APP.L Regulatory News (APP)

29 June 2021

Appreciate Group plc

Final Results for the Year Ended 31 March 2021

A year of significant progress - weathering lockdowns whilst re-focussing the business and accelerating our digital proposition

 Appreciate Group (the 'Group'), the UK's leading multi-retailer redemption product provider to Corporate and Consumer markets, today announces its final results for the financial year ended 31 March 2021, and provides an update on current trading for the new financial year to date.

Financial highlights

· Profit before tax of £1.3m (2020: £7.7m), with profit before tax and exceptional items** of £2.3m (2020: £11.4m) excluding exceptional costs of £1.1m (2020: £3.7m of exceptional items) relating to redundancy costs, goodwill and stock impairments and profit on sale of assets held for sale.

· Results within the range of market expectations allowing for unaudited, non-recurring losses relating to the wind down of the hamper packing business of £1.1m (£1.2m staff costs, £0.3m lease costs and £0.8 other costs, offset by £1.2m revenue), related marketing and customer care costs of £0.4m now deployed elsewhere in the business, non-recurring costs of decommissioning the previous head office site of £0.3m and FMI losses of £0.1m before disposal.

· Group billings* down marginally by 3.2% to £406.5m (2020: £419.9m) following the early impact of the initial lockdown and ceasing of hamper packing.

· Revenue 5.2% lower to £106.8m (2020: £112.7m) in line with billings*.

· Digital billings* up almost four-fold to £68.5m (2020: £17.7m)

· Total cash balances, including monies held in trust and bank deposits, at 31 March 2021, were £163.5m (2020: £132.3m).

· Year end free cash (excluding monies held in trust) of £31.4m (2020: £29.6m).

· The Board has recommended a final dividend of 0.6p, making a full dividend for the year of 1.0p per share (2020: 0p)

 Statutory results 

· Operating profit £0.8m (2020: £6.4m)

· Operating profit before exceptional items** of £1.9m (2020: £10.1m)

· Earnings per share of 0.46p (2020: 2.96p)

Operational and strategic highlights 

A resilient divisional performance given COVID headwinds

· Corporate

o Corporate billings* of £201.3m up 1.8% (2020: £197.7m)

o Underlying Corporate billings*, excluding free school meals, were £178.3m, 9.8% lower than prior year following impact of COVID.

o Corporate revenue increased 6.8% to £53.7m (2020: £50.3m)

o Performance benefitted from strong Corporate demand, particularly during peak Q3 trading period, and one-off free school meals initiative.

o Segmental profit decreased to £2.6m (2020: £6.6m) due to lower margin business (free school meals initiative) and higher administration costs.

· Consumer

o Billings* fell 7.6% to £205.3m (2020: £222.2m) due to impact of lockdowns and reduction in Christmas Savers.

o Revenue was £53.1m (2020: £62.4m) following deferral of redemptions due to impact of lockdowns on customers' ability to redeem in-stores.

o Segmental profit of £0.5m (2020: £5.3m) following lower revenue and £1.1m of exceptional costs relating to the closure of the hamper business.

o Increased customers coming to us directly, with billings* via highstreetvouchers.com 18.2% higher than prior year with particularly strong Q3.

Momentum continues in delivery of strategic business plan

The Group made further significant progress in delivering key elements of its strategic business plan during the year:

· Simplified, streamlined business - the Group underwent considerable restructuring during the year, having disposed of, or withdrawn from, hamper production, contract packing, operations in the Republic of Ireland, and the brand engagement agency, FMI. The Group is now therefore fully focused on growing the core, more profitable business.

· Growth in digital - digital billings* rose almost four-fold during the year. The Group will use its insight and learnings to drive further growth and continue to invest in enhancing its digital proposition. It is also placing greater focus on best practice digital marketing and commercial planning to support these aims.

· Financial flexibility - £15m revolving credit facility (excluding £10m uncommitted accordion) secured during pandemic to underpin the Group's long-term growth plans and migration towards digital products.

· B2B business rebranded - part of repositioning in a market offering significant growth opportunities. This was supported by launch of the Group's digital gift card product to Corporate clients. This helped deliver a strong Q3 performance including our busiest ever December.

· New distribution partnership with PayPoint - launched in May 2021 providing customers with access to purchase Love2shop products via a physical network of 28,000 outlets across the UK.

· Enterprise Resource Planning (ERP) programme - next phase will be delivered this summer. This is a cornerstone in the Group's plans to build a robust and scalable platform and will provide significant benefits through enhanced resilience and workflow. The following phase is due to be delivered in the second half of the financial year.

· Cultural transformation - exemplified by delivery of a range of important change initiatives throughout the year, despite the challenges for colleagues of working remotely.

· Broader redemption choice - continued to diversify the range to offer customers more flexibility between online and in store redemptions, with the ability to choose more food, hospitality, leisure and entertainment options alongside leading retailers. Food outlets added such as Nando's, Bella Italia and RealFoodHub.co.uk, alongside attractive brands such as Schuh and Superdry.

· Prestigious external recognition - Business Culture Award for Best Working Environment & Workplace Design, following the head office move to Chapel Street, Liverpool, as well as attaining a Great Place to Work accreditation with a Trust Index above that for the average UK company.

· Strengthened ESG commitment - we stepped up our positive contribution to society during the pandemic by broadening our relationship with Everton in the Community - funding equipment for its new children's education programme in the Liverpool City Region, supporting good causes, and helping meet the needs of tens of thousands of school children up and down the country through our involvement in the free school meals initiative.

 Current trading and outlook

· Trading in the first 12 weeks of the current financial year has been slower than anticipated and continued to be impacted by the pandemic, as customer buying and spending patterns take time to return to normal levels. Billings* are considerably higher than the same period last year, as expected given the initial uncertainly created by the first lockdown. Billings* are marginally down on the previous year of 2019 by 8.6%, reflecting the continued impact of COVID on consumer behaviour.

· As stated in our year-end trading update on 29 April 2021, the Christmas Savings' order book has been held back by COVID‐19 restrictions impacting face‐to‐face agent activity during the crucial renewal and recruitment period, combined with higher levels of unspent paper vouchers (up by £6.4m compared to last year) due to shopping restrictions, which customers appear to intend to use towards Christmas 2021, rather than starting a new savings plan. Whilst initiatives to recruit Christmas savings' customers continue, the order book is now predicted to be c.14% down following the continued COVID uncertainty, having quoted c.11% lower in April.

· The Group continues to focus on costs and minimising any unnecessary spending that is not aligned to its strategy.

* See accounting policies for a reconciliation of billings to revenue** See financial review for reconciliation of adjusted to statutory profit measure

Ian O'Doherty, Chief Executive Officer, commented:

"Like other businesses, we have faced many challenges over the past year, but I'm pleased to say we have put the Group in the best position to weather the uncertainty. Having re-focussed the business on its core product and delivering for our customers and clients in the prepayment, gifting and engagement markets, and enhanced our digital capability, we have laid strong foundations for future years of growth.

"I am extremely proud of the dedication and commitment of our colleagues in delivering for customers throughout the period and want to thank them again for their extraordinary efforts.

"The speed at which levels of activity will return to normal remains unclear, however, we believe that as the economy emerges from lockdown, we are strongly positioned to exploit opportunities that arise in our market and deliver sustainable growth in future years."

Appreciate Group will host a webcast presentation for analysts at 9.30am this morning.

If you would like to attend, please contact MHP on 020 3128 8193 or AppreciateGroup@mhpc.com.

The information contained within this announcement is deemed by Appreciate Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

Notes to Editors:

Appreciate Group is one of the UK's leading gifting, pre-payment and engagement companies, and experts at creating joyful experiences and connecting people to the things in life they enjoy the most.

Everything Appreciate Group does is focused on creating more joy in the world, and it is proud to be trusted to help its customers create moments they can treasure and remember, whether they are giving, celebrating or rewarding.

