APP.L Regulatory News (APP)

12 August 2020

Appreciate Group plc

Preliminary Final Results for the Year Ended 31 March 2020

Summary

Appreciate Group (the 'Group'), the UK's leading multi-retailer redemption product provider to corporate and consumer markets, today announces its final results for the financial year ended 31 March 2020, and provides an update on current trading for the new financial year to date.

Financial highlights

· Trading for the 11 month period to the end of February 2020 was in line with expectations with final month of the financial year impacted by the COVID-19 lockdown

· Billings* down marginally by 1.6 per cent to £419.9m (2019: £426.9m)

· Revenue up by 2.1 per cent to £112.7m (2019: £110.4m)

· Profit before tax before exceptional items** of £11.4m (2019: £12.5m)

· Total cash balances, including monies held in trust and deposits, of £132.3m (2019: £134.0m)

· Year end free cash of £29.6m (2019: £36.9m) (excluding funds held in trust)

· Exceptional items of £3.7m (2019: £1.2m) following impairments of goodwill and the value of our former main operating site at Valley Road

· The Board has decided not to recommend a final dividend given continued short-term uncertainty from COVID-19. The Board intends to return to its dividend policy as soon as it is prudent to do so. 

Statutory results  

· Operating profit of £6.4m (2019: £9.7m)

· Profit before tax of £7.7m (2019: £11.3m)

· Earnings per share of 2.96p (2019: 4.78p)

Operational and strategic highlights 

Divisional performance

· Corporate

o Growth in billings* of 1.5 per cent to £197.7m (2019: £194.8m)

o Corporate revenue decreased 2.4 per cent to £50.3m (2019: £51.5m)

o Increased demand seen from existing and new clients recruited prior to lockdown

o Segmental profit decreased by £1.2m to £6.6m (2019: £7.8m) due to higher administration costs.

· Consumer

o Billings* fell by 4.3 per cent to £222.2m (2019: £232.1m)

o Revenue up 5.9 per cent to £62.4m (2019: £58.9m)

o Increased customers coming to us directly and using digital

o Improvements in gross margin due to changing mix 

o Segmental profit of £5.3m (2019: £6.8m) primarily due to an increase in administration costs and exceptional redundancy costs.

Strategic business plan well advanced

· Strategic business plan now well advanced with logistics and operations already complete; infrastructure investment has significantly enhanced the scalability, resilience and efficiency of the business.

· New digital offerings have improved our appeal to customers - including a contactless-enabled digital gift card.

· Further progress made in move to more profitable card and digital products - paper share of product mix fell to 41.9 per cent (2019: 48.4 per cent).

· Renamed business to Appreciate Group plc (from Park Group plc) to reflect our product range and position as an innovative payments, savings and rewards provider.

· Relocated our offices to Chapel Street, Liverpool as part of workplace and cultural transformation.

· Attracting new talent into the organisation as a consequence of our relocation, providing the skills needed for our future business.

COVID-19 impact and response

· Our investment in technology and work practices meant that over 80 per cent of the Group's employees were able to seamlessly transition to home working immediately after lockdown.

· COVID-19 has led to an acceleration in the appeal of digital products that will support our future plans. 

· Prioritised digital offerings to support customers through the pandemic by adding e-codes and e-cards to our proposition on highstreetvouchers.com.

· Physical dispatch area operational again from May after being closed at lockdown.

· Approximately 80 colleagues furloughed during April before a phased reopening of fulfilment operations from May 2020.

Current trading and outlook

· Total billings* have progressively recovered as lockdown eases; 48 per cent down as at the end of Q1 in the new financial year compared to Q1 in the prior year.

· Sale of Budworth Properties Limited, a Group subsidiary which owns the land and buildings located at Valley Road, Birkenhead, completed on 10 August for a transaction value of £3.2m providing operational flexibility.

· Bank financing completed; £15m revolving credit facility provides additional financial flexibility and sufficient cash headroom to enable the business to trade with confidence, as well as drive sales of higher margin products and investment in shift to digital. 

· Proposals made to cease production of hampers.

· New digital products launched and tested.

Ian O'Doherty, Chief Executive Officer, commented:

"We've made significant progress in implementing our strategy to adapt our business for the future. Our focus on digital products and delivery has intensified, and we've accelerated our development of smarter, more efficient ways of working. This will position us well for doing business after COVID-19.

"Our continued investment in transformation, with changes to logistics and operations completed, is already showing significant benefits. Whilst our performance has been interrupted by the lockdown, we have seen trading start to recover and expect the resumption of growth founded on the more robust and scalable business model.

"We are confident that delivery of the strategic business plan will be the bedrock of strong and sustained future growth."

Appreciate Group will host a webcast presentation for analysts at 9.00am this morning.

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

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

Notes to Editors:

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

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

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

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

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

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

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

Select Digital Gift Card: The UK's first fully digital multi-retailer gift card, available to spend online or in-store through your mobile wallet.

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

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

Chairman's statement

Introduction

Our heritage stretches more than five decades, and during that time we've weathered many storms as a business. Consistently, we have emerged ready for growth, and we intend to do so again.

The Board, our management teams and all our colleagues have worked with dedication and focus to develop and implement our new strategy over the last two years; and, more recently, to manage and mitigate the unprecedented challenges posed by the consequences of the COVID-19 pandemic.

As well as adapting our business for the future during this period, notably by intensifying our focus on digital products and delivery, we have strengthened our focus on developing smarter, more efficient ways of working that will set us up well to capitalise on doing business after COVID-19.

Because of the foundations we have put in place over the last two years - in particular the new office and IT investment - we have been able to transition to home working and maintain continuity for much of what we do. This has ensured we are well placed to deliver on customer demands, maintain satisfaction, and accelerate the development of new products and services, some of which are defining our market.

During the past year, we've taken the opportunity to become a better, stronger business, innovating in digital, building resilience, testing new products and reaching new markets, so we are well positioned to continue to increase our market share and fulfil our ambition and those of our stakeholders.

Results for the year

Results are broadly in line with expectations, having been impacted by the COVID-19 pandemic and subsequent lockdown in the last weeks of our financial year.

Billings* decreased by 1.6 per cent in the year to 31 March 2020 to £419.9m (2019: £426.9m) despite good growth from our Corporate business. Revenue increased slightly by 2.1 per cent to £112.7m (2019: £110.4m) driven by a rise in Consumer revenue.

Operating profit before exceptional items** for the year was £10.1m (2019: £10.9m). Interest income was £1.5m (2019: £1.6m) on average cash balances (including cash held in trust) of £177m (2019: £174.0m), after which profit before tax was £8.3m (2019: £11.3m).

Profit before tax and exceptionals was £11.4m (2019: £12.5m) before exceptional charges of £3.7m relating to the impairments of goodwill, impairment of our former main operating site, and restructuring costs (2019: £1.2m of exceptional items). Total cash balances, including monies held in trust and bank deposits, at 31 March 2020 were £132.3m (2019: £134.0m).

* See accounting policies for a reconciliation of billings to revenue

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

COVID-19 update

Whilst the timing of a return to normal market conditions remains unclear, the impact of COVID-19 on the current financial year ending 31 March 2021 will be significant. However, we expect the improvement seen in trading over recent months to continue and for performance to recover thereafter. We also recognise that this could be tempered in the event of a second wave.

Demand in our Corporate and Consumer areas has been approximately 48 per cent below last year since lockdown began. We have previously stated that our Christmas Savings order book business is approximately 10 per cent below the prior year, and cancellation rates remain similar to previous years, and this has remained the case. Our customers continue to benefit from their savings being protected by the Park Prepayment Protection Trust.

We remain focussed on driving efficiencies where possible and delaying any discretionary spend or capital projects. We have cancelled annual pay reviews and made no awards for FY2019/20 under the company wide annual bonus plan.

Dividend

We reported in March that the Board had decided that it was prudent not to pay the interim dividend of 1.05 pence per ordinary share as previously announced and due to be paid on 6 April 2020.

