14 Jun 2016 07:00
NEWS RELEASE
PARK GROUP PLC
("Park", "Park Group" or "the Company")
14 June 2016
Preliminary Results for the Year Ended 31 March 2016
Summary
Park Group plc is the UK's leading multi-redemption voucher and prepaid card business focussed on the corporate and consumer markets. Sales are generated through our direct sales force, e-commerce and agents.
Financial highlights
• | Operating profit increased by 7.3 per cent to £10.4m (2015 - £9.7m)
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• | Profit before tax increased 8.5 per cent to £11.9m (2015 - £10.9m)
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• | Billings increased 3.3 per cent to £385.0m (2015 - £372.9m)
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• | Earnings per share increased 13.3 per cent to 5.28p
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• | Proposed raising of final dividend by 18.8 per cent to 1.90p per share (2015 - 1.60p), making a total dividend for the year of 2.75p per share (2015 - 2.40p per share)
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• | Total cash balances peaked at £206m (2015 - £189m). Year end cash balance was £28.8m (2015 - £23.2m) with a further £75.2m (2015 - £65.7m) of monies held in trust
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Operational highlights
• | Maintained the growth of the strong first half, delivering another impressive trading performance
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• | Corporate business made sound progress, increasing billings by approximately £14m to £170m, excluding sales to the consumer credit sector
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• | Consumer business delivered another year of growth, with billings increasing 7.5 per cent to £212m; the order book for Christmas 2016 is ahead of last year
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• | Ongoing investment and development in e-commerce - the majority of orders are now received via a smartphone or tablet
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• | Relationship with MasterCard, initiated last year, has made excellent progress, as has our innovative 'Combi' offering to the consumer market
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• | Everyday Benefits, our employee voluntary benefit product, achieved another strong performance, with billings up more than 36 per cent compared with the previous year
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• | Love2shop Business Services and Love2shop Holidays divisions both won industry awards, recognising excellence and creativity
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Laura Carstensen, Chairman, commented: "Early indications for the current year are encouraging. Park's financial position remains solid, with cash balances well ahead of the equivalent period last year. We have a consistent and sustainable strategy executed by experienced, highly capable management and a sound business that meets our customers' needs.
"We look forward with confidence and remain focussed on delivering yet another year of progress."
Chris Houghton, Chief Executive Officer, added: "We continue to see the benefits of investment in our systems and products, while our customers on both the consumer and corporate sides of our business show a sustained and growing enthusiasm for our broad range of products and programmes.
"Park has evolved significantly since its beginnings. We are now utilising all available technologies in our business, enabling us to make rapid progress in our specialist markets. We have developed the capability to anticipate and dynamically respond to a rapidly changing market place. This will drive future growth as we continue to move forward."
Park Group plc | Arden Partners plc | Tavistock Communications |
Chris Houghton Martin Stewart |
Steve Douglas Benjamin Cryer |
Jeremy Carey Andrew Dunn |
Tel: 0151 653 1700 |
Tel: 020 7614 5920 |
Tel: 020 7920 3150 |
Chairman's Statement
In my first statement as Chairman, I am pleased to report that Park has maintained its growth record and delivered another impressive trading performance for the year to 31 March 2016.
Our business
Park is a strong, long established and forward-looking business with leading market positions.
The rapid and relatively recent advances in information technology (IT) and mobile smart devices have changed the way customers want to interact with us and use our products. We are committed to keeping ahead of these trends. During the previous few years, our leadership team has revolutionised the business and the services we provide, to maximise the benefits we bring to our customers and the returns to our shareholders.
The Group's principal operations continue to focus on consumer prepayments and corporate reward and incentive programmes. In these areas, year-upon-year, Park has achieved a very successful trading record by consistently applying its strategy and utilising technological change to become a substantial e-commerce and financial services business.
Financial performance
Profit before taxation for the year to 31 March 2016 advanced by 8.5 per cent to £11.9m (2015 - £10.9m) while operating profit increased to £10.4m (2015 - £9.7m). Finance income was higher at £1.5m (2015 - £1.2m); cash balances continue to increase and this has enabled the Company to place funds for longer maturity to deliver better returns. The advance in cash balances to £104m at the year end (2015 - £89m) provides more than sufficient liquidity for planned increases in investment. In addition it has provided us with sufficient working capital to support the rapid growth of the e-money business through the sale of prepaid cards, which are required to be cash-backed. Money market interest rates remain low and although higher returns may be available from certain products, investing in them would be incompatible with the Company's prudent approach to cash management, driven by our core commitment to consumer protection.
Total billings rose by 3.3 per cent to £385.0m (2015 - £372.9m) while revenue increased to £302.5m (2015 - £293.3m). As highlighted in previous reports, we consider billings to be a more appropriate measure of the performance of the Company than revenue.
Dividend
The board is recommending raising the final dividend by 18.8 per cent to 1.90p per share (2015 - 1.60p) making a total dividend for the year of 2.75p per share (2015 - 2.40p). This uplift reflects the growth of the Company's cash resources and the robust trading performance. Shareholder approval will be sought at the Annual General Meeting (AGM) to be held on 22 September 2016 to pay the final dividend on 3 October 2016 to shareholders on the register on 26 August 2016.
Operating performance
Both our corporate and consumer divisions made further good progress during the year against the backdrop of a broadly stable economic environment in the UK.
The corporate business provides innovative, cost-effective, tailored products to around 28,000 organisations, which use Park's products to incentivise employee performance or reward the loyalty of their customers.
Park delivered significant increases in billings in most areas within the corporate business, but overall could not fully offset the significant reduction in demand from the consumer credit sector, which had previously been an important driver of demand for these products. Billings to the consumer credit sector were £3.9m, compared with £20.4m in the previous year. Although our involvement with this sector has reduced significantly over recent years, it remains a market in which we have strong capabilities that remain attractive to customers.