Appreciate Group is a financial services business with a wide portfolio of brands which provide solutions for its consumer and business customers. Its consumer-facing brands meet a range of prepayment and gifting needs, while its business products help corporate customers reward and recognise their employees and clients.

Appreciate Group is home to many of the country's most-loved gifting, pre-payment and engagement solutions including Park Christmas Savings, highstreetvouchers.com and Love2shop, and we are fast-becoming the home of digital innovation in gifting.

Whether it's saving towards the perfect family Christmas or celebrating with gift cards and vouchers, we create and supply products that millions of people trust when it comes to giving and receiving with family, friends or colleagues.

Park Christmas Savings: As the UK's largest family Christmas savings club, Park Christmas Savings has helped over 2.7 million families budget for Christmas on a short-term or year-round basis.

Love2shop: Love2shop offers gift cards and gift vouchers available to spend at stores and attractions across the UK. They are also used through our Love2shop Business Services providing corporate partners with incentives and rewards for their employees and clients.

Appreciate Group plc's shares are traded on AIM, a market operated by the London Stock Exchange.

The Park Prepayments Protection Trust is designed to increase protection for customers' prepayments. The Trust has three directors, two of whom are independent of Appreciate. Details of the trust are set out here: https://www.getpark.co.uk/CORPORATE/declaration.pdf 

Message from the Chairman

Overview

The last year has been a period unlike any other. The pandemic has had an impact on us all. Under the strong leadership of our CEO, Ian O'Doherty, the Group has navigated these challenges by making the wellbeing of our colleagues, and the needs of our customers, the priority throughout, remaining true to our purpose and values.

At the time of our last Annual Report I said that we were determined to emerge strongly from the pandemic and be ready for growth. I am pleased to say that Appreciate Group has risen to the challenge during the year, continuing to deliver our strategy and reshaping the business to lay the foundations for future years.

By accelerating initiatives in our long term plan, restructuring the business to focus on our core product and delivering for our customers in our key markets (prepayment, gifting and engagement) and building our digital capability, we are now better positioned to take advantage of future growth opportunities.

The onset of the pandemic caused a great deal of disruption and uncertainty in the early months of 2020. Despite this, our business has proved resilient as a result of the actions we have taken. We delivered an improved second half performance with the usual swing to profitability following a higher than normal first half loss due to the first lockdown. Our performance in the key Q3 Trading Period provided real signs of encouragement.

We believe this demonstrates that our response to the pandemic was well judged, and the reshaping of the business will provide the bedrock for future sustainable growth.

Supporting customers through lockdown

The Group strengthened its products and proposition to enable Consumer and Corporate customers to gift and reward despite COVID-19 related restrictions.

We were able to make an important contribution to the Government's free school meals initiative, by working at pace to facilitate food retailer Iceland's participation in the scheme.

Corporate clients turned to our solutions to thank their hard-working employees during the pandemic, leading to record levels of new business and helping us deliver an improved peak season.

We also continued to focus on broadening the appeal of our products, adding new sectors such as hotels, and learning options, to the redemption choice; making essential retail available on digital products to support customers during lockdown; and adding some strong retail brands.

We extended expiry dates on paper vouchers, which could only be redeemed in-store, to ensure that customers did not lose the opportunity to spend them because of lockdown.

Digital growth

A key component of our long-term strategy has been to build our digital offering and capability. As the pandemic led to an acceleration in the adoption of digital by customers seeking alternative ways to gift and reward during lockdowns, we intensified, and brought forward many of our strategic initiatives. This included launching new digital solutions and broader choices for both the Corporate and Consumer segments that do not require physical cards.

We will continue to invest in our digital proposition to exploit future growth opportunities and use the important insights and learnings to sharpen our offering and enhance the customer experience.

Colleagues, culture and ESG

We have been fortunate to have the commitment of so many dedicated and resilient colleagues. The majority have adapted remarkably to home-working; whilst those working in our fulfilment operations have embraced the changes of working in a COVID-secure environment. I want to thank all of our people for their efforts over the last year.

I have no doubt we would not have adapted so flexibly to the challenges over the last 12 months had we not made the earlier investments in infrastructure and our workplace.

We underlined our commitments to colleagues and to being a responsible business over the past year, by making tangible progress with a number of initiatives.

Our approach to fully embed the company purpose - to create joy - in our new head office was recognised with a prestigious Business Culture Award.

We strengthened our work with Everton in the Community by becoming an official partner. Through this partnership we became the main supporter in a new education programme that will help teach young people in the Liverpool City Region digital skills, such as coding.

Despite remote working, our colleagues have continued to explore opportunities to fund-raise for important causes, including Children in Need and Zoe's Place (a Liverpool-based children's hospice and long-term charity of choice for colleagues) as well as through activities to celebrate Red Nose Day.

We chose to repay all the funds received under the UK Government's Coronavirus Job Retention Scheme when it became clear that our performance had recovered sufficiently.

Financial strength

Our balance sheet remains robust, with good levels of liquidity, which we continue to manage due to swings in free cash from month to month, driven by the timings of monies being moved in and out of trusts, and the purchasing of third party, single retailer redemption products. This is supported by our revolving credit facility with Santander that was put in place last year, a notable achievement in itself at such a time.

Dividend

Following our decision not to pay a dividend for the previous financial year in light of uncertainty at the time, we reinstated the interim dividend in November as it became clear that trading had improved.

As this improvement has been maintained in the second half of the financial year, the Board has recommended a proposed final dividend of 0.6p making a total dividend for the year of 1.0p per share (2020: 0p)

The dividend will be paid on 1 October 2021 to shareholders on the register on 27 August 2021, with an ex-dividend date of 26 August 2021.

Regulation

As a regulated organisation we take our responsibility to our customers seriously and we always seek to comply with all applicable regulation. We welcome increased focus on the regulation of e-money issuers through annual audits of their safeguarding practices. The Board is committed to making improvements to controls and administrative and procedural practices in line with regulation.

Summary

We are now a leaner, more digital-focused business, and we have shown we can respond to the toughest of challenges with agility and resilience. We have made considerable progress in reshaping the business over the last two years, which will provide the foundations on which to grow in future years.

We are determined to build on this momentum by enhancing our products and proposition to attract new customers, in line with regulation. The speed at which normal levels of activity will return is unclear, we believe that, as the economy emerges from lockdown, we are better positioned to support customers following the accelerated adoption of digital products. 

We have a clear strategy of innovation-led growth to capture the potential in our markets and we are confident our approach and expertise will drive strong and sustainable growth for the long-term.

Laura CarstensenChairman28 June 2021

Chief Executive's Review

Introduction

Although the pandemic has had a significant impact on everybody, I have seen it bring the best out of our business and our people. We are now a more agile and resilient company than we were before COVID-19 struck and I am extremely proud of the dedication that our colleagues have shown to support our customers, as well as each other.

Importantly, the decisions taken by the leadership team to respond to the crisis have been guided by our company purpose and trademark behaviours, providing the compass to ensure we have always focused on driving outcomes that are aligned to the long-term interests of all our stakeholders.

Results for the year

I am pleased to report that, despite the challenges we have faced as a business during the pandemic, we achieved a solid performance for the year, with strong corporate demand, increased digital sales and the benefits of previous restructuring actions partially mitigating the impacts of COVID, which were especially acute in the early months of the first national lockdown.

Profit before tax and exceptional items** was £2.3m (2020: £11.4m) excluding exceptional costs of £1.1m (2020: £3.7m of exceptional items) relating to the impairments and redundancies, net of profit on disposal of assets held for sale. This performance reflected a robust second half when we saw the usual swing to profitability that is typical for the seasonal nature of our business.

A number of operating costs incurred in the year will no longer be incurred going forward, including restructuring costs incurred in relation to the wind down of hamper production, contract packing and the Republic of Ireland business as well as the sale of FMI.