The Board recognises the importance of dividends to its shareholders and is committed to its progressive dividend policy which seeks to reflect the Group's strong underlying cash flow and profit generation, whilst retaining sufficient capital to fund investment in the business.

The UK trading conditions continue to be uncertain and at this point, despite favourable trends, the outcome of our peak Q3 trading period remains uncertain. In addition, the ongoing pandemic poses risk to successful operational delivery. We know from experience that an outage of any kind - people absence, system interruption, etc. - at an inopportune time can have a disproportionate impact. These factors combined lead the Board to consider it prudent not to recommend a dividend for this financial year. It has been the Board's policy to distribute just over half of post-tax profit as dividend, with one third of that as an interim dividend and the remaining two thirds as a final dividend. The Board intends to return to that policy as soon as it is appropriate to do so.

In considering its recommendation on the dividend this year, the Board has taken into account the fact that Appreciate Group has received £243,000 through the Government's Coronavirus Job Retention Scheme between March and June and has put in place a financing facility of £15 million (a measure planned prior to the COVID-19 crisis) to cover cash flow fluctuations reflecting its evolving business model from the strategic changes implemented last year.

Investing in our people to deliver growth

Board changes

In September, we strengthened the Board with the appointment of Sally Cabrini as a non-executive director and Chair of the Remuneration Committee. Sally brings with her a record of relevant experience as a board member. She is Chair of the Remuneration Committee at FirstGroup plc and was a member of audit and risk committees and Chair of the remuneration committee of Lookers plc. Her executive experience includes roles with Interserve Group Limited, and United Utilities plc.

We were also pleased to announce the appointment of John Gittins, an existing non-executive director, as Senior Independent Director.

Our colleagues

The Board would like to thank all our colleagues for their outstanding hard work, adaptability and resilience. Through this challenging period, the Board and leadership team have remained focused on doing the very best for our people; by ensuring their safety and well-being and by providing them with the necessary tools, support, training and development to thrive in these times of change.

Central to this is a strong culture that supports everyone in working together with clarity and purpose as we deliver our growth plans. We have significantly improved the working environment and technology used by colleagues and made a commitment to improving employee engagement along with our ability to communicate, driving openness and dialogue, as well as enhancing collaboration.

Outlook

The Board remains positive about the prospects of the business and the long-term benefits of the Group's strategic business plan, which is now well advanced with elements such as logistics and operations already complete.

The Board has reviewed five financial scenarios of the potential impact of COVID-19 on the business. We remain focused on managing liquidity due to swings in free cash from month to month, driven by the timings of monies being moved in and out of trusts, and the purchasing of third party, single retailer redemption products. To support this, a bank financing exercise has been completed, which will provide the additional financial flexibility to protect against downside risk in the short term; whilst enabling longer term growth, as well as investing in the continued switch to digital products. Further details are contained within our going concern disclosures.

The investment in transformation that we have been undertaking has already shown benefit, although this has inevitably been interrupted by the lockdown. We continue to expect good future growth prospects founded on the more robust and scalable business model we are creating.

In summary, we are pleased with the considerable progress that we have made and are making, and we are confident that delivery of the strategic business plan will lay the foundations for strong and sustained growth in future years.

Laura CarstensenChairman12 August 2020

Chief Executive's Review

Introduction

This was another year in which Appreciate Group has taken a number of important steps forward, as we continued to build upon our position as one of the UK's leading gifting, pre-payment and engagement companies.

Our consumer-facing brands meet a range of prepayment and gifting needs, while business products support engagement by helping corporate customers reward and recognise their employees and clients.  

We are pleased to report that we have made tangible progress on the strategic business plan announced in December 2018. During last year we relocated our offices, implemented new technologies, trialled new digital products and changed the company name and brand. All of this has contributed to the development of a robust and scalable business model that will enable us to take advantage of the growth opportunities in our markets.

We remain confident in our strategy and in the medium to long-term opportunity, particularly as the current pandemic is leading to an acceleration to digital in all areas of consumer and business activity. We continue to believe that the steps we are taking will strengthen the Group's proposition for consumers, businesses and redemption partners alike. Our ability to capitalise on opportunities in the fast-evolving markets that we serve has increased, but the timing of this has been set back by the COVID-19 pandemic.

Thankfully, work completed and investments made during the recent past, particularly in technology, the ability to work from home and business continuity, have meant that we have been better positioned to cope with the challenges of the pandemic than we would otherwise have been. We are already seeing improvements in the efficiency of our operations, which will lead to enhanced profitability in future years. Our continued progress implementing the strategic business plan and pivoting to digital products has positioned the Group well to emerge from the lockdown a stronger business.

COVID-19 impact and response

Trading for the 11-month period to the end of February 2020 was in line with our expectations. The final month of the financial year brought the COVID-19 lockdown; the market challenges of this period are well documented, but the business responded well to the disruption and there are some encouraging signs for the future.

The safety of our colleagues, their families, our customers and our communities is our first priority. In line with Government guidelines at year end, we initially closed all our facilities, including our fulfilment and reconciliation operation. The investment in technology we have made over the last year meant that over 80 per cent of the Group's employees were able to work from home immediately and effectively. We have supported those colleagues unable to fulfil their role from home through parental leave or furloughing under the Government's Coronavirus Job Retention Scheme.

Group trading websites continued to accept and fulfil orders, but our emphasis shifted to digital delivery only. Without the ability to dispatch physical product, our products available for sale were initially limited. We have addressed this by prioritising our digital offerings and adding e-codes and e-cards to our proposition on highstreetvouchers.com (HSV). However, many corporate clients continue to request physical product and we have been able to accommodate this with a phased easing of restrictions on fulfilment from May 2020 (all the time adhering to Government guidelines and ensuring the safety of colleagues).

In our year end trading update, issued on 30 April 2020, we acknowledged the initial impact of lockdown by stating that "demand in our Corporate and Other Consumer areas is approximately 70 per cent below last year." I am pleased to report that we have seen trading gradually improve in the new financial year. Total billings have started to recover; they were down 47 per cent year on year in May, and 35 per cent down in June to give a year to date position of 48 per cent down for the first quarter. We also stated that "current cancellation rates (for our Christmas Savings business) are similar to previous years" and this has remained the case as at the end of July 2020.

The redemption rates of our products currently in circulation have also been affected, as the number of outlets open to use our products decreased, although we continue to see customers redeeming products in high street stores that are open and at online retailers. We made the decision to extend the date of products which were due to expire at the end of March 2020 for a period of several months whilst many shops were closed to help mitigate this and support our customers.

Lower redemption rates in March 2020 have had an adverse financial impact on the results for the year ended 31 March 2020. Conversely, this delay in spending has a positive impact on cash flow. Overall redemptions in the new financial year starting 1 April 2020 are down year-on-year by approximately 39 per cent as at 31 July 2020. Within that, not surprisingly, redemptions in physical shops are down and redemptions online are up (approximately -75 per cent and +44 per cent respectively).

Part of our overall strategy has been to promote our own products as much as possible, with the result that overall billings of our multi-redemption products are 91 per cent of the total from April 2020 to July 2020, up from 84 per cent at the same point last year. The same is true within Corporate, where billings of our multi-redeemer products increased to 89 per cent from 83 per cent.

On HSV we have promoted all available digital products, which has included many single-store e-codes. This has resulted in the percentage of digital products jumping to 45 per cent since their introduction last year. We have also seen billings of our multi-redemption products increasing from 76 per cent to 79 per cent for the first four months of the new financial year.

As well as adding to the range on HSV, we have taken steps to optimise the flow of traffic to our website. During the month of April there were 279,684 visits to HSV, down 25 per cent on last year. May was 8 per cent lower; whilst June and July both saw slightly more visits than the previous year following the measures taken and recovery from lockdown.