The consumer business continued to grow strongly with billings and profit well ahead of the previous year. The business supplies traditional prepayment products that enable customers to prepare for the festive season in a safe and controlled way, yet the products provided and the manner in which it serves its customers are constantly evolving as technology progresses.
Over 429,000 customers currently enjoy the Company's consumer budgeting schemes. Park constantly seeks to enhance existing products and where necessary, develop new ones to serve its customers' needs. Recently introduced products which proved particularly popular during the year are: 'Combi', a card combination that gives customers access to major retailers such as Asda and Primark, that otherwise would not have been available to them; and, our 'Anywhere' card. 'Anywhere' is a prepayment card which can be used at outlets, whether traditional retail or online, that accept MasterCard, not just retail groups previously linked to our Love2shop brand.
Retirement of our founding Chairman
Peter Johnson founded the business in 1966 and led it through four decades, until the appointment of Chris Houghton as Group Managing Director in 2004. Chris, who became Chief Executive Officer of Park in 2012, and his team have maintained Peter's entrepreneurial spirit, transforming the business to create a modern and specialist company, using the latest in technology to respond quickly to the changing needs and preferences of our customers.
Following his long and successful career, Peter retired as Non-Executive Chairman of Park on 3 June 2016. I am delighted to have been appointed as his successor, having worked with him in my capacity as a non-executive director since I joined the board in September 2013. Over recent years, his experience and encouragement have been of great benefit to our progress.
Everyone associated with Park is grateful to Peter for his hard work and vision and we wish him a long, healthy and enjoyable retirement.
People
Our success is delivered by the talent and commitment of our people and we are committed to ensuring that Park remains a great place to work. Park's employees are motivated by a desire to be the best in their field by delivering excellence to customers and consequently, value to our shareholders. I would like to thank everyone at Park for their enthusiasm and dedication to our collective achievements and look forward to future successes together.
Outlook
Early indications for the current year are encouraging. The consumer order book continues to grow year-on-year and we anticipate that the success of our corporate business will continue going forward as we develop and launch new products into this market.
Park's financial position remains solid, with cash balances well ahead of the equivalent period last year. We have a consistent and sustainable strategy executed by experienced, highly capable management and a sound business that meets our customers' needs.
We look forward with confidence and remain focussed on delivering yet another year of progress.
Laura Carstensen
Chairman
14 June 2016
Chief Executive's Review
Introduction
The financial year to 31 March 2016, has been another pleasing period of advancement for Park Group. We have built on previous successes and extended our already large customer base through excellent service and product development.
We serve our markets through the provision of a broad range of products including paper vouchers, prepaid cards and e-codes to give customers access to thousands of retail outlets and online across the UK, Ireland and continental Europe.
The majority of our business is in the UK where economic stability and consumer confidence have improved over recent years. This environment, together with our successful management strategy and commitment to our customers, has generated a steady rise in billings, which have increased close to 30 per cent since 2011, while profit before tax and other operating income has advanced almost 70 per cent. This performance reflects the benefits of our investment in IT infrastructure, digital platforms and new product development.
The Company's balance sheet is positive and our cash position remains strong with sufficient funds available to comfortably finance working capital and further investment. Total cash balances at the year end, including monies held in trust, reached £104m (2015 - £89m).
Strategic Overview
Adherence to Park's well-established strategy for growth remains the bedrock of the business and over time, additional strands were introduced to this ethos as the organisation has developed and expanded. In my review last year the key aims of our consistent strategy were defined as:
• | to enhance our retailer proposition; |
• | to grow our multichannel offering; |
• | to expand the customer base; and, |
• | to develop and exploit our infrastructure. |
These core goals remain unchanged and I am pleased to report that the business has made further impressive progress in each area.
The board stays abreast of acquisition opportunities, as they arise. Potential purchases are carefully considered and assessed against our strict market, financial and strategic objectives. Park is well positioned to undertake acquisitions but we will only do so when a good fit has been identified, which can add value to our business and its prospects.
Our evolution
The transformation of Park is highlighted by the change in the business mix over the years and the achievement of developmental milestones:
• | The original Park business was associated mainly with Christmas hampers. Today, this accounts for less than 2 per cent of total revenue;
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• | The introduction, some 30 years ago, of paper vouchers, which could be redeemed at major retailers, was a major innovation and an important step in our transition;
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• | A further significant product and technical development was the introduction, in 2010, of our highly innovative flexecash® prepaid card platform, which connects directly with retailer's tills. This has enabled the Company to enter the regulated prepaid card market, quickly becoming a major presence; and,
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• | The recent establishment of our relationship with MasterCard, has allowed Park to offer broader-use products such as the 'Anywhere' and 'Online' cards.
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Today, Park is a progressive, specialist and successful business, able to anticipate and dynamically respond to a changing market place.
Our prepaid card system, flexecash®, has been extremely successful. It was launched after three years of in-house development and testing and this capability has given Park access to trading areas which previously had been closed to the Company.
Since its launch, flexecash® cards have had over £418m of value loaded, with 66 brands accepting the card through 13,000 UK outlets. The card is available alongside our Love2shop voucher, which is supported by 151 brands at 20,000 outlets.
Our relationship with MasterCard, initiated last year, has signalled further excellent progress, allowing us to offer particularly useful products to our customers such as the 'Anywhere' and 'Online' prepaid cards. The customer pays a small premium for the 'Anywhere' card, however, as the name suggests, the card offers the freedom of choice to spend the embedded value at any outlet that accepts MasterCard, not just those where a relationship with Love2shop exists.
Detailed analysis indicates that approximately half our customer base does not own a credit card, so developments such as the relationship with MasterCard gives them access to many new outlets. Customers of our consumer business contribute weekly to purchase prepaid cards and vouchers in preparation for the festive season. The cards and vouchers are then despatched in October and November, giving customers the additional opportunity to take advantage of any pre-Christmas sales.