Group billings* decreased by 3.2% to £406.5m (2020: £419.9m) despite growth from our Corporate business. Revenue decreased by 5.2% to £106.8m (2020: £112.7m) due to lower billings with a greater level of deferred revenue following delays in spending whilst customers had fewer options to redeem their products in stores. Some of this deferred revenue is expected to come through in the next financial year.

Operating profit before exceptional items** for the year was £1.9m (2020: £10.1m), of which £7.2m was delivered in H2. Net interest income fell to £0.4m (2020: £1.3m) following lower interest rates on average cash balances (including cash held in trust) of £181.2m (2020: £177.0m).

Digital billings rose four-fold, from £17.7m in 2020 to £68.5m, driven by the introduction of a broad choice of Love2shop e-codes and the launch of a Love2shop Contactless Digital Gift Card to Corporate clients.

Total cash balances, including monies held in trust and bank deposits, at 31 March 2021, were £163.5m (2020: £132.3m).

Following the solid second half performance, and after the reintroduction of the dividend at half year, we are pleased to be in a position to declare a final dividend of 0.6p.

* See accounting policies for a reconciliation of billings to revenue

** see financial review for reconciliation of adjusted to statutory profit measure

Divisional review

We operate in dynamic markets, serving customers in both corporate and consumer channels. The UK gift card market was estimated to be worth approximately £7bn annually1 in 2019 and predicted to grow to £8.7bn by 2025. The market in 2020 was impacted by COVID with data indicating trends of a move from stores to online; from physical to digital; and from B2C to B2B. Some of these trends were already present, with the pandemic serving to accelerate their development.

1Source: UK Gift Card and Voucher Association

Corporate (50.2% (2020: 44.6%) of Group revenue in the year ended 31 March 2021)

Appreciate Group's Corporate business provides around 39,000 business customers with market-leading incentive, recognition and rewards options for an estimated two million recipients to use with around 190 redemption partners with almost 24,000 outlets. 

Corporate billings of £201.3m were 1.8% higher than the prior year (2020: £197.7m), a stable performance having been driven by record levels of new business, a strong Q3 performance and billings through the free school meals scheme of £23.0m. Corporate revenue was £53.7m (2020: £50.3m) representing an increase of 6.8%. Segmental profit decreased by £4.0m to £2.6m (2020: £6.6m) reflecting the lower margin on billings through the free school meals initiative and higher administration costs.

In the year we continued to increase the clients we work with by adding organisations such as B&Q, Halfords and Sharps Bedrooms as new partners.

Consumer (49.8% (2020: 55.4%) of Group revenue in the year ended 31 March 2021)

Consumers can access Appreciate Group's multi-retailer redemption product directly from our website highstreetvouchers.com or via our leading Christmas savings offering, which currently helps approximately 350,000 families budget for Christmas. 

Our Consumer business billings were £205.3m compared to £222.2m in the prior year. Consumer revenue was £53.1m (2020: £62.4m) with a segmental profit of £0.5m versus £5.3m in the prior year, which was impacted by the increase in deferred revenue due to lockdowns.

To support customers in lockdown, a broad range of e-codes were introduced, providing more appealing options to customers spending more time at home, such as Just Eat, xBox Live, Uber Eats and ASOS.

The Christmas Savings' order book for 2020 finished down 8% overall, with most savings' plans in place before COVID struck. The book is currently predicted to be c.14% lower for 2021, having been held back by lockdown restrictions impacting face-to-face agent activity. In addition, unspent paper vouchers are £6.4m higher compared to last year due to shopping restrictions and we believe that some customers intend to use them towards Christmas 2021, rather than starting a new savings plan.

In response to this reduced predicted order book for 2021, a number of initiatives are underway to encourage customers to save and incentivise agents. We held a virtual event to engage agents in May and introduced a regular prize draw to encourage customers to add to their savings' plans. We also introduced new agency commission structure in 2020 to support plans.

The focus on digital has also led to growth in billings through highstreetvouchers.com in the second half, up by over a third (36%) in our peak third quarter. We continued to optimise traffic, with visitors increasing 31.8% in the second half against the previous year; and a continued focus on conversion, with rates up from 3.5% in H2 2020 to 4.7% in H2 2021.

Strategic progress

Since late 2018, Appreciate Group has been delivering a transformation focused on building a robust and scalable business model to support future growth. The strategy is underpinned by four strategic pillars of Productivity, Appeal, Clarity and Experience. Significant investments in infrastructure and technology had been made prior to the pandemic - including the head office move; rebranding to Appreciate Group; launching a digital gift card and cloud technology. The Group focused on accelerating key elements of its business plan over the past year and has made excellent progresses in a number of areas:

Digital growth

It is important that we have solutions that meet the demands of customers in an increasingly digital world. The pandemic has led to a more rapid advancement of consumer digital adoption and we responded by intensifying our own focus on digital.

Investments to strengthen our digital offering and capability helped us respond to the pandemic and boost digital billings during the year, which almost quadrupled. Digital billings represented 17.3% of the overall product mix, up from 4.4% in the previous year. We have also gained significant insight and learnings which will help us enhance our approach further, and we plan to make further investments to support growth in our digital offering. Paper billings were down 46% year on year to 22.5% of the overall product mix, although this will have been partially helped by lockdown.

Simplifying our business

Our long-term strategy is to focus on our core product and delivering for our customers and clients in the Prepayment; Gifting and Engagement markets which provide the vast majority of the Group's profits. During the year we accordingly disposed of, or withdrew from, a number of non-core activities including hamper production, contract packing, our operations in the Republic of Ireland, and the brand engagement agency, FMI. Management focus is now dedicated to improving and driving the core business where we see opportunities for scale and growth.

A sale of the land and buildings at Valley Road, Birkenhead, was completed for £3.1m during the first half of the year, freeing up funds for investment in the core business.

Continuing to invest in IT

The next phase of the Enterprise Resource Planning (ERP) programme remains on track to be delivered during the summer, with the following phase scheduled in the second half of the financial year. This is a cornerstone of our target to build a robust and scalable platform and will provide significant benefits through enhanced resilience and workflow. The scope of the project has evolved as the Group has accelerated and prioritised its digital focus during the pandemic, which together with the impact of COVID restrictions, has resulted in additional programme costs. Cumulative project costs total c.£5.9m, of which £3.5m was incurred in the financial year ended 31 March 2021.

The first phase involves replacing current back office systems for highstreetvouchers.com with Microsoft Dynamics 365, leading to enhanced efficiencies and improvements in the customer experience.

We migrated to a new state-of-the-art, out-sourced data centre in April 2021. This provides increased reliability and resilience.

The Group plans to continue to invest in enhancing its digital proposition to exploit future growth opportunities.

Growth in Corporate

We repositioned our B2B business to support our plans for growth, rebranding it to 'Appreciate: The home of Love2shop'. This places us as experts in rewards and recognition whilst retaining the well-recognised Love2shop brand. The business enjoyed a successful Q3 peak period including our busiest ever December, as clients explored alternatives to reward their workforces, leading to record levels of new business with £19.3m during the year.

We launched a Love2shop Contactless Gift Card, our in-wallet digital gift card, to Corporate clients in September building on insight from its consumer launch. Overall billings for this were £1.8m for the year.

Through our successful partnership with Iceland, we helped provide thousands of children with free school meals. By working at pace when the date of the scheme was extended, we were able to ensure recipients could shop at the supermarket.

Our Corporate business continues to achieve high customer satisfaction scores on Trustpilot with an average of 4.6 out of 5 and 83% of reviews rating as excellent, demonstrating the strength of our proposition in this growing market.

Workplace culture

During the year we received external recognition for the progress we are making on our workplace culture. I am proud that we became an accredited Great Place To Work and that our office relocation to Liverpool received a prestigious Business Culture Award.

Strengthened marketing

We are placing a greater focus on digital marketing and commercial planning as we seek to deliver future growth. The Marketing team has been restructured to support this and make better use of insight to provide analysis for product development, campaigns and strategy. A new Commercial Planning function will help deliver targets and campaigns alongside best practice planning and digital marketing.

Improving customer choice

We continued to expand our redemption partner range to offer a broader choice to customers. Food options such as Nando's, Bella Italia and RealFoodHub.co.uk have been added, alongside attractive brands such as Schuh and Superdry. Customers now have more flexibility between online and in store redemptions, and the ability to choose from food, hospitality, leisure and entertainment alongside leading retailers.

Regulation

We are committed to complying with all relevant regulations. All e-money providers are now required to undertake an annual audit of their safeguarding practices, with many of these initial sector-wide audits expected to identify areas for improvement to meet updated safeguarding regulations. Our safeguarding audit is ongoing. Findings to date have identified areas of administrative and procedural practices that should be improved, none of which resulted in any loss of funds. As a result, we have made changes, or are in the process of doing so, to improve these, whilst also strengthening our controls environment.

Improved distribution

In May 2021, we entered into a new distribution partnership with PayPoint that will provide consumers with the opportunity to purchase Love2shop e-codes from a network of 28,000 locations across the UK. This now gives us a physical presence to offer our products to customers in the heart of communities for millions of people across the UK. We are working with PayPoint to develop a marketing strategy to leverage this exciting, new partnership.

Looking ahead

The actions taken to respond to the pandemic have helped us deliver a resilient performance during one of the most uncertain periods in the history of our business.

Appreciate Group remains well positioned in its markets with differentiated product and service offerings. Following the accelerated investments in digital and infrastructure, we now look forward to building on the progress we have made and navigating further uncertainties in the economic recovery.

Whilst there is optimism following the success of the vaccine rollout, uncertainty about the speed at which normal levels of activity will return remains. Despite a slower than anticipated start to the new financial year, we expect a recovery for the year overall with an increasing benefit from the investments and innovations we have made over the last two years.

Overall, we have a clear strategic plan and our business model is better positioned than ever to deliver sustainable growth as the economy emerges from lockdown. The Board is, therefore, confident of the Group's future success.

Ian O'DohertyChief Executive28 June 2021

Chief Financial Officer Review

Impact of COVID-19

The impact of COVID-19 has had a significant impact on the financial results for the year.

For the majority of the first quarter, we were in the first lockdown and our priority was to protect the safety of our employees and partners. Consequently, we closed our physical despatch facility that had an impact on our ability to sell products at that time.

To protect the financial health of the business, whilst the economic outlook was unclear, the Board took the decision to cancel the dividend relating to 2019/20, preserving £6.0m of cash. In November 2020, we announced our intention to reintroduce the dividend for 2020/21. Initially we furloughed up to 79 employees, receiving £0.3m from the Government's Job Retention Scheme, however the Board chose to repay these funds in December 2020.

Whilst demand levels remained low throughout Q1, as the UK came out of lockdown in Q2, business levels began to recover, and improved further during Q3, which included a record month for billings in December. Our billings benefitted from inclusion in the Government's Free School Meals campaign, where we supported Iceland and achieved billings of £23.0m in the year.

The order book for our Christmas Savers business is normally complete by March and this did not experience any significant level of cancellations, and finished, as expected 8% lower than the prior year.

A number of strategic projects were delivered during the year. In August we completed a bank financing exercise of an unsecured 5 year revolving credit facility (RCF) with Santander UK of £15m plus an additional uncommitted accordion of £10m. This facility will provide additional financial flexibility enabling longer term growth, as well as investing in the continued switch to digital products. This facility has not yet been utilized.

We completed the sale of the land and buildings of our former head office in Valley Road, Birkenhead for £3.1m, in line with the net book value of the asset. At the same time we announced the closure of our hamper production and third party packing business. The redundancy and stock impairment costs of £1.1m are included within exceptional items. There are further losses relating to our hamper packing business, costs of decommissioning our previous head office and losses in FMI that suppress the underlying result this year but will be non-recurring next year.

In Q3 we concluded the disposal of FMI, our brand engagement agency, reporting a profit on the sale of £0.2m.

In the final quarter of the year, as the UK entered another national lockdown, non-essential retail businesses were temporarily closed again, which limited the opportunity for our customers to use their products. This meant that redemption levels during Q4 were lower than expected, leading to higher unspent balances. Whilst this preserved cash relating to unregulated products, it created a much higher level of deferred revenue (£11.2m in 2021 vs 7.4m in 2020). This is because revenue and profit are recognised when products are redeemed. We expect some of this deferred revenue to come through in the next financial year.

Billings* and Revenue

The Group's products are split into the following categories:

· Multi-retailer redemption products - Love2shop vouchers, flexecash® cards, Mastercards and e-codes

· Single retailer redemption products - third party retailer vouchers, cards and e-codes

· Other - hampers, merchandise and consultancy fees. Hampers and merchandise operations were closed during the year.

Multi-retailer redemption product billings are the gross value of goods and services shipped and invoiced to customers during the year. Revenue for multi-retailer redemption products is the net service fee received on redemption, cardholder fees and breakage which are recognised when multi-retailer redemption products are redeemed.

For single retailer redemption products and other, both billings and revenue are the gross value of goods and services shipped and invoiced to customers during the year.

* See accounting policies for a reconciliation of billings to revenue

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.

The mix of in-house, multi-retailer products remains high within billings, in line with the strategy of promoting our own products. The mix of multi-retailer redemption products was 86.5% of total billings, marginally higher than last year's 84.4%.

Revenue decreased by 5.2% to £106.8m. There was a greater mix of single retailer redemption products that are reported gross in revenue as opposed to multi-retailer redemption products that are reported net. This was due to a high level of conversions of digital e-codes that are categorised as multi retailer products when billed to customer but later converted to single store use. The increase in single store revenue was offset by lower multi-retailer product revenue, due to more conversions, and lower other income due to the cessation of hamper production and contract packing.

Profit from operations

The Group's operations are divided into two principal operating segments:

· Consumer - which represents sales to consumers, utilising the Group's Christmas savings offering and our website, highstreetvouchers.com; and

· Corporate - comprising sales to businesses, offering primarily sales of the Love2shop voucher, flexecash® 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.

Consumer

In the Consumer business, customer billings have decreased by 7.6% from £222.2m to £205.3m. Billings for Christmas savers were down by 8.4%, partially offset by an improved performance in other Consumer billings, derived through the highstreetvouchers.com website, which were 18.2% higher. Revenue has decreased 14.9% to £53.1m (2020: £62.4m) because of delayed redemptions by customers due to the closure of non-essential retail in the final quarter of the financial year.

Operating profit was £0.5m, a decrease of £4.8m from the £5.3m achieved in the prior year. This was primarily due to lower revenue and an increase in administration costs, as explained below, relating to the closure of our hamper packing business.

Corporate

In the Corporate business customer billings have increased by 1.8%, from £197.7m to £201.3m. This increase includes £23.0m of Free School Meal codes redeemable through Iceland which offset the lower demand experienced during the first half of the year during the first lockdown. Corporate revenue increased by 6.8% over the prior year, from £50.3m to £53.7m due to higher billings and more conversions to single retailer products that is reported gross in revenue.

Operating profit decreased to £2.6m (2020: £6.6m) due to lower margin business and higher administration costs.

All other segments

Central and property costs reduced from £5.5m to £2.3m. This is due to the impairment cost of the Valley Road site at £1.8m included in the prior year number.

Administration Costs

Administration costs increased from £20.0m to £21.1m due to consultancy and advisory costs relating to projects completed in the year.

Reconciliation of adjusted to statutory profit

The Board believes that adjusted profit excluding non-recurring items such as impairments and redundancy costs is the best measure of the underlying performance of the Group. This gives stakeholders a better understanding of the Group's trading position in the year by adjusting for items which are significant in value, infrequent and in the case of impairments, do not have a cashflow impact in the year.

Exceptional Costs

Exceptional costs for the year were £1.1m compared with £3.7m in the prior year. In the year, we closed hamper production and our contract packing business based at Valley Road. Following consultation with staff we made 40 roles redundant and have incurred exceptional costs of £0.6m. Additionally, we impaired the value of hamper stock by £0.4m.

Finance income

Finance income decreased to £0.8m from £1.5m due to the lowering of the Bank of England base rate. Average total cash held by the Group, including cash held in trust during the year increased by 2.4% to £185.0m (2020: £177m).

Taxation

The effective tax rate for the year was 32.1% (2020: 28.4%) of profit before tax. The rate is higher than the standard rate of corporation tax of 19% due primarily to legal fees, property, plant and equipment additions and the share option charge not attracting tax relief.

VAT deferral

The Company took advantage of the government's COVID-19 VAT deferral scheme, and owed £697,954 as at 31 March 2021. This will be repaid in full during the new financial year.

Earnings per share

Basic earnings per share (EPS) fell by 84.5% from 2.96p in 2020 to 0.46p. Excluding the exceptional charge basic EPS is 1.03p (2020: 4.93p), down 79.1%.

Dividends

It has been the Board's policy to distribute just over half of post-tax profit as dividend, with one third of that as an interim dividend and the remaining two thirds as a final dividend. Following the cancellation of the dividend for the financial year 2019/20, the Board is pleased to reintroduce this policy for the current year and recommends a full year dividend of 1.0p (2020: nil).

Cash flows and treasury

Cash flows from operating activities were £4.9m, £2.0m (29.0%) lower than the prior year, due to the decrease in profit and an increase in monies held in trust, offset by a working capital cash inflow. Monies in trust grew from £102.7m in 2020 to £132.1m. This growth was primarily in the Park Card Services Limited e-money Trust (PCSET) to support the e-money float in accordance with regulatory requirements. This increased by £25.2m to £69.4m due to higher levels of card and digital business.

In addition, £51.5m (2020: £55.1m) was held by the Park Prepayments Trustee Company Limited. The trust holds payments received in respect of orders for delivery the following Christmas. The conditions for the release of this money to the Group are detailed in the trust deed, which is available at www.getpark.co.uk.

Also, at 31 March 2021, the Group held £11.1m of other ring fenced funds (2020: £3.4m).

At the end of March 2021, £31.4m (2020: £29.6m) of cash was held by the Group. This was £1.8m (6.1%) higher than last year due to lower redemptions by customers offset partly by lower profit.

The total amount of cash and deposits net of any overdraft position held by the Group, combined with the monies held in trust, has increased in the year by 23.6% to £163.5m from £132.3m. These total balances peaked at just under £236m in the year, representing a marginal increase of £1.3m from the prior year.

During the financial year, we completed a bank financing exercise of an unsecured 5 year revolving credit facility (RCF) with Santander UK of £15m plus an additional uncommitted accordion of £10m. This facility will provide additional financial flexibility enabling longer term growth, as well as investing in the continued switch to digital products. 

Intangible Assets

As part of the Board's strategy to develop a scalable and resilient platform to enable future growth, we have continued to invest in our technology platform in the year with £5.0m of additions (prior year £3.3m). This included investment in a new ERP platform, Microsoft Dynamics 365, of £3.5m in the year, taking cumulative spend on this project to £5.9m.

Trade and other payables

Included within trade and other payables is deferred income in respect of multi-retailer redemption products (vouchers, cards and e-codes). Revenue is deferred for service fees and breakage, net of discount. The amount of revenue deferred at March 2021 has increased to £11.2m from £7.4m in the prior year due the closure of non-essential retail in Q4 causing much slower redemptions by customers.

Provisions

At 31 March 2021, provisions have increased to £77.9m from £53.8m. This was mainly due to an increase in the amounts provided in respect of flexecash® cards of £20.0m and an increase in the amounts provided for unspent vouchers of £4.1m.

Pensions

The Group continues to operate two defined benefit pension schemes, where pensions at retirement are based on service and final salary. These schemes are now closed to future accrual of benefit arising from service with the Group. These schemes have a combined net pension surplus of £2.1m based on the valuation under IAS19 performed at 31 March 2021 (2020: surplus of £4.2m).

Following a High Court ruling in November 2020 in respect of Guaranteed Minimum Payments (GMP) equalisation uplifts to historic transfer values, our actuaries have calculated that the expected impact of this for the group is £73,000 and this has been recognised in the statement of profit or loss.

The Group has recognised net interest income of £99,000 (2020: £44,000) in the statement of profit or loss in respect of the pension schemes. In addition, the Group has recognised a re-measurement loss in the statement of comprehensive income (SOCI) of £1.7m (2020: gain of £1.9m) net of tax.

In the year ended 31 March 2021, there were no contributions by the Group to the schemes (2020: nil). The latest triannual scheme funding reports, performed as at 31 March 2019, indicated that one scheme had a technical provisions deficit (reflecting the liabilities to pay pension benefits in relation to past service as they fall due) of £0.1m and one had a surplus on the same basis of £1.6m. No further contributions to either scheme are currently required. The next triannual valuation will be undertaken as at 31 March 2022 when the positions will be reassessed.

Tim Clancy

Chief Financial Officer

28 June 2021

Going Concern Disclosures

The financial statements are prepared on a going concern basis.

The Group has access to a £15m Revolving Credit Facility ("RCF") that is available until August 2025. A further £10m of uncommitted funds is available via an accordion facility attached to the RCF however this is uncommitted. The Group has not drawn down on the RCF in the year to 31 March 2021 nor to the date of signing these financial statements.

The Group is required to comply with covenants attached to the RCF. These covenants are:

· Interest Cover (the ratio of EBITDA to Finance Charges) in respect of any relevant period ending on or after 31 March 2021, shall not be less than 4.0:1.

· Adjusted Leverage (the ratio of Total Net Debt to Adjusted EBITDA) in respect of any relevant period ending on or after 30 September 2020 must not exceed 3.0:1.

· PPPT Balance (the ratio of PPPT Balance to Monies in Advance Balance) on each Quarter Date must not be less than 1.0:1.

The Directors have modelled management's best estimate of financial results for the Going Concern assessment period to 31 December 2022 (the "Going concern period") and adopted the plan as the Board approved budget. Alongside the Board approved budget, the Board have identified and approved cost control measures; and together these form our Base Case.

The Base Case assumes:

· A decrease in Year 1 billings compared to 2020/2021 actuals, with then an 8% increase in Year 2 (over Year 1).

· Christmas savers order book £170m in both years.

· A reduction in paper redemptions compared to 2020/2021, followed by a significant decrease in Year 2 in line with the decrease in paper product mix. Increased card and digital redemptions in both years.

· Product Mix: Paper billings for Consumer assumed to be 21% in Year 1 and 15% in Year 2; paper billings for Corporate assumed to be 7% in Year 1, with minimal levels assumed in Year 2. Remaining billings are assumed to be card / digital.

· A flat cost base compared to the prior year for administrative expenses and staff costs in both years.

· Capital spend is restricted to that required to complete the ERP system and only further essential IT development in Year 2.

· Dividend payment of £1.5m is assumed in October 2021 in line with our stated divided policy, with future dividend payments subject to trading results and so not modelled in the Base Case.

The Base Case requires the group to draw down on the RCF in the period, with the lowest headroom being £4.9m in September 2022.

The Directors have modelled six plausible downside scenarios to test the sensitivity of the Base Case. The scenarios are as follows:

1. Corporate and Gifting billings remain flat against the 2020/2021 actuals.

2. Christmas Savers order book £165m in Year 1 and £150m in Year 2.

3. A combination of 1 and 2 above.

4. An additional 10% shift from paper to digital products above the Base Case in Year 1 and 2.

5. 25% faster redemption of paper products and 25% slower redemption of card and digital products than Base Case in Year 1 and 2.

6. A combination of 3, 4 and 5 above.

In scenarios 1 to 5 the Group would not breach its headroom in the period to 31 December 2022, and would be fully compliant with all of its RCF covenants. In the most extreme downside scenario 6, the Group would breach its headroom by £2.3m, but would be fully compliant with all of its RCF covenants in the period to 31 December 2022.

Current trading for the year to mid-June 2021 shows billings levels lower than the Base Case. When the % reduction in current billings versus Base Case are run in conjunction with current trends on product mix and redemptions, the outcome is not as severe as sensitivity 6, and the Group remains compliant with its covenants and does not breach its headroom.

Management have identified mitigating actions, additional to those in the Base Case, to provide headroom, if necessary, during the going concern period. These include:

· cost saving initiatives that would result in cash savings of £2.3m in the going concern period, relating to reductions in administrative and staff costs. A decision will be taken at the end of July 2021, dependent on trading, with implementation from October 2021 should they be deemed necessary.

· two strategy changes, which could generate significant additional headroom in key months. The first reduces marketing spend in respect of Christmas Savers whilst maintaining the paper voucher mix; and the second maintains the paper voucher mix currently being experienced in our Corporate customer base by avoiding moving Corporate accounts away from paper vouchers. These will be implemented with immediate effect.

When overlaying these mitigating actions and assumed outcomes, which includes an associated reduction in Christmas Savers Year 2 order book to £145m; these provide significant headroom across the going concern period, with the lowest forecast headroom in Year 1 being £5.2m in September 2021, and lowest forecast headroom in Year 2 being £6.3m in July 2022.

Management have modelled a number of reverse stress tests which consider whether the reduced marketing spend could more severely impact Year 2 Christmas Savers billings; and consider adverse movements on the Christmas Savers product mix in Year 1. Assuming product mix remains in line with base case and the current Year 1 order book then it would take a 40% reduction against base case in the order book in year one and 56% reduction against base case in Year 2 for the Group to run out of headroom. The Group would remain compliant with its covenants, as they are less sensitive than the liquidity headroom to these changes in billings and product mix. The Board consider those variances over Base Case to be implausible.

Conclusion

Having carefully considered the Base Case, downside scenarios, current trading and trends since the year-end, and further mitigating actions available, as well as the £15m committed RCF, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the period to 31 December 2022. Therefore, the directors continue to adopt the going concern basis of accounting in preparing the consolidated financial statements.

Risk Factors

Financial risks

Operational risks

Ian O'DohertyChief Executive Officer28 June 2021

Appreciate Group plc

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR TO 31 MARCH 2021

Appreciate Group plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR TO 31 MARCH 2021

Appreciate Group plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2021

Appreciate Group plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Other reserves relate to the acquisition of a minority interest in a subsidiary.

Appreciate Group plc

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR TO 31 MARCH 2021

(1) Basis of preparation

The financial statements have been prepared in accordance with international accounting standards in conformity with the Companies Act 2006.

Appreciate Group plc is incorporated and domiciled in the United Kingdom. The financial statements have been prepared under the historical cost convention, as modified by the accounting for financial instruments at fair value where required by IAS 39 Financial Instruments: Recognition and Measurement. The Group financial statements are presented in sterling and all values are rounded to the nearest thousand (£'000) except where otherwise stated.

The accounting policies have been applied consistently to all periods presented in these financial statements and by all Group entities.

Further to the year end, in addition to the normal operational transfers and to further establish the amounts held in Monies held in trust, the Group made a one-off transfer of £4.8m on 19 May 2021 from Cash to Monies held in trust.

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 March 2021 or 2020 but is derived from those accounts.

Statutory accounts for 2020 have been delivered to the registrar of companies. The auditor, Ernst & Young LLP, has reported on the 2020 accounts; the report (i) was unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The statutory accounts for 2021 will be delivered to the registrar of companies following the AGM. The auditors have reported on these accounts; their report is unqualified and does not include a statement under either section 498(2) or (3) of the Companies Act 2006.

The annual report will be posted to shareholders on or before 30 July 2021 and will be available from that date on the Group's website: www.appreciategroup.co.uk.

(2) Going concern

The financial statements are prepared on a going concern basis.

The Group has access to a £15m Revolving Credit Facility ("RCF") that is available until August 2025. A further £10m of uncommitted funds is available via an accordion facility attached to the RCF however this is uncommitted. The Group has not drawn down on the RCF in the year to 31 March 2021 nor to the date of signing these financial statements.

The Group is required to comply with covenants attached to the RCF. These covenants are:

· Interest Cover (the ratio of EBITDA to Finance Charges) in respect of any relevant period ending on or after 31 March 2021, shall not be less than 4.0:1.

· Adjusted Leverage (the ratio of Total Net Debt to Adjusted EBITDA) in respect of any relevant period ending on or after 30 September 2020 must not exceed 3.0:1.

· PPPT Balance (the ratio of PPPT Balance to Monies in Advance Balance) on each Quarter Date must not be less than 1.0:1.

The Directors have modelled management's best estimate of financial results for the Going Concern assessment period to 31 December 2022 (the "Going concern period") and adopted the plan as the Board approved budget. Alongside the Board approved budget, the Board have identified and approved cost control measures; and together these form our Base Case.

The Base Case assumes:

· A decrease in Year 1 billings compared to 2020/2021 actuals, with then an 8% increase in Year 2 (over Year 1).

· Christmas savers order book £170m in both years.

· A reduction in paper redemptions compared to 2020/2021, followed by a significant decrease in Year 2 in line with the decrease in paper product mix. Increased card and digital redemptions in both years.

· Product Mix: Paper billings for Consumer assumed to be 21% in Year 1 and 15% in Year 2; paper billings for Corporate assumed to be 7% in Year 1, with minimal levels assumed in Year 2. Remaining billings are assumed to be card / digital.

· A flat cost base compared to the prior year for administrative expenses and staff costs in both years.

· Capital spend is restricted to that required to complete the ERP system and only further essential IT development in Year 2.

· Dividend payment of £1.5m is assumed in October 2021 in line with our stated divided policy, with future dividend payments subject to trading results and so not modelled in the Base Case.

The Base Case requires the group to draw down on the RCF in the period, with the lowest headroom being £4.9m in September 2022.

The Directors have modelled six plausible downside scenarios to test the sensitivity of the Base Case. The scenarios are as follows:

1. Corporate and Gifting billings remain flat against the 2020/2021 actuals.

2. Christmas Savers order book £165m in Year 1 and £150m in Year 2.

3. A combination of 1 and 2 above.

4. An additional 10% shift from paper to digital products above the Base Case in Year 1 and 2.

5. 25% faster redemption of paper products and 25% slower redemption of card and digital products than Base Case in Year 1 and 2.

6. A combination of 3, 4 and 5 above.

In scenarios 1 to 5 the Group would not breach its headroom in the period to 31 December 2022, and would be fully compliant with all of its RCF covenants. In the most extreme downside scenario 6, the Group would breach its headroom by £2.3m, but would be fully compliant with all of its RCF covenants in the period to 31 December 2022.

Current trading for the year to mid-June 2021 shows billings levels lower than the Base Case. When the % reduction in current billings versus Base Case are run in conjunction with current trends on product mix and redemptions, the outcome is not as severe as sensitivity 6, and the Group remains compliant with its covenants and does not breach its headroom.

Management have identified mitigating actions, additional to those in the Base Case, to provide headroom, if necessary during the going concern period. These include:

· cost saving initiatives that would result in cash savings of £2.3m in the going concern period, relating to reductions in administrative and staff costs. A decision will be taken at the end of July 2021, dependent on trading, with implementation from October 2021 should they be deemed necessary.

· Two strategy changes, which could generate significant additional headroom in key months. The first reduces marketing spend in respect of Christmas Savers whilst maintaining the paper voucher mix; and the second maintains the paper voucher mix currently being experienced in our Corporate customer base by avoiding moving Corporate accounts away from paper vouchers. These will be implemented with immediate effect.

When overlaying these mitigating actions and assumed outcomes, which includes an associated reduction in Christmas Savers Year 2 order book to £145m; these provide significant headroom across the going concern period, with the lowest forecast headroom in Year 1 being £5.2m in September 2021, and lowest forecast headroom in Year 2 being £6.3m in July 2022.

Management have modelled a number of reverse stress tests which consider whether the reduced marketing spend could more severely impact Year 2 Christmas Savers billings; and consider adverse movements on the Christmas Savers product mix in Year 1. Assuming product mix remains in line with base case and the current Year 1 order book then it would take a 40% reduction against base case in the order book in year one and 56% reduction against base case in Year 2 for the Group to run out of headroom. The Group would remain compliant with its covenants, as they are less sensitive than the liquidity headroom to these changes in billings and product mix. The Board consider those variances over Base Case to be implausible.

Conclusion

Having carefully considered the Base Case, downside scenarios, current trading and trends since the year-end, and further mitigating actions available, as well as the £15m committed RCF, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the period to 31 December 2022. Therefore, the directors continue to adopt the going concern basis of accounting in preparing the consolidated financial statements.

(3) Changes to International Financial Reporting Standards

Interpretations and standards which became effective during the year

The following accounting standards and interpretations, that are relevant to the Group, became effective during the year:

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of 'material' across the standards and to clarify certain aspects of the definition. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.'. The amendments to the definition of material have not had a significant impact on the Group's consolidated financial statements.

The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group, but may impact future periods should the Group enter into any additional business combinations.

Interpretations and standards which have been issued and are not yet effective

The following accounting standards and interpretations, that are relevant to the Group, have been issued but are not yet effective for the year ended 31 March 2021 and have not been applied in preparing the financial statements.

Each amendment has been considered by management and the first five are not expected to have a significant impact on the Group's future consolidated financial statements.

The amendments to IAS 12 require companies, at the beginning of the earliest comparative period presented to recognise deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The proposed amendments will typically apply to transactions such as leases for the lessee and decommissioning obligations. The amendments should be applied on a modified retrospective basis. The cumulative effect of initially applying the amendments will be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate). Management are currently assessing the impact of the amendment to IAS 12 on the group but expect it to result in the recognition of additional deferred tax assets and liabilities due to the group having substantial balances of right-of-use assets and lease liabilities.

(4) Accounting policies

The financial information in this preliminary announcement has been prepared in accordance with the accounting policies described in the annual report and accounts for the year ended 31 March 2020. The annual report and accounts for the year ended 31 March 2020 can be found on our website at www.appreciategroup.co.uk.

Billings

Billings represents the value of goods and services shipped and invoiced to customers during the year and is recorded net of VAT, rebates and discounts. Billings is an alternative performance measure, which the directors believe provides a more meaningful measure of the level of activity of the Group than revenue. This is due to revenue from multi-retailer redemption products being reported on a 'net' basis, whilst revenue from single retailer redemption products and other goods are reported on a 'gross' basis.

The reconciliation between billings and revenue is as follows:

(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, entities are required to disclose disaggregated revenue information to illustrate how the nature, amount, timing and uncertainty about revenue and cash flows are affected by economic factors. Management have considered this requirement and have disclosed information with regard to type of good or service, market or type of customer, timing of transfer of goods or services and geographical region. Management believe that this level of disaggregation is sufficient to satisfy the disclosure requirements of the standard.

Unredeemed cards

The directors have assessed the features of the Group's multi-retailer redemption products and concluded that unredeemed balances on corporate gifted cards do not meet the definition of a financial liability within the scope of IFRS 9. This is because the cards have expiry dates after which the card cannot be redeemed. The cards can also be redeemed with the Group for certain goods or services and cannot be redeemed in cash. As a result, the liabilities relating to these products are not within the scope of IFRS 9 and are instead measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Determining the lease term of contracts with renewal and termination options - Group as lessee

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has two material lease contracts that include extension and termination options. One of these is the lease of floor 3 and 4, 20 Chapel Street Liverpool. The Group included the renewal period as part of the lease term, as the majority of the Group's operations are based in this site in Liverpool City Centre. As a result of this, the lease extension is reasonably certain to be exercised.

The other lease is for rack space and data hosting services, which has an initial term of one year with an automatic rolling 12 month extension option if not cancelled. It has been estimated the lease will be renewed for a further two years, however the exact length of the extension is dependent on the progress of the Group's cloud migration project, and may be shorter. As the racks and data hosting are critical to the operation of the business, a two year extension renewal period has been included as part of the lease term, as it is reasonably certain that the lease extension will be exercised for this period of time.

Estimates

The key assumptions and other sources of estimation uncertainty at the reporting date are described below:

Provisions for unredeemed vouchers and cards

A provision is made in respect of unredeemed vouchers and cards. The provision is calculated by estimating anticipated amounts payable to retailers on redemption and the expected timing of payments. Historical data over a number of years and current trends are regularly reviewed and are used to prepare these estimates. Any differences to the estimates may necessitate a material adjustment to the level of the provision held in the statement of financial position. Management have considered the sensitivities of the key estimates and do not foresee that any likely change in these estimates will have a material impact on the size of the provision.

In the base case scenario, voucher redemptions are assumed to slightly decrease in Year 1 against the prior year, and then significantly decrease in Year 2 in line with the fall in the paper voucher mix. Card redemptions are assumed to increase in Year 1 against the prior year, and increase again in Year 2, in line with the shift in product mix towards card and digital products.

Post year end redemptions for the first quarter of the financial year ended 31 March 2022 have been lower than the levels forecasted by the Group. The actual increase compared to the corresponding quarter in the prior year in voucher redemptions was 300%, and the actual increase in card redemptions was 183%, due to the majority of high street retailers being closed due to the lockdown in the first quarter of the prior year. It is assumed redemptions will come in line with the base case by the end of the year, so any impact of this would be negligible.

Breakage

For multi-retailer redemption products where the end user has no right of redemption (corporate gifted cards and vouchers), the Group may expect to earn a breakage amount. In order to calculate the expected breakage amount, the Group estimates how many products will be fully redeemed and how many will be partially redeemed. For those which are partially redeemed, the Group estimates projected balances remaining on the products at expiry. Historical data and current trends regarding patterns of redemption and expiry are used to prepare the estimates. As redemption behaviour may differ by market, historical data and current trends are reviewed at this level. If the expected level of breakage were to change by 1.0%, the impact on revenue for the reporting period would be £0.1m. Management have considered the sensitivity of this estimate and do not foresee that any likely change to the estimate will have a material impact on either the level of deferred income held in the statement of financial position or the amount of revenue for the reporting period.

Deferred income - Love2shop voucher redemption timing

As described in the revenue recognition accounting policy revenue for multi-retailer redemption products is recognised in proportion to actual redemption timing, generating deferred income balances until the point of redemption. For Love2shop vouchers, there is a time delay between the point of redemption and when they are physically returned to the Group for validation and accounting purposes. To negate the effects of this delay, an adjustment is made at the end of the reporting period, which estimates the value of vouchers already redeemed but not yet returned to the Group and records the associated revenue. Historical data over a number of years and current trends are used to prepare the estimate. Management have considered the sensitivity of this estimate and do not foresee that any likely change to the estimate will have a material impact on either the level of deferred income held in the statement of financial position or the amount of revenue for the reporting period.

Goodwill

Goodwill arising on acquisition represents the difference between the consideration and the fair value of net assets acquired. Goodwill is not amortised, but is reviewed annually for impairment and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be receivable. The impairment review relies on a number of assumptions (see note 9 for details). Any differences to the assumptions made may necessitate a material adjustment to the level of goodwill held in the statement of financial position.