We have also taken steps to improve the conversion of sales opportunities created. Since the end of March, the conversion rate on HSV has improved. The average conversion rate over the last five days of March - in the immediate aftermath of lockdown - was 2.78 per cent; while the average over the months from May to July 2020 has been around 5 per cent.

These are encouraging signs regarding number of visitors and conversion to sales. Work to optimise the flow of traffic and conversion rate continues.

Divisional review

We continue to operate in dynamic and growing markets, serving customers in both corporate and consumer channels. There has been an encouraging rate of growth in the UK gift card market during the calendar year 2019, with growth in the second half at 12 per cent and the market now estimated to be worth approximately £7bn annually.#

#Source: UK Gift Card and Voucher Association

Corporate (44.6 per cent of Group revenue in the year ended 31 March 2020)

Appreciate Group's Corporate business provides around 42,000 business customers with market-leading incentive, recognition and rewards options for an estimated two million recipients through around 190 redemption partners with almost 24,000 outlets.

Corporate billings of £197.7m were 1.5 per cent ahead of the prior year (2019: £194.8m). Corporate revenue was £50.3m (2019: £51.5m) representing a decrease of 2.4 per cent. Segmental profit decreased by £1.2m to £6.6m (2019: £7.8m) due to higher administration costs. The pre-exceptionals performance from our Corporate business was driven through a combination of billings growth and a more profitable product mix.

In the year we strengthened the businesses we work with by adding organisations such as BP, Britvic and Howdens as prestigious new partners.

Consumer (55.4 per cent of Group revenue in the year ended 31 March 2020)

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

Our Consumer business billings were £222.2m compared to £232.1m in the prior year. Consumer revenue was £62.4m (2019: £58.9m) which produced a segmental profit of £5.3m versus £6.8m in the prior year. This fall in profit was primarily due to an increase in administration costs and exceptional redundancy costs of £0.4m.

Appreciate Group has continued to attract increasing numbers of customers directly. However, the challenges with the legacy agency model in the Christmas savings business persist, and we are taking actions to mitigate this.

Significant improvements have been made in the customer offering during the period. We have taken our core product into the mobile era, creating a contactless-enabled digital gift card, which can be loaded into the wallet app on a smartphone. This can be delivered by various means - email, SMS or WhatsApp - and is simple, transparent and easy to use. This development allows instant celebration and reward of moments that matter to customers, with a wide range of redemption partners, both online and contactless in-store using a mobile device.

Progress with our strategic business plan

We have made good progress during the year, continuing the implementation of our strategic business plan, as set out in December 2018, in building a robust and scalable platform from which to grow.

Productivity

We have taken numerous steps to become more efficient and effective. During the year, we successfully completed a large-scale office relocation to Liverpool city centre, establishing a modern, collaborative working culture; we migrated to cloud-based computing and digital collaboration and workflow solutions (Office 365); we introduced new technologies to facilitate agile working; and we invested in our team and talent.

The project to implement a new Enterprise Resource Planning (ERP) system is progressing well, despite some COVID-19 related delays. This will provide the scalability, resilience and efficiency required for more seamless and automated back office support functions across the business.

In addition to facilitating the move to Liverpool, we streamlined the remaining operations based at Valley Road in Birkenhead to enable the sale of the site, as well as harnessing efficiencies through new channels. One example of this is a stronger focus on promoting chat for Customer Care, which has led to a 31 per cent increase in chat sessions and 8 per cent fewer voice calls year on year.

On 10 August we announced that we had completed the sale of our land and premises at Valley Road in Birkenhead to HP (Valley Road) Limited for £3.2m. The site had been substantially vacated since the relocation to Liverpool, but continues to house our fulfilment and reconciliation operations. A limited amount of space for these activities will be leased back as part of the agreement.

Appeal

In terms of broadening our customer appeal, we have successfully tested two new products - Select Digital Gift Card and Giftli - as part of work to target currently untapped demand from a broader audience. We are using these learnings to further develop our digital strategy.

Leading our industry, we took gifting into the mobile era with the contactless-enabled digital gift card, which can be loaded into the wallet app on mobile devices and allow instant celebration and reward of moments that matter to customers.  Important learnings from these trials are being incorporated into an enhanced proposition for Corporate clients.

As well as this innovation in product development, we have enhanced the experience and journey for Park Christmas Savings customers, streamlined our social media and marketing communications and added e-codes and e-cards to highstreetvouchers.com and offered digital gift card to corporate clients.

Clarity

To bring clarity to our offer for all customers, we have redefined and rationalised our brand architecture, which included renaming Park Group plc to Appreciate Group plc. We believe this more accurately reflects the Group's product range and position as an innovative payments, savings and rewards provider to Corporate and Consumer markets. This allows the Group to take full advantage of the growth opportunities available in an expanding market. We also refreshed the Park Christmas Savings brand through all channels including the website and app.

Key to supporting this has been the development of clear brand guidelines and a company tone of voice, as well as significantly boosting our Group brand activation and awareness activities, with targeted social media postings and community partnerships.

Our core business functions are now focused around products and market segment, centralising some of the activity previously conducted separately within the business units, and we have a robust and disciplined approach to new product development.

The number of product variants we offer has been consolidated and simplified, in particular reducing the number of single retailer physical products on sale through all channels.

We are now proposing to cease production of hampers and merchandise. This decision was initially taken for the Christmas 2020 season to protect the health of our workforce and provide our customers with certainty given the potential for disruption in the supply chain during the ongoing lockdown and potential of further restrictions. This enabled us to carry out a longer term review of the future of the hamper business, and we have commenced consultation with colleagues about proposals to close this part of our business. Whilst hampers were the roots from which we grew as a business more than 50 years ago, they now only equate for less than 2 per cent of billings and are no longer considered part of our future strategy. All hamper customers will be offered the chance to migrate to other Appreciate Group products so that we can help them continue to budget and pay for Christmas. 

Experience

We have taken significant steps to make us easier to work with for all of our customers, particularly in the digital space.

During the year we have created an end-to-end, fully digital experience for gift-card purchase, delivery and redemption, with contactless capability in a mobile phone wallet, working with Mastercard and CleverCards. We believe this has been, in many ways, a real game-changer for our industry, as it completely reimagines how gift cards should work in a mobile-enabled world.

We've also improved the digital and physical experience for our customers; enhanced the client on-boarding journey;

worked to optimise the conversion rates on our websites; launched new ERP solutions, developed resilience and security in our networks, standardised our complaints process and established a Customer Committee to help drive improvements in the customer experience.

Looking ahead

I am extremely proud to lead a team of colleagues who are dedicated to our purpose of creating joyful experiences and connecting people to the things in life they enjoy. This unwavering commitment has never been more evident than in recent months when they have risen to the challenge to support our customers and partners. Their commitment gives me confidence that, combined with our strategy, we are strongly positioned for the future.

Ian O'DohertyChief Executive12 August 2020

Financial Review

Impact of Covid-19

At the start of lockdown in March 2020, just like many businesses across the UK, the Group followed Government guidance and temporarily closed its distribution and warehouse facilities to help stop the spread of coronavirus. With no means to fulfil physical orders at that time the Group's focus shifted to digital products.

In May 2020 the Valley Road facility reopened with social distancing procedures in place. Demand in our Corporate and Other Consumer areas reduced during the lockdown period with April demand 70 per cent lower than prior year. We have seen trading gradually improve in the new financial year; billings were down 47 per cent year on year in May, and 35 per cent down in June to give a year to date position of -48 per cent at the end of Q1.

Although the Christmas Savers order book is currently 9 per cent below the prior year, most customer plans are normally in place by March and we have seen normal cancellations trends since then, so this part of the business has to date, been unaffected.

Redemptions have also significantly fallen, with an 80 per cent decrease for vouchers and 61 per cent decrease for cards and e-codes compared to quarter one of the prior year. Despite this overall reduction in redemptions, which beneficially reduces cash outflow, we have a seen a significant shift to online redemption partners and grocery retail, reflecting the flexibility of our products.

The Group has taken several actions to conserve cash by reducing discretionary expenditure. These actions include the following: 

• Furloughing employees - The Group has utilised the Government's Job Retention Scheme with a number of employees being furloughed, whose pay has been topped up to 100 per cent by the Group. In quarter one of the financial year ending 31 March 2021, there were an average of 65 employees on furlough per month, for a total saving of £243,000.

• Dividend cancellation - The Group decided to cancel the dividend payment for 2020, which has conserved £6m of cash.

• Deferral of VAT payments - The Group has deferred £936,000 of VAT payments between March and June 2020. These are now payable by 31 March 2021.

• Employee remuneration revisions - The decision was made to cancel all annual pay reviews and bonuses.

The Board has reviewed five forecast scenarios, covering a range of likely outcomes: base case plus two downside and two upside scenarios. The Group is currently trading slightly ahead of the base case and has carefully considered the base case, downside scenarios, current trading and trends since the year end and the assessment of reverse stress tests. Having secured a £15m revolving credit facility we have adequate flexibility to provide sufficient cash headroom to enable the business to trade with confidence. Further details are contained within our going concern disclosures.

The Board continues to actively manage the risks of the business which have been updated for the impact of Covid-19. We are planning for a peak season which will be delivered whilst adhering to social distancing guidelines. The decision to close our hamper and third party packing business will give additional operational flexibility to achieve this. Following our technology investments over the last year, which further strengthen our business continuity plan, the majority of employees continue to effectively work from home.

Billings and Revenue

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

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

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

· Other - hampers, merchandise and consultancy fees

Following the adoption of IFRS15 in the prior financial year, multi-retailer redemption product billings are the gross value of goods and services shipped and invoiced to customers during the year. Revenue for multi-retailer redemption products is the net service fee received on redemption, cardholder fees and breakage which are recognised when multi-retailer redemption products are redeemed.

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

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, in line with the strategy of promoting our own products. The mix of multi-retailer redemption products was 84.4 per cent of total billings, marginally lower than last year's 84.9 per cent.

Revenue increased by 2.1 per cent to £112.7m due to a greater mix of single retailer redemption products which are reported gross in revenue as opposed to multi-retailer redemption products which are reported net in revenue. The value of multi-retailer revenue has decreased by 7.9 per cent offset by strong demand for single retailer redemption products which were 11.7 per cent higher, due to higher online demand, particularly e-codes which can be converted to single retailer products.

Profit from operations

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

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

· Corporate - comprising sales to businesses, offering primarily sales of the Love2shop voucher, flexecash® 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 4.3 per cent from £232.1m to £222.2m. Billings for Christmas savers were down by 4 per cent and there was a similar performance in other Consumer billings, derived through the highstreetvouchers.com website, which were also 4 per cent lower than last year, offset by other products which were 1.5 per cent lower. Revenue has increased by 5.9 per cent to £62.4m (2019: £58.9m), primarily due to a higher mix of single retailer redemption products.

Operating profit was £5.3m, a decrease of £1.5m (22.1 per cent) from the £6.8m achieved in the prior year. This was primarily due to an increase in administration costs, as explained below, and exceptional redundancy costs of £0.4m.

Corporate

In the Corporate business customer billings have increased by 1.5 per cent, from £194.8m to £197.7m. This growth was due to £7.5m of new business, continuing good retention rates of existing clients (95 per cent) and strong online billings which were 13 per cent higher than prior year. Corporate revenue fell by 2.4 per cent over the prior year, from £51.5m to £50.3m due to a higher mix of card and digital products (66.6 per cent vs 60.0 per cent last year) which have more deferred revenue.

Operating profit decreased by 15.4 per cent to £6.6m (2019: £7.8m) due to higher administration costs, as explained below.

All other segments

Central and property costs increased by 12.2 per cent from £4.9m to £5.5m. This increase is due to the higher impairment cost of the Valley Road site at £1.8m (2019: £1.2m).

Administration Costs

Administration costs increased from £17.4m to £20.0m due the costs of strategy implementation and additional management and professional fees. Strategy implementation costs of £1.5m relate to the office relocation and rebranding and will be non-recurring.

Reconciliation of adjusted to statutory profit

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

Exceptional Costs

In September 2019, the Group relocated its head office from Birkenhead to Liverpool. Following this move, we have now successfully sold the freehold land and building at Valley Road, Birkenhead whilst securing a lease-back for the space still occupied by a small number of operational staff. Our balance sheet reflects the expected disposal of this asset, which is classified as an 'asset held for sale', following the previously announced impairment charge to the P&L account of £1.8m.

We have reviewed our brand engagement agency, FMI, acquired in 2016, which is reliant on one large client and also involved in business relating to event management which is heavily impacted by restrictions following lockdown. We have concluded that the goodwill is impaired relating to this acquisition, totalling £0.9m.

Subsequent to our year end, we have taken the decision to cease production of hampers. We have impaired the value of stock for hampers held at 31 March 2020 by £0.1m which reflects the likely re-sale value of these stock items. Additionally, we have impaired the value of Family Hampers customer lists by £0.4m.

During the year, we restructured our marketing department with the aim of creating different roles focused on digital marketing. The redundancy costs relating to employees made redundant following this review amounted to £0.4m.

Finance income

Finance income decreased by 6.3 per cent to £1.5m from £1.6m. Average total cash held by the Group, including cash held in trust during the year increased by 1.7 per cent to £177m (2019 : £174m), however the yield achieved on this higher cash balance decreased due to the decrease in base rates.

Taxation

The effective tax rate for the year was 28.4 per cent (2019: 21.4 per cent) of profit before tax. The increase compared to the prior year was primarily due to the fact that the increased impairment charge in respect of the Valley Road site and part of the impairment of goodwill did not attract tax relief. In addition to this, the cancellation of the corporation tax rate reduction to 17 per cent, which was due to be effective from 1 April 2020, has resulted in an increase in deferred tax charges in the current year.

Earnings per share

Basic earnings per share (EPS) fell by 38.1 per cent from 4.78p in 2019 to 2.96p. Excluding the exceptional charge basic EPS is 5.04p (2019: 5.43p), down 7.2 per cent.

Dividends

The Board has reviewed five forecast scenarios, covering a range of outcomes, and have carefully considered the base case scenario, current trading and trends since the year end and the assessment of reverse stress tests. The UK trading conditions continue to be uncertain and at this point, before the outcome of our peak Q3 trading period, the Board consider it prudent not to recommend a dividend for this financial year (prior year 3.20p per share).

It has been the Board's policy to distribute just over half of post-tax profit as dividend, with one third of that as an interim dividend and the remaining two thirds as a final dividend. The Board intends to return to that policy as soon as it is appropriate to do so. 

Cash flows and treasury

Cash flows from operating activities were £5.6m, £1.2m (17.6 per cent) lower than the prior year, due to an increase in monies held in trust and higher tax payments, offset by a working capital cash inflow. Monies in trust grew from £99.3m in 2019 to £102.7m. This growth was primarily in the Park Card Services Limited e-money Trust (PCSET) to support the e-money float in accordance with regulatory requirements. This increased by £7.6m to £44.2m due to higher levels of card and digital business.

In addition, £55.1m (2019: £60.9m) was held by the Park Prepayments Trustee Company Limited. The trust holds payments received in respect of orders for delivery the following Christmas. The conditions for the release of this money to the Group are detailed in the trust deed, which is available at www.getpark.co.uk.

Also, at 31 March 2020, the Group held £3.4m of other ring fenced funds (2019: £1.8m).

At the end of March 2020 £29.6m (2019: £36.9m) of cash was held by the Group. This was £7.2m (19.6 per cent) lower than the prior year due to the switch to a higher mix of regulated products which is cash consumptive in the short term plus higher capital expenditure relating to strategy implementation.

The total amount of cash and deposits net of any overdraft position held by the Group, combined with the monies held in trust, has decreased in the year by 1.3 per cent to £132.3m from £134.0m. These total balances peaked at just under £234m in the year, representing a marginal decrease of £1.2m from the prior year.

We have completed a bank financing exercise of an unsecured 5 year revolving credit facility (RCF) with Santander UK of £15m plus an additional uncommitted accordion of £10m. This facility will provide the additional financial flexibility to protect against downside risk in the short term; whilst enabling longer term growth, as well as investing in the continued switch to digital products. The RCF has 3 covenant requirements, as detailed within the going concern disclosures.

Intangible Assets

As part of the Board's strategy to develop a scalable and resilient platform to enable future growth, we have continued to invest in our technology platform in the year with £3.1m of additions (prior year £0.8m). This included investment in a new ERP platform, Microsoft Dynamics 365.

IFRS16

With effect from 1 April 2019 we adopted IFRS16 relating to leases. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the statement of financial position. Under IFRS16 the Group recognises a right-of-use-asset (ROUA) and a lease liability (LL) at the lease commencement date. At the balance sheet date this balance was £3.8m and further details are available in note 13.

Trade and other payables

Included within trade and other payables is deferred income in respect of multi-retailer redemption products (vouchers, cards and e-codes). Revenue is deferred for service fees and breakage, net of discount. The amount of revenue deferred at March 2020 has increased to £7.4m from £7.0m in the prior year due to an increase in card mix and slower redemption of paper vouchers. The increase in card mix, where breakage levels are higher, has resulted in greater deferred revenue.

Provisions

At 31 March 2020, provisions have decreased to £53.8m from £58.3m. This was mainly due to an increase in the amounts provided in respect of flexecash® cards of £1.1m and a decrease in the amounts provided for unspent vouchers of £6.1m. The value of unspent vouchers included in the provision, arises primarily from sales in the Corporate business.

Pensions

The Group continues to operate two defined benefit pension schemes, where pensions at retirement are based on service and final salary. These schemes are now closed to future accrual of benefit arising from service with the Group. These schemes have a combined net pension surplus of £4.2m based on the valuation under IAS19 performed at 31 March 2020 (2019: surplus of £1.9m).

The Group has recognised net interest income of £44,000 (2019: £73,000) in the statement of profit or loss in respect of the pension schemes. In addition, the Group has recognised a re-measurement gain in the statement of comprehensive income (SOCI) of £1.9m (2019: loss of £0.8m) net of tax.

In the year ended 31 March 2020, there were no contributions by the Group to the schemes (2019: £0.5m). The latest triannual scheme funding reports, performed as at 31 March 2019, indicated that one scheme had a technical provisions deficit (reflecting the liabilities to pay pension benefits in relation to past service as they fall due) of £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

12 August 2020

* See accounting policies for a reconciliation of billings to revenue

Going Concern

The financial statements are prepared on a going concern basis.

At the start of lockdown in March 2020, just like many businesses across the UK, the Group followed Government guidance and temporarily closed its distribution and warehouse facilities to help stop the spread of coronavirus. With no means to fulfil physical orders at that time the Group's focus shifted to digital products. In May 2020 the Valley Road facility reopened with social distancing procedures in place.

There has been a negative impact on trading for quarter one of the financial year ending 31 March 2021, with reductions in billings compared to the same period in the prior year of 45 per cent for corporate and 65 per cent for HSV, our website where we service both consumer and corporate customers. Redemptions have also significantly fallen, with an 80 per cent decrease for vouchers and 61 per cent decrease for cards and e-codes compared to quarter one of the prior year.

Despite this, as the year has progressed the month-on-month trend in billings has been encouraging, with significant improvement being shown in each successive month's results. Corporate and HSV billings for April 2020 were 35 per cent and 19 per cent respectively of April 2019 billings, whereas for June 2020 were 68 per cent and 54 per cent of the levels seen in June 2019.

The Group has taken action to conserve cash during this uncertain time and support its position as a going concern. These actions include the following:

• Furloughing employees - The Group has utilised the Government's Job Retention Scheme with a number of employees being furloughed, whose pay has been topped up to 100 per cent by the Group. In quarter one of the financial year ending 31 March 2021, there were an average of 65 employees on furlough per month, for a total saving of £243,000 in the quarter.

• Dividend cancellation - The Group decided to cancel the dividend payment for 2020, which has conserved £6m of cash.

• Deferral of VAT payments - The Group has deferred £936,000 of VAT payments between March and June 2020. These are now payable by 31 March 2021.

Employee remuneration revisions - The decision was made to cancel all annual pay reviews, make no awards for FY2019/20 under the company wide annual bonus plan, and to postpone the leadership team's share incentive awards for the year ended 31 March 2020.

In addition to the above actions that have already been taken, management have reviewed the cost base of the business in order to identify any further potential savings.

Forecasting

Five scenarios have been modelled in order to assess the potential impact of the Covid-19 pandemic on the results of the Group going forward. The key variables that are altered between scenarios are: corporate and HSV demand, Christmas Savers order book cancellations and reductions, and paper and card redemptions. The scenarios model the upcoming two year period, with specific focus on the twelve months from the signing of the annual report and accounts. The base case was approved by the Board. Management concluded that this base case reflected their best estimate of the likely impact of Covid-19, with initial trading slightly ahead, and this base case has also been used in the financing discussions with the banks.

Base case scenario

The base case scenario, assumes decreases in corporate and HSV billings against the initial forecast of 60 per cent in quarter one of the year ending 31 March 2021, with a gradual recovery through the financial year to 25 per cent down in quarter four. In quarter one and two of the year ending 31 March 2022 (which goes just beyond the twelve month going concern window from signing of the accounts), growth of 40 per cent against the 2021 forecast is assumed. The reduction in Christmas Savers in year one is 11 per cent.

The actual results for quarter one are slightly ahead of the base case, with overall corporate and HSV billings decreasing by 48 per cent compared to the 60 per cent assumed. In addition, July trading is ahead of forecast. This gives the Group confidence that the base case scenario is currently the best estimate and minimises the likelihood of any downside risks modelled within the other scenarios.

From a going concern perspective, the monthly forecasting of the Group's free cash balance in this scenario is the key area for consideration, as liquidity is the principal going concern risk. The base case, before usage of the RCF, shows a negative free cash balance in July 2021, recovering by September 2021.

Downside scenario

In addition to the base case, management also considered the downside scenario that assumed decreases in corporate and HSV billings against the initial forecast of 75 per cent in quarter one of the year ending 31 March 2021, with a gradual recovery through the financial year to 25 per cent down in quarter four. In quarter one and two of the year ending 31 March 2022, growth of 40 per cent against the 2021 forecast is assumed. The reduction in Christmas Savers in year one is 14 per cent. This forecast a negative free cash balance, before usage of the RCF, in June 2021.

Further actions possible

Management has identified further actions which could be freely implemented in order to conserve cash. These actions do not include any staff redundancies other those being consulted on in respect of the closure of the fulfilment business.

These savings include:

· reduction in discretionary consultancy and IT costs;

· delaying the implementation of the new ERP system; and

· cancelling the bonus for the year ending 31 March 2021.

These were overlaid net of additional costs, including those associated with the closure of the fulfilment business.

The overall impact of these actions is to bolster the cash position of the Group, with the base case, before usage of the RCF, showing a small shortfall in August 2021.

New financing

The Group has access to a recently agreed committed RCF of £15m, with an additional uncommitted accordion of £10m.

With the RCF in place, and having cancelled the final dividend payment, the directors consider that sufficient headroom exists to cover any negative sensitivities of COVID-19 in both the base case and downside scenario.

The following covenants are in place with regards to the RCF:

· Leverage/net debt cover - debt must not be greater than three times the last twelve months (LTM) rolling earnings before interest, taxation, depreciation and amortisation (EBITDA);

· Interest cover - LTM rolling EBITDA must not be less than four times the LTM rolling interest charge. This is expected to be approximately £50,000 per month, resulting in a LTM rolling interest charge of £0.6m, meaning LTM rolling EBITDA must not fall below £2.4m; and

· Christmas Savers cash - requires that Christmas Savers cash cannot be lower than monies in advance.

A LTM basis is used due to the seasonality of the Group's business. The leverage/net debt cover and interest cover covenants are assessed on a biannual basis starting in March 2021. The Christmas savers cash covenant is measured quarterly starting March 2021.

With the RCF in place, in line with the base case forecast, it is not envisaged that the Group will draw down on the facility until July 2021. The Group is forecast to be in full compliance with the three covenants throughout the twelve month period from the signing of the annual report and accounts, with sufficient headroom in place in both the base case and downside scenarios.

Reverse Stress Tests

Several reverse stress tests have been completed. These allow management to assess their current financial resources and the likelihood that such a 'business-breaking' scenario would occur.

Reverse stress tests were run in respect of accelerated voucher redemption, reduced voucher billings and reduced Corporate and HSV billings (across vouchers, cards and codes). Each stress test brought forward the timing at which the RCF was required within the business. In each test, with the RCF in place and in some cases with further mitigating actions, each position could be managed, albeit the covenants currently agreed would be breached. However, management were satisfied that each reverse stress test was highly unlikely due to the extreme nature of the sensitivity required.

Conclusion

The directors have carefully considered the base case, downside scenario, current trading and trends since the year end and the assessment of the reverse stress tests. In light of the newly agreed £15m RCF, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the consolidated financial statements.

Risk Factors

Financial risks

Operational risks

Appreciate Group plc

Appreciate Group plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR TO 31 MARCH 2020

Appreciate Group plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2020

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 2020

(1) Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS's) as adopted by the European Union (EU) including International Financial Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

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

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

(2) Going concern

The financial statements are prepared on a going concern basis.

At the start of lockdown in March 2020, just like many businesses across the UK, the Group followed Government guidance and temporarily closed its distribution and warehouse facilities to help stop the spread of coronavirus. With no means to fulfil physical orders at that time the Group's focus shifted to digital products. In May 2020 the Valley Road facility reopened with social distancing procedures in place.

There has been a negative impact on trading for quarter one of the financial year ending 31 March 2021, with reductions in billings compared to the same period in the prior year of 45 per cent for corporate and 65 per cent for HSV, our website where we service both consumer and corporate customers. Redemptions have also significantly fallen, with an 80 per cent decrease for vouchers and 61 per cent decrease for cards and e-codes compared to quarter one of the prior year.

Despite this, as the year has progressed the month-on-month trend in billings has been encouraging, with significant improvement being shown in each successive month's results. Corporate and HSV billings for April 2020 were 35 per cent and 19 per cent respectively of April 2019 billings, whereas for June 2020 were 68 per cent and 54 per cent of the levels seen in June 2019.

The Group has taken action to conserve cash during this uncertain time and support its position as a going concern. These actions include the following:

• Furloughing employees - The Group has utilised the Government's Job Retention Scheme with a number of employees being furloughed, whose pay has been topped up to 100 per cent by the Group. In quarter one of the financial year ending 31 March 2021, there were an average of 65 employees on furlough per month, for a total saving of £243,000 in the quarter.

• Dividend cancellation - The Group decided to cancel the dividend payment for 2020, which has conserved £6m of cash.

• Deferral of VAT payments - The Group has deferred £936,000 of VAT payments between March and June 2020. These are now payable by 31 March 2021.

• Employee remuneration revisions - The decision was made to cancel all annual pay reviews, make no awards for FY2019/20 under the company wide annual bonus plan, and to postpone the leadership team's share incentive awards for the year ended 31 March 2020.

In addition to the above actions that have already been taken, management have reviewed the cost base of the business in order to identify any further potential savings.

Forecasting

Five scenarios have been modelled in order to assess the potential impact of the Covid-19 pandemic on the results of the Group going forward. The key variables that are altered between scenarios are: corporate and HSV demand, Christmas Savers order book cancellations and reductions, and paper and card redemptions. The scenarios model the upcoming two year period, with specific focus on the twelve months from the signing of the annual report and accounts. The base case was approved by the Board. Management concluded that this base case reflected their best estimate of the likely impact of Covid-19, with initial trading slightly ahead, and this base case has also been used in the financing discussions with the banks.

Base case scenario

The base case scenario, assumes decreases in corporate and HSV billings against the initial forecast of 60 per cent in quarter one of the year ending 31 March 2021, with a gradual recovery through the financial year to 25 per cent down in quarter four. In quarter one and two of the year ending 31 March 2022 (which goes just beyond the twelve month going concern window from signing of the accounts), growth of 40 per cent against the 2021 forecast is assumed. The reduction in Christmas Savers in year one is 11 per cent.

The actual results for quarter one are slightly ahead of the base case, with overall corporate and HSV billings decreasing by 48 per cent compared to the 60 per cent assumed. In addition, July trading is ahead of forecast. This gives the Group confidence that the base case scenario is currently the best estimate and minimises the likelihood of any downside risks modelled within the other scenarios.

From a going concern perspective, the monthly forecasting of the Group's free cash balance in this scenario is the key area for consideration, as liquidity is the principal going concern risk. The base case, before usage of the RCF, shows a negative free cash balance in July 2021, recovering by September 2021.

Downside scenario

In addition to the base case, management also considered the downside scenario that assumed decreases in corporate and HSV billings against the initial forecast of 75 per cent in quarter one of the year ending 31 March 2021, with a gradual recovery through the financial year to 25 per cent down in quarter four. In quarter one and two of the year ending 31 March 2022, growth of 40 per cent against the 2021 forecast is assumed. The reduction in Christmas Savers in year one is 14 per cent. This forecast a negative free cash balance, before usage of the RCF, in June 2021.

Further actions possible

Management has identified further actions which could be freely implemented in order to conserve cash. These actions do not include any staff redundancies other those being consulted on in respect of the closure of the fulfilment business.

These savings include:

· reduction in discretionary consultancy and IT costs;

· delaying the implementation of the new ERP system; and

· cancelling the bonus for the year ending 31 March 2021.

These were overlaid net of additional costs, including those associated with the closure of the fulfilment business.

The overall impact of these actions is to bolster the cash position of the Group, with the base case, before usage of the RCF, showing a small shortfall in August 2021.

New financing

The Group has access to a recently agreed committed RCF of £15m, with an additional uncommitted accordion of £10m.

With the RCF in place, and having cancelled the final dividend payment, the directors consider that sufficient headroom exists to cover any negative sensitivities of COVID-19 in both the base case and downside scenario.

The following covenants are in place with regards to the RCF:

· Leverage/net debt cover - debt must not be greater than three times the last twelve months (LTM) rolling earnings before interest, taxation, depreciation and amortisation (EBITDA);

· Interest cover - LTM rolling EBITDA must not be less than four times the LTM rolling interest charge. This is expected to be approximately £50,000 per month, resulting in a LTM rolling interest charge of £0.6m, meaning LTM rolling EBITDA must not fall below £2.4m; and

· Christmas Savers cash - requires that Christmas Savers cash cannot be lower than monies in advance.

A LTM basis is used due to the seasonality of the Group's business. The leverage/net debt cover and interest cover covenants are assessed on a biannual basis starting in March 2021. The Christmas savers cash covenant is measured quarterly starting March 2021.

With the RCF in place, in line with the base case forecast, it is not envisaged that the Group will draw down on the facility until July 2021. The Group is forecast to be in full compliance with the three covenants throughout the twelve month period from the signing of the annual report and accounts, with sufficient headroom in place in both the base case and downside scenarios.

Reverse Stress Tests

Several reverse stress tests have been completed. These allow management to assess their current financial resources and the likelihood that such a 'business-breaking' scenario would occur.

Reverse stress tests were run in respect of accelerated voucher redemption, reduced voucher billings and reduced Corporate and HSV billings (across vouchers, cards and codes). Each stress test brought forward the timing at which the RCF was required within the business. In each test, with the RCF in place and in some cases with further mitigating actions, each position could be managed, albeit the covenants currently agreed would be breached. However, management were satisfied that each reverse stress test was highly unlikely due to the extreme nature of the sensitivity required.

Conclusion

The directors have carefully considered the base case, downside scenario, current trading and trends since the year end and the assessment of the reverse stress tests. In light of the newly agreed £15m RCF, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the consolidated financial statements.

(3) Changes to International Financial Reporting Standards

Interpretations and standards which became effective during the year

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

The impact of IFRS 16 on the financial statements is shown in the leases accounting policy below.

IFRIC 23 has not had a material impact upon the Group's financial performance or position.

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

Amendments to IAS 1 and IAS 8: Definition of Material

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of 'material' across the standards and to clarify certain aspects of the definition. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.'.

The amendments to the definition of material are not expected to have a significant impact on the Group's consolidated financial statements.

(4) Accounting policies

The financial information in this preliminary announcement has been prepared in accordance with the accounting policies described in the annual report and accounts for the year ended 31 March 2019, except for those policies described below. The annual report and accounts for the year ended 31 March 2019 can be found on our website at www.appreciategroup.co.uk.

Assets held for sale

On initial classification as held for sale, assets are measured at the lower of their present carrying amount and the fair value less costs to sell, with any adjustments taken to the statement of profit or loss. These assets are not depreciated.

Assets are classified as held for sale when they satisfy the following criteria:

· management is committed to a plan to sell

· the asset is available for immediate sale

· an active programme to locate a buyer is initiated

· the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)

· the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value

· actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn

Provisions - Dilapidations

An amount is provided to cover the future cost of removing leasehold improvements and restoring the Group's leased offices to their previous condition. Per IAS16.16, if an entity installs leasehold improvements that it is later obligated to remove, the obligating event is the installation of the leasehold improvements, and therefore the debit side of this provision is recorded as part of the leasehold improvements in the property, plant and equipment note.

Leases

With effect from 1 April 2019 the Group has adopted IFRS 16, Leases which supersedes IAS 17: Leases, IFRIC 4: Determining Whether an Arrangement Contains a Lease, SIC 15: Operating Leases - Incentives and SIC 27: Evaluating the Substance of Transactions in the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the statement of financial position.

The Group has applied a modified retrospective approach when transitioning to the new standard. Under this approach, the standard is applied retrospectively and the cumulative effect of initial application of the standard is recognised at the date of adoption, and no restatements have been made in respect of prior periods, as the modified retrospective method eliminates the need to restate comparative information on transition.

Policy applicable before 1 April 2019

Operating lease rentals are charged to the statement of profit or loss on a straight-line basis over the period of the lease.

Policy applicable from 1 April 2019

At inception of a contract the Group assesses whether a contract is, or contains, a lease. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This policy is applied to contracts entered into, or modified on or after 1 April 2019.

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contact to each lease component on the basis of their relative standalone price. However, for leases of land and buildings in which it is a lessee, the Group has elected not to segregate non-lease components and account for the lease and non-lease components as a single lease component.

Definition of a lease

Previously the Group determined at inception whether an arrangement is, or contains a lease under IFRIC 4. Under IFRS16, the Group assesses whether a contract is or contains a lease based on the definition of a lease.

On transition, the Group performed a review of all major contracts to determine whether any contracts not defined as a lease under IAS17 and IFRIC 4, should be reassessed as a lease under IFRS16. After a comprehensive contract review the Group determined that there were no contracts not defined as a lease under IAS17 and IFRIC 4 that should be redefined as a lease under IFRS16.

As a lessee

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group.

Under IFRS 16 the Group recognises a right-of-use-asset (ROUA) and a lease liability (LL) at the lease commencement date. The right-of-use-asset is initially measured at cost, which comprises:

· The amount of the initial measurement of the LL;

· Any lease payments made at or before the commencement date, less any lease incentives;

· Any initial direct cost incurred by the lessee;

· An estimate of costs to be incurred by the lessee in restoring the site on which the assets are located.

The right-of-use-asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use-asset is periodically tested for impairment (see 'Impairment of property, plant and equipment and intangibles' accounting policy), and adjusted for certain remeasurements of the lease liability.

At transition, right-of-use-assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise the following:

· fixed payments including in substance fixed payments, less any lease incentives receivable;

· variable lease payments that depend on an index or rate, initially measured using the index or rate as at the commencement date;

· amounts expected to be payable under a residual value guarantee; and

· the exercise price under a purchase option that the Group is reasonably certain to exercise an option, and penalties for early termination unless the Group is reasonably certain not to terminate early.

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change of index or rate, if there is a change in future lease payments arising from a change in the Group's estimate of the amount payable under a residual value guarantee, if there is a change in lease term, or if the Group changes its assessment of whether it will exercise a purchase extension or termination option.

At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group's incremental borrowing rate as at 1 April 2019.

Practical expedients taken

The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17.

· Applied a single discount rate for a portfolio of leases with reasonably similar characteristics.

· Relied on its assessment of whether leases are onerous immediately before the date of initial application

· Applied the short-term leases exemptions to leases with a lease term that ends within 12 months of the date of initial application.

· Excluded initial direct costs from measuring the right-of-use-assets and liabilities at the date of initial application.

· Used hindsight in determining the lease term where the contract contained options to extend or terminate the lease.

Short term leases and leases of low value assets

The Group has elected not to recognise right-of-use-assets and lease liabilities for short term leases of plant & machinery that have a lease term of 12 months or less and leases of low value assets of less than £5,000 (being mainly storage space). The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Under IAS 17

In the comparative period, as a lessee the leases were operating leases and were not recognised in the Group's statement of financial position. Payments made under operating leases were recognised on a straight-line basis over the term of the lease. Lease incentives received were recognised as an integral part of the lease expense, over the term of the lease.

As a lessor

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Group is an intermediate lessor, it accounts for its interest in the head lease and sub-lease separately. It assesses the lease classification of the sub-lease with reference to the right-of-use-asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease.

If an arrangement contains a lease and a non-lease component, the Group applies IFRS 15 to allocate the consideration in the contract.

As at the transition date the Group did not act as a lessor. In November 2019 the Group sub-let a portion of an office building that it occupied under a lease commenced in February 2018. Under IFRS 16, the Group is required to assess the classification of the sub-lease with reference to the right-of-use-asset and not the underlying asset.

The Group applied IFRS 15 Revenue from Contracts with Customers to allocate consideration in the contract to each lease and non-lease component.

Impact on Financial Statements

On transition to IFRS 16, the Group recognised and presented separately on the balance sheet £125k of right-of-use-assets and £125k lease liabilities. The modified retrospective method applied by the Group eliminated the need to restate this comparative information upon transition.

When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 April 2019. The weighted average applied rate is 5.25 per cent. The Incremental Borrowing Rate was calculated based upon an indicative borrowing rate from our bankers. In arriving at the rate charged due account was taken of the Group's current lack of borrowing, and the fact that the vast majority of the assets under lease were property.

Reconciliation of Prior Year Operating Lease Commitments to Lease Liabilities

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.

Land and buildings

An assessment was made whether the property asset at Valley Road was an asset held for sale at 30 September 2019. As the sale of the property was considered to be highly probable within 12 months, the property was classified as an asset held for sale. At 31 March 2020, a reassessment of this position took place and all of the criterial were met for the property to continue to be classed as an asset held for sale. This assessment included an exception to the one-year rule being taken under IFRS 5.9, as the COVID-19 pandemic had delayed the sale of the asset.

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

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

The Group has one lease contract that includes extension and termination options. This is the new lease of floor 3 and 4, 20 Chapel Street Liverpool. The Group included the renewal period as part of the lease term, as in the year the Group has relocated the majority of its operations to the newly leased site in Liverpool City Centre. As a result of this, the lease extension is reasonably certain to be exercised.