The 'Online' card can be spent online with any retailer that accepts the card.
The number of customers using direct debits in the consumer sector continues to increase. This benefits Park as it facilitates customers' annual renewals and is efficient, maintaining the relationship with minimal effort from the customer or intervention by Park. It also delivers the business a reduction in cash collection costs as it carries a lower transaction fee than more traditional methods such as paying at the bank or Post Office.
Digital trends and the internet
The changing and fast developing trends in computer and smart device usage are reflected in the manner in which customers interact with Park. The majority of orders now come via a smartphone or tablet, as the numbers using desktop computers and other, more traditional means, continue to fall. Park's websites and applications (apps) undergo a process of continuous development and improvement and are tailored to be informative and easy-to-use on a range of the latest devices.
Customising sites for ease of use on smartphones and tablets is vital and our websites have been rebuilt to be mobile friendly and responsive. We are giving customers the platforms they want and have now introduced standalone apps for Android and Apple users. These apps give Park a direct relationship with customers and therefore responses can be personalised by harnessing individual preferences.
Social media, particularly Facebook, provides a crucial link with users and also gives the Company an insight into customer opinions and issues. The number of Facebook "likes" is currently 80,000, up from last year's 72,000. Social media is a very effective customer service channel and an early indicator of emerging issues. It often also allows our customers to answer the queries of others, minimising Park's involvement. Social media also plays an important role in helping to increase orders, as it is used to promote products, post competitions and encourage recommendations to friends and family.
Park is constantly interacting with its customers and monitoring feedback. We regularly commission third party research to keep fully informed regarding customer profiles, requirements and issues. The careful and targeted use of this information allows us to tailor product development and services to match customer expectations. SMS texting is a very effective and inexpensive communication tool and the Company sends over one million messages annually to maintain contact and inform its customers.
The information produced by our market and customer research, together with analysing socioeconomic trends, drives our consumer marketing programmes, including our advertising strategy. A six month campaign usually commences in the September of any given year, targeting the festive season in the following year. The advertising programme is tightly controlled and targeted to maximise the cost benefit and comprises a combination of direct response television, search marketing and effective use of the internet. Our research tells us that printed media and radio no longer offer sufficient reach for us. As a campaign progresses, analysis of customer reaction and order patterns allow us to make adjustments to fine-tune the programme to maximise its effect.
Our corporate business
The corporate business offers an extensive portfolio of tailor-made products and programmes. Customer requirements cover many different areas including, employee benefits, performance recognition awards, motivation programmes and customer loyalty rewards. Park is one of the largest providers of such programmes in the UK, and has been offering market-leading reward and incentive products for well over 20 years. The market we serve has been estimated by the independent UK Gift Card & Voucher Association to be worth in the region of £5bn in 2015, and increased by approximately 6 per cent over the previous year.
During the year
The corporate business made sound progress, increasing billings by approximately £14m, excluding sales to the consumer credit sector. The growth in sales to the incentive and reward market was not sufficient to offset the reduction in demand from the consumer credit sector entirely and consequently total billings were lower at £173.5m (2015 - £176.1m). Operating profit was £6.0m (2015 - £6.5m).
We have reported previously how exposure to the credit sector has influenced the overall results of our corporate business. We have sought to mitigate this impact by building sales in other areas over recent years. Sales to the consumer credit sector were less than £4m this year, a reduction of over £16m on the previous 12 months. We are confident that consumer credit business will not influence Park's future trading, as it now accounts for only one per cent of total billings.
Client retention is a significant measure of our performance as it reflects across all aspects of the business. In the year under review, the overall customer retention level was an impressive 83 per cent, unchanged from that of the previous twelve months. Our sales force is very active in seeking new business while maintaining strong relations with existing customers.
Our e-commerce operations, including highstreetvouchers.com and love2shop.co.uk, continued to advance. These platforms offer customers the convenience and flexibility they require, whilst minimising ongoing involvement from us. Customers expect Park's systems and processes to be available and accessible online at any time so that they can self-manage all aspects of the order process.
Everyday Benefits, our employee voluntary benefit product, delivered another strong performance with billings up more than 36 per cent compared with the previous year. This product enables employers to give their staff a Love2shop card, usually with value already loaded, which can then be used at over 13,000 retail outlets across the UK. A new development allows the user to load additional value online or via a smart device. This feature is particularly attractive to users who, for example, may be in a shop wishing to purchase an item; the convenience of being able to load value instantly and at a discount enables them to complete the transaction quickly and efficiently.
Our performance in the corporate space during the year was acknowledged by the industry. Our Love2shop Business Services division received the prestigious 'Company of the Year' award from the Institute of Promotional Marketing, which recognises excellence and creativity.
Love2shop Holidays, Park's full service travel agency, provides another attractive and convenient outlet for redeeming value embedded in Love2shop prepaid cards and vouchers. This operation has delivered steady growth since it was introduced in 2004 and commission on holiday bookings showed a 7 per cent rise year-on-year, with the number of bookings up by 4 per cent.
Love2shop Holidays also received a pleasing endorsement during the period, as it was awarded 'Independent Travel Agent of the Year' at the 2015 Brit Travel Awards.
Product development
Last year, we completed development and launched 'Engage', a new, completely digital platform for the corporate incentive and reward market. This innovative and cost-effective modular platform allows corporate users to create and control exclusively web and smart device based programmes for their customers or staff. The system can also incorporate any existing schemes each business may be running and provides real-time statistics and information on the uptake and success of a programme.
A further important innovation has been the development of our 'Evolve' product. 'Evolve' was launched in early June 2016 and is an online fully responsive digital reward medium that provides instant and branded gratification to customers and employees alike. Based on the development of digital flexecodes, the system delivers a broad range of choice, offered cost effectively, and if required in a fully branded experience, to large numbers of people.
Our consumer business
Park has been offering the consumer ways to safely budget for Christmas ever since the business was founded, although today's offering is vastly different from our beginnings, in both content and delivery.
The only remaining link with the past is the supply of hampers, which now account for just 2 per cent of total revenue. However, the concept of making weekly contributions over a 45 week period, to ensure that funds are available to spend ahead of the festive season, is still attractive to our customers. The steady prepayment for products over the contribution period allows customers to prepare for the season in a stress-free and confident manner. When the period ends, customers receive their products in whichever form they select. Park's vouchers or prepaid cards, for redemption at more than 20,000 retail outlets, are the preferred option for the majority of customers, while others select hampers or gifts chosen from our extensive catalogue.
Innovation is essential as technology and lifestyle changes drive transformation in the shopping habits of the nation. While the majority of customers spend their vouchers or prepaid cards at retail outlets, an increasing number choose to shop online. The Love2shop Online Gift Card is perfect for those who prefer to order online, giving access to participating retailers' entire range including many special offers only available on their websites.
During the year
The consumer business delivered another year of good growth with billings rising 7.5 per cent to £211.5m (2015 - £196.8m) and operating profit increasing by 15.0 per cent to £6.8m (2015 - £5.9m). Customer numbers increased to 429,000 (2015 - 424,000) while customer accounts rose during the year to 158,000 (2015 - 145,000). More than 64 per cent of new accounts came through our websites, compared with 60 per cent in the previous year. Product distribution was particularly efficient this year and contributed to the high retention rates. The average order size was up 5.6 per cent on the previous year, reaching £489 (2015 - £463).
The annual marketing programme usually ends in February with most orders placed by May, which gives us good visibility on the likely outcome for the coming year. The campaign for the 2016 festive season has now ended and orders are approximately 4 per cent ahead of the same point last year. While a limited number of cancellations are typical, indications are that this will be another year of progress for the business.
An encouraging feature of the year has been the popularity of the 'Combi' offer. This innovative product gives customers two cards; one is our market-leading Love2shop card and the other is for a national retailer, which previously had not been available to our customers. Last year, the scheme was launched with Asda and Morrisons and this year we added Primark and Sainsbury's. Amazon and Tesco have joined for the 2016 season and discussions are ongoing with other major retailers. 'Combi' billings for the year were well ahead of the previous year and are expected to grow further.
Park's relationship with MasterCard, giving users of our 'Anywhere' prepayment card access to outlets accepting MasterCard, is another example of our commitment to innovation. Our research identified that customers were prepared to pay a small premium for the opportunity to shop at outlets that accepted MasterCard and this has been demonstrated by the very large and growing take up of the 'Anywhere' card during the reporting period.
Our business in Ireland, traditionally representing a comparatively small source of revenue, had a challenging year following a rationalisation of the product range with orders reducing to €4.2m (2015 - €4.6m) However, it was encouraging to note that sales of the Love2shop voucher increased by more than 20 per cent compared with the previous year.
The Irish operation affords Park the strategic opportunity to transact business in the Euro currency and while we continue to cautiously examine opportunities to exploit this capability in a wider European context, in the near-to-medium term, the management team is firmly focused and committed to maintaining our growth and success in the UK.
Product development
Our consumer customers regularly enquired as to the availability of a Park mobile app, to make staying in touch with us and learning of our latest products even easier. During the last year we have developed and built an app to service their needs, which is currently undergoing extensive testing. A soft launch to a small number of users is planned for July of this year and we are working toward a full launch in the first quarter of the 2017 calendar year. The app will be beneficial to our customers and also to Park, as the decision to order will be made simpler and more convenient for the consumer, while setting up an account and processing payments will become quicker and easier.
Following launch, we plan to constantly look at ways to update and improve our consumer app so that it brings even more functionality, convenience and choice to our customers in future, developing alongside the customers' requirements.
Summary
It has been another good year for Park as we deliver against all our strategic goals. We continue to see the benefits of investment in our systems and products, while our customers on both the consumer and corporate sides of our business show a sustained and growing enthusiasm for our broad range of products and programmes.
Park has evolved significantly since its beginnings. We have shown agility to stay ahead of trends in customer needs and have embraced the changes which the internet, digital communication and social media have brought to our markets. Our offering has been developed steadily and sensibly and we remain committed to ongoing innovation to bring the best for our customers; in doing so, we safeguard the future growth and success of our business and generate increasing returns for our loyal shareholders.
We will continue to build on our heritage, sustain our momentum and look forward to the future with confidence.
Chris Houghton
Chief Executive Officer
14 June 2016
Financial Review
Profit from operations
The group's operations are divided into two operating segments:
• | consumer, which represents the group's sales to consumers, utilising its Christmas savings offering; and
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• | corporate, comprising the group's sales to businesses, offering primarily sales of the Love2shop voucher, flexecash® cards and other retailer vouchers to businesses for use as staff rewards/incentives, marketing aids and prizes and all online sales. |
All other segments comprise central costs and property costs.
Billings have increased when compared to the prior year by 3.3 per cent to £385.0m, with revenue increasing on the same basis by 3.1 per cent to £302.5m. The increase in revenue is smaller than the increase in billings year on year, due to the higher proportion of billings arising from flexecash® cards. Revenue earned from the sale of flexecash® cards is recognised differently from all other customer billings, as explained below.
Revenue and margin from sales of Love2shop vouchers and flexecash® cards are generated from both operating segments. Operating profit is detailed below:
2016 £'000 | 2015 £'000 | Change £'000 | |
Consumer | 6,823 | 5,933 | 890 |
Corporate | 6,013 | 6,465 | (452) |
All other segments | (2,436) | (2,710) | 274 |
Operating profit | 10,400 | 9,688 | 712 |
Operating profit for the year ended 31 March 2016 has increased by £0.7m to £10.4m.
In the consumer business, customer billings have increased by 7.5 per cent to £211.5m. Revenue has also increased by 5.1 per cent to £173.0m. Operating profit at £6.8m has increased by £0.9m from that achieved in the prior year reflecting the improved level of billings in the year. The increase in billings of £14.7m primarily reflects the higher level of customer prepayment orders fulfilled in the UK for Christmas 2015 at £202.5m (Christmas 2014 - £189.3m). Billings in respect of flexecash® cards totalled £38.9m (2015 - £32.5m).
In the corporate business, customer billings have decreased by £2.6m (1.5 per cent) in the year to £173.5m. Revenue has increased by 0.7 per cent to £129.5m. Growth in billings in the incentive sector was again strong, up £5.6m (5.2 per cent) in the year and in the employee benefits sector up £4.5m (44.5 per cent) in the year. In contrast, billings in the credit sector were £16.5m lower than last year. The decline in operating profit of £0.5m to £6.0m reflects a small decline in margins arising from a change in the mix of products sold and an increase in administration costs associated with a growth in marketing and systems based costs. Billings in respect of flexecash® cards totalled £51.7m (2015 - £54.0m).
The decreased costs in other segments of £0.3m from the prior year arises from a reduction in management incentive costs recorded in the income statement.
Finance income
Finance income increased to £1.5m from £1.2m reflecting the increase in average total cash held, including that held in trust from almost £121m to £140m. This increase was assisted by the maturing of deposits in the first three months of the year at higher rates of interest than that currently being achieved.
Taxation
The effective tax rate for the year was 18.3 per cent (2015 - 22.3 per cent) of profit before tax. This rate is lower than the standard rate of corporation tax due to the release of an overprovision made in respect of prior year's trading.
Earnings per share
Basic earnings per share (eps) increased to 5.28p from 4.66p.
Dividends
The board has recommended a final dividend of 1.90p per share. An interim dividend of 0.85p per share was paid on 6 April 2016. Subject to approval of the final dividend at the AGM, the total dividend for 2016 will be 2.75p per share representing an increase of 14.6 per cent over the prior year.
Cash flows
At the end of March 2016 £32.7m (2015 - £26.3m) of cash and cash equivalents was held by the group. This would have been £2m higher as monies held within the Park Prepayments Trustee Company Ltd in respect of the Christmas 2015 season was not received by the group until 1 April 2016. A further £0.5m (2015 - £0.5m) was held as deposits with a maturity period of greater than three months but less than 12 months. In addition, £56.1m (2015 - £50.9m) 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. In addition, at 31 March 2016, the group held £19.1m (2015 - £14.9m) of cash in the Park Card Services Limited E money Trust (PCSET) to support the e-money float in accordance with regulatory requirements.
The total amount of cash and deposits net of any overdraft position held by the group combined with the monies held in trust has increased in the year to £104.5m from £89.5m as at 31 March 2015. These total balances peaked at just over £206m in the year, representing an increase of over £17m from last year. This was due to the increased volumes of cash receipts associated with higher level of cash receipts into the Park Prepayments Protection Trust (PPPT) in respect of the consumer business.
Provisions
At the year end, provisions had increased from £43.2m to £44.8m. This was mainly due to a decrease in the provision for unspent vouchers of £0.8m, accompanied by an increase in the amounts provided in respect of flexecash® cards of £2.4m. The value of unspent vouchers included in the provision, arises primarily from sales in the corporate business. Included within provisions is an amount of £20,000 (2015 - £80,000) in respect of future expected settlements of claims arising from the mis-selling of payment protection insurance. The group ceased to sell this insurance in 2007 when it closed its loan broking business.
Accounting policies
Revenue recognition
Revenue from cards is recorded differently to revenue from paper vouchers and comprises the fees earned based on customer billings, recognised when the value loaded on the card has been redeemed. Where cards are sold to businesses for onward gifting to consumers with no right of redemption, revenue also includes an estimate of projected balances remaining on the card at expiry. The amount included in this year's income statement as revenue from flexecash® cards is £8.8m (2015 - £7.4m).
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. The net pension deficit based on the valuation under IAS19 Employee Benefits (2011 revised) performed at 31 March 2016 has decreased to £0.3m (2015 - £1.3m).
The group has recognised a cost of £146,000 (2015 - £42,000) in the income statement, including an amount of £109,000 in respect of past service costs in relation to the augmentation of pensions in respect of equalisation agreed with the trustees in 2014. In addition the group has recognised re-measurements in the statement of comprehensive income (SOCI) of a gain of £0.4m (2015 - loss of £0.6m) net of tax.
In the year ended 31 March 2016, contributions by the group to the schemes totalled £0.7m (2015 - £0.7m). The latest actuarial valuations performed as at 31 March 2013 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 £3.8m and one had a surplus on the same basis of £0.6m. Future group contributions to the scheme that is in deficit are expected to be £0.7m per annum.
Martin Stewart
Group Finance Director
14 June 2016
Risk factors
Financial risks | ||
Risk area | Potential impact | Mitigation |
Group funding | The Group, like many other companies, depends on its ability to continue to service its debts as they fall due and to have access to finance where this is necessary. | The Group manages its capital to safeguard its ability to operate as a going concern. Whilst the Group has net current liabilities, it has access to funds for working 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. This enables it to operate without bank borrowings. In addition the Group has a high level of visibility of future revenue streams from its consumer business. The funding requirements of the business are continually reforecast to ensure that sufficient liquidity exists to support its operations and future plans. |
Treasury risks | The Group has significant funds on deposit and as such is exposed to interest rate risk, counterparty risk and exchange rate movements following the commencementof operations in Ireland. | The Group treasury policy ensures that funds are only placed with and spread between high quality counterparties and where appropriate any exchange rate exposure is managed to minimise any potential impact. |
Banking system | Disruption to the banking system would adversely impact on the Group's ability to collect payments from customers and could adversely affect the Group'scash position. | The Group seeks wherever possible to offer the widest possible range of payment options to customers to reduce the potential impact of failure of a single payment route. |
Pension funding
| The Group may be required to increase its contributions to cover any funding shortfalls. | The Group's pension schemes are closed to future benefit accrual related to service. Funding rates are in accordance with the actuaries' recommendations. |
Financial services and other market regulation | The business model may be compromised by changes in existing regulation or by the introduction of new regulation. Possible new regulation could include a requirement to ring fence funds for vouchers sold to consumers. This could adversely affect the Group's cash position. | The Group has a regulatory team that monitors and enforces compliance with existing regulations and keeps the Group up to date with impending regulation. The Group shares the objectives of Government in treating customers fairly and in the protection of customer prepayments. The Group operates a number of trusts to safeguard funds held on behalf of customers. In the event of new regulation being introduced that requires additional cash to be segregated, the Group has access to other potential sources of funds, if required. |
Credit risks | Failure of one or more customers and the risk of default by credit customers due to reduced economic activity. | Customers are given an appropriate level of credit based on their trading history and financial status, 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 and IT systems | Failure to provide adequate service levels to customers, retail partners or other suppliers, resulting in a failure to maintain services that generate revenue. | The Group plans and tests its business continuity procedures inpreparation for catastrophic events and for the existence of counterfeit vouchers or cards. Our focus is on the elimination of any single point of failure in ourIT systems. The Group maintains three separate data centres in relation to its core infrastructure to ensure that service is maintained in the event of a disasterat its primary data centre. Developed software is extensively tested prior to implementation. |
Loss of key management | The Group depends on its directors and key personnel. The loss of the services of any directors or other key employees could damage the Group's business, financial condition and results. | Existing key appointments are rewarded with competitive remuneration packages including long term incentives linked to the Group's performance and shareholder return. |
Relationships with high street and online retailers | The Group is dependent upon the success of its Love2shop voucher and flexecash® card. These products only operate provided the participating retailers continue to accept them as payment for goods or services provided. The failure of one or more participating retailers could make these products less attractive to customers. | The Group has a dedicated team of managers whose role it is to ensure that the Group's products have a full range of retailers. They also work closely with all retailers to promote their businesses to Park's customers who utilise Park's vouchers and cards to drive forward incremental sales to their retail outlets. Contracts which provide minimum notice periods for withdrawal are in place with all retailers and are designed to mitigate any potential impact on Park's business. |
Failure of the distribution network | The failure of the distribution network during the Christmas period, for example a Post Office strike, road network disruption or fuel shortages could adversely impact the results and reputation of Park's brands. | Wherever possible the Group seeks to utilise a wide range of geographically spread carriers to mitigate the failure of a single operator. |
Brand perception and reputation | Adverse market perception in relation to the Group's products or services, for example, following the collapse of a competitor. This could result in a downturn in demand for its products and services. | Ongoing investment in television advertising. Operation of a processof continual review of all marketing material and websites to promote transparency to customers. Extensive testing and rigorous internalcontrols exist for all Group systems to maintain continuity of online customer service. |
Promotional activity | The success of the Group's annual promotional campaign is essential to ensure the continued recruitment of customers. Failure to recruit would result in loss of revenue to the Group. Promotional activity must also be cost effective. | Detailed management processes that are designed to optimise the cost of recruiting are in place. The effectiveness of each individual television advert is assessed separately and future plans amended where appropriate. |
Competition | Loss of margins or market share arising from increased activity from competitors. | The Group has a broad base of customers and no single customer represents more than 3 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. |
Park Group plc
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR TO 31 MARCH 2016
2016 | 2015 | |||
£'000 | £'000 | |||
Billings | 385,031 | 372,887 | ||
Revenue | 302,545 | 293,329 | ||
Cost of sales | (274,060) | (265,966) | ||
Gross profit | 28,485 | 27,363 | ||
Distribution costs | (2,909) | (2,761) | ||
Administrative expenses | (15,176) | (14,914) | ||
Operating profit | 10,400 | 9,688 | ||
Finance income | 1,523 | 1,246 | ||
Finance costs | (66) | (1) | ||
Profit before taxation | 11,857 | 10,933 | ||
Taxation | (2,169) | (2,434) | ||
Profit for the year attributable to equity holders of the parent | 9,688 | 8,499 | ||
Earnings per share (see note 7) | |||
: basic | 5.28p | 4.66p | |
: diluted | 5.18p | 4.60p | |
|
Park Group plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR TO 31 MARCH 2016
2016 | 2015 | ||
£'000 | £'000 | ||
Profit for the year | 9,688 | 8,499 | |
Other comprehensive income | |||
Items that will not be reclassified to profit or loss: Remeasurement of defined benefit pension schemes | 533 | (731) | |
Deferred tax on defined benefit pension schemes | (96) | 146 | |
437 | (585) | ||
Items that may be reclassified subsequently to profit or loss: | |||
Foreign exchange translation differences | (21) | 17 | |
Other comprehensive income for the year net of tax | 416 | (568) | |
Total comprehensive income for the year | 10,104 | 7,931 | |
Park Group plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2016
As at | As at | |||
31.03.16 | 31.03.15 | |||
£'000 | £'000 | |||
Assets | ||||
Non-current assets | ||||
Goodwill | 1,320 | 1,320 | ||
Other intangible assets | 3,036 | 3,168 | ||
Investments | - | 8 | ||
Property, plant and equipment | 8,003 | 8,143 | ||
Retirement benefit asset | 1,390 | 1,293 | ||
13,749 | 13,932 | |||
Current assets | ||||
Inventories | 2,182 | 3,186 | ||
Trade and other receivables | 8,729 | 11,212 | ||
Other financial assets | 500 | 500 | ||
Monies held in trust | 75,219 | 65,728 | ||
Cash and cash equivalents | 32,735 | 26,333 | ||
Assets held for sale | - | 39 | ||
119,365 | 106,998 | |||
Total assets | 133,114 | 120,930 | ||
Liabilities | ||||
Current liabilities | ||||
Trade and other payables | (79,022) | (73,569) | ||
Tax payable | (1,019) | (1,435) | ||
Provisions | (44,767) | (43,186) | ||
(124,808) | (118,190) | |||
Non-current liabilities | ||||
Deferred tax liability | (181) | (273) | ||
Retirement benefit obligation | (1,700) | (2,634) | ||
(1,881) | (2,907) | |||
Total liabilities | (126,689) | (121,097) | ||
Net assets/ (liabilities) | 6,425 | (167) | ||
Equity attributable to equity holders of the parent | ||||
Share capital | 3,674 | 3,650 | ||
Share premium | 6,132 | 6,132 | ||
Retained earnings | (3,070) | (9,638) | ||
Other reserves | (311) | (311) | ||
Total equity | 6,425 | (167) |
Park Group plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share capital | Share Premium |
Other reserves |
Retained earnings | Total parent equity | Non-controlling interests | Total equity | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 1 April 2015 | 3,650 | 6,132 | (311) | (9,638) | (167) | - | (167) |
Total comprehensive income for the year | |||||||
Profit | - | - | - | 9,688 | 9,688 | - | 9,688 |
Other comprehensive income |
|
|
|
|
|
| |
Remeasurement of defined benefit pension schemes | - | - | - | 533 | 533 | - | 533 |
Tax on defined benefit pension schemes | - | - | - | (96) | (96) | - | (96) |
Foreign exchange translation adjustments | - | - | - | (21) | (21) | - | (21) |
Total other comprehensive income |
- |
- |
- |
416 |
416 |
- |
416 |
Total comprehensive income for the year |
- |
- |
- |
10,104 |
10,104 |
- |
10,104 |
Transactions with owners, recorded directly in equity | |||||||
Equity settled share-based payment transactions | - | - | - | 868 | 868 | - | 868 |
LTIP shares awarded | 24 | - | - | (24) | - | - | - |
Dividends | - | - | - | (4,380) | (4,380) | - | (4,380) |
Total contributions by and distribution to owners |
24 |
- |
- |
(3,536) |
(3,512) |
- |
(3,512) |
Balance at 31 March 2016 | 3,674 | 6,132 |
(311) | (3,070) | 6,425 | - | 6,425 |
Balance at 1 April 2014 | 3,650 | 6,132 | - | (13,606) | (3,824) | (311) | (4,135) |
Total comprehensive income for the year | |||||||
Profit | - | - | - | 8,499 | 8,499 | - | 8,499 |
Other comprehensive income | |||||||
Remeasurement of defined benefit pension schemes | - | - | - | (731) | (731) | - | (731) |
Tax on defined benefit pension schemes | - | - | - | 146 | 146 | - | 146 |
Foreign exchange translation adjustments |
- |
- | - |
17 |
17 |
- |
17 |
Total other comprehensive income |
- |
- |
- |
(568) |
(568) |
- |
(568) |
Total comprehensive income for the year |
- |
- |
- |
7,931 |
7,931 |
- |
7,931 |
Transactions with owners, recorded directly in equity | |||||||
Equity settled share-based payment transactions | - | - | - | 235 | 235 | - | 235 |
Purchase of non-controlling interest | - | - |
(311) | - |
(311) | 311 | - |
Dividends | - | - | - | (4,198) | (4,198) | - | (4,198) |
Total contributions by and distribution to owners |
- |
- |
(311) |
(3,963) |
(4,274) |
311 |
(3,963) |
Balance at 31 March 2015 | 3,650 | 6,132 | (311) | (9,638) | (167) | - | (167) |
Park Group plc
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR TO 31 MARCH 2016
2016 | 2015 | |||
£'000 | £'000 | |||
| Cash flows from operating activities | ||||
Cash generated from operations | 12,184 | 14,106 | ||
Interest received | 1,405 | 1,177 | ||
Interest paid | (66) | (1) | ||
Tax paid | (2,490) |
| (2,132) | |
Net cash generated from operating activities | 11,033 | 13,150 | ||
Cash flows from investing activities | ||||
Sale of investment property and assets held for sale | 43 | 41 | ||
Proceeds from sale of investments | 9 | - | ||
Purchase of intangible assets | (599) | (212) | ||
Purchase of property, plant and equipment | (527) | (385) | ||
| Net cash used in investing activities | (1,074) | (556) | ||
| Cash flows from financing activities | ||||
Dividends paid to shareholders | (4,380) | (4,198) | ||
| Net cash used in financing activities | (4,380) | (4,198) | ||
| Net increase in cash and cash equivalents | 5,579 | 8,396 | ||
Cash and cash equivalents at beginning of period | 23,238 | 14,842 | ||
Cash and cash equivalents at end of period | 28,817 | 23,238 | ||
Cash and cash equivalents comprise: | ||||
Cash | 32,735 | 26,333 | ||
Bank overdrafts | (3,918) | (3,095) | ||
28,817 | 23,238 |
NOTES TO THE PRELIMINARY RESULTS
(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.
Park 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 and Company financial statements are presented in sterling and all values are rounded to the nearest thousand (£'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 Group's business activities, together with factors likely to affect its future development, performance and position, are set out in the Chief Executives Review. The financial position of the Group, its cash flows, liquidity and solvency position and financial risks are described in the Financial Review.
The Group's forecasts and projections, taking into account reasonably possible changes in trading performance and customer behaviour, show that the Group has sufficient financial resources to fund the business for the foreseeable future despite the Group's net current liabilities. Funds are available for working capital purposes as permitted under the terms of the PPPT. The Group's working capital requirements are dependent upon a continuing level of prepaid sales to corporate customers and, at certain times during the year, amounts drawn from the PPPT to meet its working capital requirements. The Group's positive cash flow from its ongoing customer base, together with the capability to drawdown funds from the PPPT at certain times of the year, enables it to operate without reliance on any external funding. The Group continues to trade profitably and early indications for growth in the current year are positive. Accordingly, the directors continue to adopt the going concern basis 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 period:
|
Adoption of these amendments and interpretations to standards 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
The following standards have been adopted by the EU but are not yet effective for the year ended 31 March 2016 and have not been applied in preparing the financial statements. Those standards that have relevance to the Group are mentioned below:
Effective from: | |||
IAS 16 & IAS 38 | Clarification of Acceptable Methods of Depreciation and Amortisation (amendment) | 1 Jan 2016 | |
IAS 27 | Equity Method in Separate Financial Statements (amendment) | 1 Jan 2016 | |
IAS 1 | Disclosure Initiatives (amendment) | 1 Jan 2016 | |
IFRS 10, IFRS 12 & IAS 28 | Investment Entities: Applying the Consolidation Exception (amendment) | 1 Jan 2016 | |
IAS 7 | Disclosure Initiative (amendment) | 1 Jan 2017 | |
IAS12 | Recognition of Deferred Tax Assets for Unrealised Losses (amendment) | 1 Jan 2018 | |
IFRS 9 | Financial Instruments | 1 Jan 2018 | |
IFRS 16 | Leases | 1 Jan 2019 | |
The directors anticipate that the adoption of these standards and interpretations in future periods will not have a material impact on the financial statements when the relevant standards and interpretations come into effect.
IFRS 15 Revenue from Contracts with Customers was released on 28 May 2014. The board of directors is currently considering the impact of this standard on the Group's financial statements including the timing of revenue recognition, income in respect of vouchers and balances on cards which will never be spent and whether revenue should be recognised on a gross or net basis in respect of certain revenue streams.
(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 2015. The annual report and accounts for the year ended 31 March 2015 can be found on our website at www.parkgroup.co.uk.
(5) Segmental analysis
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 other segments/elimination column reflects vouchers sold by the corporate segment to the consumer segment. They have been included in other segments/elimination so as to show the total revenue for both segments.
Consumer | Corporate | All other segments/ elimination | 2016 Total | Consumer | Corporate | All other segments/ elimination | 2015 Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Billings | |||||||||
External billings | 211,522 | 173,509 | - | 385,031 | 196,796 | 176,091 | - | 372,887 | |
Inter-segment billings | - | 143,152 | (143,152) | - | - | 135,667 | (135,667) | - | |
Total billings | 211,522 | 316,661 | (143,152) | 385,031 | 196,796 | 311,758 | (135,667) | 372,887 | |
Revenue | |||||||||
External revenue | 173,045 | 129,500 | - | 302,545 | 164,682 | 128,647 | - | 293,329 | |
Inter-segment revenue | - | 143,152 | (143,152) | - | - | 135,667 | (135,667) | - | |
Total revenue | 173,045 | 272,652 | (143,152) | 302,545 | 164,682 | 264,314 | (135,667) | 293,329 | |
Inter-segment sales are entered into under normal arm's length commercial terms and conditions. | |||||||||
| Result | |||||||||
Segment operating profit/(loss) |
6,823 |
6,013 |
(2,436) |
10,400 |
5,933 |
6,465 |
(2,710) |
9,688 | |
Finance income | 1,523 | 1,246 | |||||||
Finance costs | (66) | (1) | |||||||
Profit before taxation | 11,857 | 10,933 | |||||||
Taxation | (2,169) | (2,434) | |||||||
Profit | 9,688 | 8,499 | |||||||
(6) Taxation | 2016 £'000 | 2015 £'000 | |||
Charge for the year - current and deferred | 2,169 | 2,434 |
Comments on the effective tax rate can be found in the Financial Review.
(7) Earnings per share
The calculation of basic and diluted eps is based on the profit on ordinary activities after taxation of £9,688,000 (2015 - £8,499,000) and on the weighted average number of shares, calculated as follows:
2016 | 2015 | |||
Basic eps - weighted average number of shares | 183,658,227 | 182,501,219 | ||
Diluting effect of employee share options | 3,544,265 | 2,202,818 | ||
Diluted eps - weighted average number of shares | 187,202,492 | 184,704,037 |
(8) Reconciliation of net profit to net cash inflow from operating activities
2016 | 2015 | |||
£'000 | £'000 | |||
Net profit | 9,688 | 8,499 | ||
Adjustments for: | ||||
Tax | 2,169 | 2,434 | ||
Interest income | (1,523) | (1,246) | ||
Interest expense | 66 | 1 | ||
Research and development tax credit | (46) | - | ||
Depreciation and amortisation | 1,382 | 1,497 | ||
Impairment of investment property | - | 95 | ||
Impairment of other intangibles | 13 | 16 | ||
Impairment of assets held for sale | - | 14 | ||
Profit on sale of investments | (1) | - | ||
Profit on sale of assets held for sale | (4) | - | ||
Decrease/ (increase) in inventories | 1,004 | (1,629) | ||
Decrease/ (increase) in trade and other receivables | 2,599 | (1,072) | ||
Increase in trade and other payables | 4,634 | 8,118 | ||
Increase in provisions | 1,581 | 5,952 | ||
Increase in monies held in trust | (9,491) | (8,214) | ||
Decrease in retirement benefit obligation | (497) | (611) | ||
Translation adjustment | (21) | 17 | ||
Share-based payments | 631 | 235 | ||
Net cash inflow from operating activities | 12,184 | 14,106 |
(9) 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.
|
(10) The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 March 2016 or 2015 but is derived from those accounts.
Statutory accounts for 2015 have been delivered to the registrar of companies. The auditor, Ernst & Young LLP, has reported on the 2015 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 2016 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 28 July 2016 and will be available from that date on the Group's website: www.parkgroup.co.uk.