Other intangible Assets

The Group applies judgement in assessing whether the costs incurred, both internal and external, will generate future economic benefits and therefore should be capitalised. Any redundant costs are not capitalised, but are expensed during the period in which they are incurred. Amortisation commences when management determine the asset is available for use i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. This is estimated to be August 2021 for the new ERP system (£5.9m), when phase 1 is expected to be in a position to go live.

Significant judgements and estimates are applied in determining the carrying value of the assets, including assumptions made in respect of the status of the programme each asset relates to, and there may be a range of possible outcomes when a programme is complex. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. At each reporting date the Group reviews the carrying value of its tangible and intangible assets, including those not yet in use, to determine whether there is any indication that those assets have suffered an impairment loss.

Incremental borrowing rate (IBR)

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Management have used rates ranging from 3.3% to 4.9% in respect of leases entered in to during the year.

(6) Segmental analysis

The Group's operations are divided into two principal operating segments:

· Consumer - which represents sales to consumers, utilising the Group's Christmas savings offering and our website, highstreetvouchers.com; and

· Corporate - comprising sales to businesses.

Both segments offer primarily sales of the Love2shop voucher, flexecash® cards, Mastercards and e-codes in addition to other retailer vouchers.

All other segments are those items relating to the corporate activities of the Group which it is felt cannot be reasonably allocated to either business segment.

Finance income, finance costs and taxation are not allocated to individual segments as they are managed on a Group basis.

The Group operates in only one geographical segment, being the UK. The Group's operations in Ireland were immaterial to the results and assets of the Group for the year ended 31 March 2021.

All other 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:

An analysis of the Group's external revenue is as follows:

The majority of revenue from contracts with customers is recognised at a point in time.

The reason for the fall in revenue from other goods compared to the prior year was the Group's decision to cease the production and sale of hampers. The fall in revenue from other services was due to the disposal of FMI during the period (see note 11).

The Group has elected not to report on segment assets and liabilities as this information is not provided to the Chief Operating Decision Maker (CODM) and is not relevant to the CODM's decision making. In respect of Appreciate Group plc the CODM is regarded as the executive members of the Board of directors.

All other segments loss comprises primarily of staff costs, professional fees and the impairment of the Valley Road Site.

An analysis of the Group's external revenue is as follows:

The majority of revenue from contracts with customers is recognised at a point in time.

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 £851,000 (2020: £5,511,000) and on the weighted average number of shares, calculated as follows:

109,348 shares have been considered anti-dilutive during the year, that could potentially dilute basic EPS in the future (2020: 650,337 shares).

(9) Goodwill

Goodwill allocation to CGUs

Goodwill is allocated to the following CGUs and is tested for impairment at this level:

Consumer - Family (£582,000) & Country Hampers Franchisee (£nil)

The key data and assumptions in the value in use calculations were as follows:

▪ The final order position for the previous Christmas.

▪ The budgeted gross margins. These margins are forecast to be maintained going forward.

▪ Average agent retentions forecast. These are based on historical performance of agent retention achieved. Historically, such forecasts have been materially correct. An additional 10% fall in retention has been factored into the forecast for the year ended 31 March 2022 to reflect the current trading environment (a 15% fall in retention per year is typically used, which has been increased to 25% for the year ended 31 March 2022).

▪ Base case scenario revenue. This is based on average historical order value and average agent retention rates which have been extrapolated forward 10 years. The generally high retention values for customers supports the adoption of a 10 year customer life cycle value as being appropriate for the business. No revenue growth has been factored into the data used in the calculation (2020: nil).

The resulting cash flows were discounted using a weighted pre-tax discount rate of 17% (2020: 16.54%).

The impairment in the year of £157,000 (2020: £434,000) against the Family Franchisee goodwill represents the impact of a small reduction in forecasted agents retention and a slight decrease in margin due to the change in product mix and higher commissions. As described above, agents retention is expected to be lower for the year ended 31 March 2022 (75%) due to COVID 19 and the impact of lockdowns. Each year thereafter, retention is expected to return to more typical levels of around 85%. The commission structure has been revised and commissions have been increased as part of the strategy to incentivise agents and increase orders. These changes impact each year going forward in the impairment model. The impairment is included within exceptional costs in the Consumer segment.

There is a reasonably possible chance that a change in one or more of the key assumptions could give rise to an impairment. A sensitivity analysis was performed where changes in key assumptions were tested, those being changes in the discount rate, retention of agents and margin. The following table summarises the impact on the goodwill impairment at the end of the reporting period, if each of these key assumptions were changed, in isolation.

There is also a reasonably possible chance of the pre-tax discount rate increasing to 18.8%. This would result in an additional impairment of £28k.

The impairment in the year of £61,000 (2020: £52,000) against the Country Hampers Franchisee goodwill primarily represents the reduction in agents that were originally acquired from Country Hampers. This reduces the Country Hampers Franchisee goodwill to nil and is included within exceptional costs in the Consumer segment.

The disposals during the year relate to companies that are no longer owned by the group, FMI and Espana Villas. The goodwill relating to these companies had been fully written down in previous years.

(10) Inventories

The cost of inventories recognised as an expense in the year is £40,530,000 (2020: £55,103,000).

The write down of inventories recognised as an expense in the period is £337,000 which comprises a credit of £77,000 in respect of provision adjustments in the corporate part of the business, offset by an exceptional impairment in respect of stock in the consumer part of the business of £414,000 (2020: write down of inventories recognised as an expense £184,000).

Following the closure of the packing operations, including hamper packing, in the year the Group impaired raw materials and finished goods stock by £414,000, which is included within the £337,000 as detailed above (2020: £124,000).

(11) Assets held for sale

The assets held for sale balance as at 31 March 2020 related to the Valley Road property, held by the Group's subsidiary Budworth Properties Limited. This subsidiary was sold on 11 August 2020 to HP (Valley Road) Limited for cash consideration generating a profit on sale of £41,000 as shown below. As part of the transaction the Group has leased back space for the small number of remaining operational staff. The gain is included in the profit for the year in the statement of other comprehensive income.

The assets transferred to assets held for sale on 30 September 2020, and associated liabilities relate to the Group's subsidiary Fisher Moy International Limited. These were both also disposed of during the year as the Group sold Fisher Moy International on 7 December 2020 to Neon Agency Ltd for £50,000 cash consideration and £134,000 deferred consideration. This generated a profit on sale of £164,000 as shown below. This gain is included in the profit for the year in the statement of other comprehensive income.

At the time of its sale, FMI had cash in the bank of £52,000. This has been deducted from the proceeds from the sale of Budworth (£3,118,000) and cash consideration from the sale of FMI (£50,000) in arriving at the Sale of assets held for sale figure of £3,116,000 per the Statement of Cash Flows.

(12) Employees and directors

During the year there were redundancy costs of £639,000 (2020: £423,000) which relate to a one-off redundancy exercise. The driving force behind this exercise was the closure of the hamper packing part of the business.

(13) Dividends

Amounts recognised as distributed to equity holders in the year:

An interim dividend of 0.40p per share in respect of the financial year ended 31 March 2021 was paid on 6 April 2021 and absorbed £745,000 of shareholders' funds. In addition, the directors are proposing a final dividend in respect of the financial year ended 31 March 2021 of 0.60p per share which will absorb an estimated £1,118,000 of shareholders' funds. The final dividend will be paid on 1 October 2021 to shareholders who are on the register of members at the close of business on 27 August 2021. Neither of these dividends were paid or provided for in the year.

In the prior year, due to the outbreak of the COVID-19 pandemic and the uncertain UK trading conditions, the Board decided it was not prudent to recommend a dividend for the financial year ended 31 March 2020.

(14) Reconciliation of profit for the year to net cash inflow from operating activities

(15) Responsibility Statement

To the best of each director's knowledge: