JOUL.L Regulatory News (JOUL)

Joules Group plc

('Joules' or the 'Group')

Annual Results for the 53-week period ending 31 May 2020

Encouraging recent trading reflects the strength of the Joules brand with continued strong e-commerce demand during the UK lockdown

Business well positioned to navigate existing and potential COVID-19 challenges:

· Trading performance ahead of management's expectations1 after the first nine weeks of FY21

- E-commerce demand2 up more than 70% on the comparable period in prior year

- All stores now re-opened with overall performance ahead of expectations

- Wholesale performing in line with expectations

· Strong financial position with net-cash of £5.4 million and liquidity headroom of £54 million at 2 August 2020, significantly ahead of management's expectations1

· Continued progress on strategic initiatives:

- 'Friends of Joules' digital marketplace providing increased range and choice to Joules' customers

- UK and US distribution centre transformation initiatives complete, providing improved capacity, service levels and productivity

- New store point of sale platform implemented, further integrating the store experience with our digital channels under our flexible 'Total Retail' model

· Joules brand health3 and engagement scores at record highs with Joules ranked 12th out of 278 consumer brands in KPMG Nunwood's 2020 Consumer Experience Excellence report

FY20 performance:

· Group revenue decreased by 12.5% to £190.8 million (FY19: £218.0m) adversely impacted by COVID-19 and the previously reported e-commerce stock availability issue over the Christmas trading period

- Revenue impact of COVID-19 in the final quarter is estimated at c.£31 million4

- E-commerce performed well with Joules' own e-commerce channel revenue up c.11% for the year

- E-commerce represented nearly 57% of retail sales (FY19: 49.5%). For the first nine months, pre-COVID-19, it represented nearly 51% of retail sales

- Store revenue declined 21.4% for the year. Over the first 9 months, pre-COVID-19, store sales declined c.8%, reflecting structural industry trends and reduced promotional activity

- Wholesale revenue declined 25.3%, with the final quarter experiencing a reduction of c.75% as wholesale customers globally closed their operations in response to COVID-19

· Loss before tax (pre-IFRS16 and exceptional items)5 of £2.0 million (FY19: £12.9m profit)

· Statutory loss before tax of £25.3 million (FY19: £12.9m profit)

- IFRS16 (Leases) net impact £(1.8) million (FY19: na)

- Exceptional costs £(21.5) million (FY19: nil) including £21.0 million non-cash impairment charge

· Group gross margin 50.7%, down 4.1%pts, impacted by sales channel mix and increased promotional activity in the final quarter

· Basic earnings per share loss 22.07 pence (FY19: 11.6 pence)

· 1.43 million active customers6 and record brand awareness and brand health3 metrics achieved during the final quarter of the year

· Net cash7 of £4.5 million (FY19: £5.8m) and liquidity headroom of £53 million at 31 May 2020

Nick Jones, Chief Executive Officer of Joules, commented:

"I am incredibly proud of how Joules has responded and adapted to the recent disruption caused by the COVID-19 pandemic, and I would like to again thank our colleagues for their hard work, our customers for their continued loyalty, and our partners for their collaboration throughout this challenging time.

We were quick to bolster our liquidity position, preserve cash and focus our trading online, and we are very encouraged by the more than 70% growth in e-commerce demand since the start of the new financial year as well as the performance of our stores since reopening. This is testament to the strength of the Joules brand, the relevance of our product range, the desirable locations of our stores and the flexibility of our model.

Whilst the Group's financial results for FY20 were impacted by challenging external trading conditions in the UK throughout the year; the stock availability issue that, as previously reported, impacted our e-commerce sales over the Christmas trading period; as well as material COVID-19-related disruption during the final quarter, I am very pleased with the continued progress we have made against our long-term strategic goals. We have further strengthened our flexible 'Total Retail' model; enhanced our UK and US supply chain operations to support our growth plans; and launched Friends of Joules, an exciting new digital marketplace.

Whilst the retail sector will continue to face challenging trading conditions over the coming months, I believe that Joules is very well positioned to navigate both the existing and potential further COVID-19-related challenges and continue to invest in targeted growth opportunities. The Joules brand's awareness and health metrics have never been stronger, and I firmly believe that, underpinned by our strong brand purpose, Joules is more relevant than ever before."

Reconciliation to statutory profit/loss before tax:

1 Expectations is stated with reference to management's most recent forecast being the 'base case' used for the Directors' assessment of going concern and as the basis for the Group's FY21 financial year budget

2 Demand is a non-GAAP measure. It states the total sales value (inclusive of sales tax) of customer orders received in the relevant period, excluding any returns received or provision for potential returns

3 Brand Awareness and Brand Health are measured as part of an independent YouGov consumer survey

4 COVID-19 revenue impact is estimated based on management's revenue forecast for the final quarter prepared just prior to the start of Q4 with consideration to sales run rates, prior year sales, wholesale order book and planned promotional activity

5 LBT/PBT - pre-IFRS16 and exceptional costs is a non-GAAP measure provided to facilitate comparison across periods, it is stated prior to the impact of IFRS16 (Leases) adopted for the first time in FY20, and prior to exceptional costs that are primarily related to non-cash asset impairments in the Period

6 Customer registered on our database who has transacted in the last 12 months. Prior years restated to reflect improved database matching (FY19: 1.39 million active customers)

7 'Net cash' represents gross cash & cash equivalents less total borrowings.

Enquiries:

Joules - a premium lifestyle brand with an authentic British heritage

Established in Britain by Tom Joule three decades ago, Joules is a premium lifestyle brand with an authentic heritage. 

The Joules story began in 1989, when Tom Joule started selling clothing on a stand at a country show in Leicestershire. Today, it is a true multi-channel lifestyle brand; its products are available through its e-commerce websites, retail stores, at rural shows and events and wholesale channels both in the UK and internationally. 

Joules carefully designs and sells clothing, footwear and accessories for women, men and children. The business also sells ever-growing collections of homeware, eyewear and lifestyle product ranges through both its licensing partnerships and 'Friends of Joules', the brand's online marketplace that brings together hundreds of creative businesses to give customers everything they could ever need for a contemporary country lifestyle.

The brand's values of quality, Britishness, family and humour, coupled with its unique use of colour and print set Joules apart. This approach, along with an unwavering attention to detail and drive to surprise and delight its customers with unexpected details, has been central to the brand's success and remains at the heart of everything Joules creates. 

www.joules.com

www.joulesgroup.com 

Joules Fast Facts

• Joules is an international brand, available in the UK, USA, Germany and other international markets

• Joules has a significant online business, operates across 128* stores in the UK and ROI across a range of location types and has a well-established wholesale business with over 2,000 stockists worldwide

• Joules' talented in-house print design team lovingly hand-draw all the prints and unexpected unique details you see within its collections each season

• Joules is proud of its British heritage and still has strong roots in Market Harborough, the site of its first shop and head office - since day one

• Joules' performance has been recognised through a number of awards including:

o Mainstream Brand of the Year - Drapers Awards 2019, 2017 and 2016

o Best Licensed Fashion or Talent Brand Award - Brand & Lifestyle Licensing Awards 2019

o Best Licensed Gifting Product Award - Brand & Lifestyle Licensing Award 2019

o The Best Fashion Retailer (Mark of Excellence) - Retail Week Awards 2019 and 2018

o Fashion Retail Business of the Year (between £101m-£500m turnover) - Drapers Awards 2018 and 2017

*As at 31 May 2020, excluding concessions and franchises (33 concessions and 3 franchise stores)

CHAIRMAN'S STATEMENT

INTRODUCTION

The Group is publishing its Annual Report for the year ended 31 May 2020 ("FY20" or the "Period") at a time when people, communities and economies around the world continue to face exceptional challenges as a result of the ongoing COVID-19 pandemic. Since the outbreak of the virus at the beginning of 2020, our foremost priority has been the safety and wellbeing of the entire Joules community. In this Strategic Report, Nick Jones, the Group's CEO, explains in detail the actions taken and flexibility demonstrated by the Group in response to the pandemic, however I would like to take this opportunity to express the Board's gratitude to our resilient employees, supportive customers and flexible business partners for their commitment throughout this incredibly challenging period.

Whilst the outbreak of COVID-19 only impacted the final months of the Group's FY20 performance, like many other retailers the pandemic has had a material effect on our business. From 23 March until after the Period end, the entire Joules store portfolio was closed alongside the stores of our UK wholesale partners in accordance with UK Government guidance. Trading conditions in the brand's key international markets, Germany and the US, experienced similarly high levels of disruption.

I am incredibly proud of the decisive actions taken by our leadership team in order to manage the significant pressures on the Group's operations and liquidity as a result of COVID-19-related disruption. With the cooperation of some of the Group's key stakeholders including stock suppliers, non-stock suppliers, landlords and our people, we were quickly able to introduce several mitigating actions to conserve cash throughout this period of significant uncertainty. In order to further bolster the Group's financial flexibility, in April the Group announced a Placing of 18,750,000 new ordinary shares at a price of 80 pence per share, raising £15 million gross proceeds. The Board was delighted with the levels of support shown by our shareholders during this process. This support was echoed by Barclays Bank PLC who in April provided a £15 million increase to the Group's existing Revolving Credit Facility. The additional liquidity has given the Group important headroom to manage near-term pressures resulting from the pandemic as well as providing the resources for Joules to emerge relatively stronger from this unprecedented situation.

FY20 RESULTS OVERVIEW

The Group's strategic progress in FY20 was delivered against a backdrop of sustained difficult trading conditions in the brand's core UK market as well as the impact of COVID-19 during the final months of the Period. Despite these headwinds, Joules continued to increase its customer base, expand its presence internationally and deliver several important strategic initiatives - including the exciting launch of the 'Friends of Joules' digital marketplace - that will support the brand's future growth.

In addition to the external headwinds that the Group faced during the Period, as previously indicated our financial performance was also impacted by a stock availability issue through the important end of autumn/winter season promotional period. Whilst the cause of this issue was quickly identified and addressed, we were disappointed with our inability to fully satisfy our customers' demand through our e-commerce channel during the important Christmas sale period. Despite this short term and one-off set-back, the Board remains incredibly encouraged by increasing customer awareness of and demand for the Joules brand.

Group revenue in the Period of £190.8 million was down 12.5% on the prior year (FY19: £218.0m). Retail sales were £145.9 million with store sales down 21.4% and e-commerce sales up 5.0% driven by strong sales through the Group's owned e-commerce channels (which increased 10.8%). