 31 March 2020 3,741 58 3,799
----------- --------------- --------
The increase in land and buildings right of use assets (ROUAs)
in the period is the result of the new lease of floors 3 and 4, 20
Chapel Street Liverpool. The increase in plant and equipment ROUAs
in the period is the result of the leasing of forklift trucks for
our Valley Road warehouse facilities.
There are no securities held or financial covenants required to
be maintained in respect of these leases.
There is a dilapidation provision of GBP50,000 related to the
Chapel Street lease. The debit is held within leasehold
improvements in Property, plant and equipment (note 10), and the
credit with Trade and other payables.
Lease liabilities
Land and Plant
buildings and equipment Total
GBP'000 GBP'000 GBP'000
At 1 April 2019 117 8 125
New leases 4,063 67 4,130
Interest expense 174 3 177
Lease payments (61) (20) (81)
----------- --------------- --------
At 31 March 2020 4,293 58 4,351
----------- --------------- --------
The cost relating to variable lease payments that do not depend
on an index or a rate amounted to GBPnil in the period.
There were no leases with residual value guarantees or leases
not yet commended to which the Group is committed.
Maturity Analysis - contractual undiscounted cash flows
GBP'000
Less than one year 219
One to five years 1,662
More than five years 4,555
Undiscounted lease liabilities at 31 March
2020 6,436
--------
Lease liabilities included in the statement of financial
position
GBP'000
Current 219
Non-current 4,132
Discounted lease liabilities at 31 March
2020 4,351
--------
Amounts recognised in the statement of profit or loss
GBP'000
Interest on lease liabilities 177
Expense relating to short-term leases (included within
administrative expenses) 10
Expense relating to leases of low value assets excluding
short term leases (included within administrative expenses) 1
Variable lease payments not included in the measurement -
of lease liabilities
Gain arising from subletting Right of
Use Assets (1)
Total amount recognised in the statement of profit or
loss for the year ended 31 March 2020 187
--------
Amounts recognised in the statement of cash flows
GBP'000
Total Cash Outflows for leases for the
year ended 31 March 2020 81
--------
i. Real estate leases
The Group leases land and buildings for its head office and
regional offices. The lease for the Group's head office runs for 10
years, and regional offices for between 3 to 10 years. The head
office lease includes an option to renew the lease for a period of
up to 5 years at the end of the contract term.
Extension options
The 10 year head office lease contains an extension option of 5
years. Where practicable, the Group seeks to include extension
options in new leases to provide operational flexibility. The
extension options held are exercisable only by the Group and not by
the lessors. The Group assesses at lease commencement whether it is
reasonably certain to exercise the extension options. The Group
reassesses whether it is reasonably certain to exercise the option
if there is a significant event or significant change in the
circumstances within its control. The head office has been
accounted for on the basis that the extension option will be taken
and is therefore accounted for on a 15 year basis. There are no
other extension options, and there are no termination options
expected to be exercised.
ii. Other leases
The Group adopted IFRS16 on 1st April 2019. At that date the
Group were leasing plant and machinery within leases that had less
than 6 months left to run. These leases are short term. The Group
elected not to recognise right-of-use-assets and lease liabilities
for these leases.
The Group also leases storage space for sales displays. The
value of this lease is less than one thousand pound per year. These
leases are of low value under IFRS16 definition. The Group elected
not to recognise right-of-use-assets and lease liabilities for
these leases.
Group as a lessor
Lease Income from lease contracts in which the Group acts as a
lessor is as below.
i. Operating Lease
The Group sub-leases part of an office building in Oxford that
it leased in February 2018. As at the 1 April 2019 the Group had
sublet a portion of this office space. The Group had previously
classified this lease income as operating lease income, because the
lease does not transfer substantially all the risks and rewards
incidental to the ownership of the assets. Due to the fact that at
1 April 2019 the lease had only 3 months left the income was
treated in the accounts as operating lease income. This was
accounted for within other income.
Land and Plant
buildings and equipment Total
GBP'000 GBP'000 GBP'000
Operating lease income year ended 31 March
2020 2 - 2
----------- --------------- --------
ii. Finance Lease
In November 2019 the Group sublet a further portion of its
Oxford office building. The Group has classified the sub-lease as a
finance lease, because the sub-lease is for the whole remaining
term of the head lease, which ends 31 January 2021. The GBP18,000
disposal of ROUA and GBP6,000 disposal of accumulated depreciation
in the ROUA table in this note reflect the derecognition of the
sub-leased portion of the office.
Land and Plant
buildings and equipment Total
GBP'000 GBP'000 GBP'000
Finance lease income year ended 31 March - - -
2020
----------- --------------- --------
The following table sets out a maturity analysis of lease
receivables, showing the undiscounted lease payments to be received
after the reporting date.
Finance Leases maturity analysis - contractual undiscounted
cashflows
GBP'000
Less than one year 9
One to five years -
Total undiscounted lease payments receivable
as at 31 March 2020 9
--------
Unearned finance income -
Net investment in the lease as at 31 March
2020 9
These are included within other receivables.
(14) Employees and directors
During the year there were redundancy costs of GBP423,000 which
relate to a one-off redundancy exercise. The driving force behind
this exercise was the shift in the business strategy towards
digital products.
(15) Dividends
Amounts recognised as distributed to equity holders in the
year:
2020 2019
GBP'000 GBP'000
Interim dividend for the year ended 31 March 2019
of 1.05p (31 March 2018 : 1.00p) 1,957 1,855
Final dividend for the year ended 31 March 2019
of 2.15p (31 March 2018 : 2.05p) 4,006 3,813
-------- --------
5,963 5,668
-------- --------
Due to the outbreak of the Covid-19 pandemic, the Group decided
it was prudent not to pay the interim dividend of 1.05p per share
in respect of the financial year ended 31 March 2020 which was due
to be paid on 6 April 2020. The Group have now been able to further
assess forecast scenarios, current trading, trends since year end
and reverse stress tests. Given the UK trading conditions continue
to be uncertain, the Board do not consider it prudent to recommend
a dividend for this financial year.
(16) Reconciliation of profit for the year to net cash inflow from operating activities
2020 2019
GBP'000 GBP'000
Profit for the year 5,511 8,882
Adjustments for:
Tax 2,189 2,422
Interest income (1,481) (1,572)
Interest expense 177 -
Research and development tax credit - (54)
Depreciation and amortisation 1,659 1,394
Impairment of property, plant and
equipment/assets held for sale 1,813 1,210
-------- ---------
Impairment of other intangibles 21 -
-------- ---------
Impairment of goodwill 1,368 17
-------- ---------
Loss on sale of property, plant
and equipment 4 -
Decrease in other financial assets 200 -
Decrease/(increase) in inventories 1,734 (766)
Decrease/(increase) in trade and
other receivables 2,968 (1,589)
Decrease in trade and other payables (1,578) (877)
(Decrease)/increase in provisions (4,484) 10,274
Increase in monies held in trust (3,442) (12,259)
Movement in retirement benefit
obligation (44) (215)
Translation adjustment 18 (3)
Taxes paid on share-based payments - (116)
Share-based payments 233 126
-------- ---------
Net cash inflow from operating
activities 6,866 6,874
-------- ---------
(17) Subsequent events
Sale of Valley Road Birkenhead
In December 2018 the Group announced a new strategy that
included relocating the head office from Birkenhead to Liverpool
city centre to an office environment that allowed for more
collaborative working and was better positioned to improve
retention of staff and recruitment of new talent. In September 2019
the business successfully relocated the majority of staff to
Liverpool with some operational departments remaining in
Birkenhead. At this point, the net asset value of the property
situated in Birkenhead was transferred from property, plant and
equipment to assets held for sale on the Group balance sheet. This
property was owned by Budworth Properties Limited, a Group
subsidiary. On 10 August 2020 Budworth Properties Limited was sold
to HP (Valley Road) Limited for GBP3.2m and as part of the
transaction the Group has leased back space for the small number of
remaining operational staff. The balance sheet reflects the
expected disposal of this asset, which is classified as an asset
held for sale, following the previously announced impairment charge
to the statement of profit or loss of GBP1.8m. The value of the
disposal supports the recognised carrying value as at 31 March
2020, meaning no further impairment charge is necessary.
Proposed closure of packing operations
In July 2020, the Group announced to customers that it would not
be supplying hampers and merchandise for 2020 due to health and
safety concerns relating to the ability to pack these products
within social distancing rules and the risk of receiving components
due to shortages in stock or distribution problems following the
impact of Covid-19. In August 2020 the Group announced to staff
that it was commencing a period of consultation about the proposed
closure of our packing business including hamper packing, third
party packing and provision of storage. If this decision is
confirmed, following a period of consultation with staff, it is
expected that operation of the packing business will cease by the
end of 2020. As the company owning the land and buildings at Valley
Road where the hamper packing business is based has been sold and a
short term lease has been taken to allow the wind down of the
business, no charge is expected in the financial statements for
2020/21. Following consultation with staff, if no suitable
alternative employment can be found, any redundancy costs will be
charged to the statement of profit or loss and treated as
exceptional costs. The net cost of this, excluding any customer
cancellations or margin erosion from switching to alternative
products, is expected to be approximately GBP0.3m. Within the
financials statements for the year ended 31 March 2020 we have
already recognised a charge of GBP0.1m to write down the associated
stock products held at year end to their net realisable value. This
charge has been recognised as an exceptional charge in the period
(see note 11). There are no other expected costs relating to this
decision.
Bank financing
We have completed a bank financing exercise, securing a 5 year
revolving credit facility (RCF) with Santander of GBP15m plus an
additional uncommitted accordion of GBP10m. This facility will
provide the additional financial flexibility to protect against
downside risk in the short term; whilst enabling longer term
growth, as well as investing in the continued switch to digital
products. The RCF has 3 covenant requirements, as detailed within
the going concern statement.
Government support
Since 31 March the Group has taken advantage of both the
Government's Job Retention Scheme and deferral of VAT payments.
(18) 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.
(19) The financial information set out above does not constitute
the Group's statutory accounts for the years ended 31 March 2020 or
2019 but is derived from those accounts.
Statutory accounts for 2019 have been delivered to the registrar
of companies. The auditor, Ernst & Young LLP, has reported on
the 2019 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 2020 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 7
September 2020 and will be available from that date on the Group's
website: www.appreciategroup.co.uk.
-ends
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GZGMRKZVGGZG
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