Estimates

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

Provisions for unredeemed vouchers and cards

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

In the updated base case scenario, card and vouchers redemptions are assumed to decrease against the prior year redemptions for the same period by 50 per cent in Q1, 30 per cent in Q2, and then catch up to cumulative normal levels in Q3 and Q4, making up the Q1 and Q2 shortfall.

Post year end redemptions for the first quarter of the financial year ended 31 March 2021 have been lower than the 50 per cent decrease on prior year levels forecasted by the Group. The actual decrease in voucher redemptions was 80 per cent, and the actual decrease in card redemptions was 62 per cent, when compared to the corresponding quarter in the prior year. However, as redemptions are continuing to increase, and given that the base case scenario assumes a catch up by the end of the financial year, any impact of this would be negligible.

Breakage

For multi-retailer redemption products where the end user has no right of redemption (corporate gifted cards), the Group may expect to earn a breakage amount. In order to calculate the expected breakage amount, the Group estimates how many products will be fully redeemed and how many will be partially redeemed. For those which are partially redeemed, the Group estimates projected balances remaining on the products at expiry. Historical data and current trends regarding patterns of redemption and expiry are used to prepare the estimates. As redemption behaviour may differ by market, historical data and current trends are reviewed at this level. If the expected level of breakage were to change by 0.1 per cent, the impact on revenue for the reporting period would be £0.2m. Management have considered the sensitivity of this estimate and do not foresee that any likely change to the estimate will have a material impact on either the level of deferred income held in the statement of financial position or the amount of revenue for the reporting period.

Deferred income - Love2shop voucher redemption timing

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

Assets held for sale - Value of Valley Road site

A valuation was carried out as at 31 March 2020 in order to determine the fair value less costs to sell of the Valley Road site. This valuation was carried out on a vacant possession basis. This valuation resulted in the value of the asset being written down to £3,153k. Any differences to this estimate may necessitate a material adjustment to the value of the assets held for sale in the statement of financial position.

Goodwill

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

Other intangible Assets

At each reporting date the Group reviews the carrying value of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. The assessment of costs capitalised as intangible assets to generate future economic benefits: Judgement is applied in assessing whether costs incurred, both internal and external, will generate future economic benefits. Significant judgements and estimates are applied in determining the carrying value of the assets, including assumptions made in respect of the status of the programme each asset relates to, and there may be a range of possible outcomes when a programme is complex.

Incremental borrowing rate (IBR)

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. This rate was determined to be 5.25 per cent.

(6) Segmental analysis

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

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

· Corporate - comprising sales to businesses, offering primarily sales of the Love2shop voucher, flexecash® cards, Mastercards and e-codes in addition to other retailer vouchers.

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

The amount included within the elimination column reflects products sold by the corporate segment to the consumer segment. They have been included in elimination so as to show the total revenue for both segments.

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

All other 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 Group has elected not to report on segment assets and liabilities as this information is not provided to the Chief Operating Decision Maker (CODM) and is not relevant to the CODM's decision making. In respect of Appreciate Group plc the CODM is regarded as the executive members of the Board of directors. Since the last reporting period the Group no longer segments the Statement of Financial Position due to rationalisation of accounting processes.

All other 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.

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 £5,511,000 (2019: £8,882,000) and on the weighted average number of shares, calculated as follows:

650,337 shares have been considered anti-dilutive during the year, that could potentially dilute basic EPS in the future.

(9) Goodwill

The Group tests annually for impairment of goodwill. The recoverable amounts of CGUs are determined using value in use calculations, which are considered higher than the fair value less costs to sell.

Consumer - Family (£739,000) & Country Hampers Franchisee (£61,000)

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

▪ The final order position for the previous Christmas.

▪ The base case scenario gross margins. These margins are forecast to be maintained going forward.

▪ Average agent retentions forecast. These are based on historical performance of agent retention achieved. Historically, such forecasts have been materially correct. An additional 12 per cent fall in retention has been factored into the forecast for the year ended 31 March 2021 to reflect the current trading environment (an 11 per cent fall in retention per year is typically used, which has been increased to 23 per cent for the year ended 31 March 2021).

▪ Base case scenario revenue. This is based on average historical order value and average agent retention rates which have been extrapolated forward 10 years. The generally high retention values for customers supports the adoption of a 10 year customer life cycle value as being appropriate for the business. No revenue growth has been factored into the data used in the calculation (2019: nil).

The resulting cash flows were discounted using a weighted pre-tax discount rate of 16.54 per cent (2019: 6.25 per cent).

The impairment in the year of £434,000 (2019: nil) against the Family Franchisee goodwill represents the impact of excluding hamper contribution from the value in use calculations combined with a higher pre-tax discount rate. This is included within exceptional costs in the Consumer segment.

A sensitivity analysis was performed where changes in key assumptions were tested, those being changes in pre-tax discount rate and retention of agents.

An increase in pre-tax discount rate of 1 per cent would lead to further impairment of an additional £23,000.

A decrease in retentions of 1 per cent (to 78 per cent for the year ended 31 March 2021 and 88 per cent per year after this) would lead to further impairment of an additional £32,000.

The impairment in the year of £52,000 (2019: £17,000) against the Country Hampers Franchisee goodwill represents the reduction in agents that were originally acquired from Country Hampers. This is included within administrative expenses.

Corporate - Fisher Moy International (£nil)

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

▪ Forecast revenue. This is based on the current order book, average customer retention and expected new business, which has been extrapolated forward 10 years. This has been sensitised to consider the worst case scenario impact of COVID-19. No revenue growth has been factored into the calculation.

▪ Forecast gross margins. These are based on forecasts of profit resulting from the forecast revenue, which have been sensitised to consider the worst case scenario impact of the COVID-19 pandemic on the business for the coming year. These margins have then been forecast to be maintained going forward.

The resulting cash flows were discounted using a pre-tax discount rate of 16.54 per cent (2019: 6.25 per cent).

Management have carefully considered the base case forecast, the worst case sensitivities, the customer base (which consists of one dominant customer) and the entity specific circumstances relating to its industry.

In light of these considerations, there has been an impairment in the year of £882,000, which reduces the Corporate Goodwill to a value of £nil (2019: £882,000). This is recognised as an exceptional item in the year ended 31 March 2020.

(10) Property, plant and equipment

At 30 September 2019, an assessment was made as to whether the Valley Road property was an Asset held for sale. All of the criteria were met, and the property was transferred from Property, plant and equipment to Assets held for sale (see note 12). Prior to the transfer to Assets held for sale the property was impaired by £163,000.

During the year, the Group relocated its head office to Liverpool city centre. There were several additions to Property, plant and equipment which relate to fit-out costs and equipment purchased for the new office. These have been classed as leasehold improvements.

(11) Inventories

The cost of inventories recognised as an expense in the year is £55,103,000 (2019: £52,435,000).

The write down of inventories recognised as an expense in the period is £184,000 (2019: £49,000).

Following the announcement in August 2020 that the Group would be consulting on the closure of the packing operations, including hamper packing, the Group impaired raw materials and finished goods stock held at 31 March 2020 by £124,000, which is included within the £184,000 as detailed above.

(12) Assets held for sale

An assessment was carried out at 30 September 2019 as to whether the Valley Road property was an Asset held for sale. All of the criteria were met, and since that time the property has been classed as such. Depreciation was stopped at this point and the property was held at fair value. As at 31 March 2020 a reassessment of this position took place and all of the criteria were met for the property to continue to be classed as an Asset held for sale. This assessment included an exception to the one-year rule being taken under IFRS 5.9, as the Covid-19 pandemic had delayed the sale of the asset, meaning that the sale may not occur within the original 12-month period. This exception was allowable as the Group has taken the necessary actions to respond to this change in circumstance and the asset remains available for immediate sale.

A valuation was carried out as at 31 March 2020 in order to determine the fair value less costs to sell of the asset. This resulted in an impairment of £1,650,000. This impairment was in addition to an impairment of £163,000 made prior to the transfer of the property to Assets held for sale, taking the total impairment in the year to £1,813,000.

(13) Leases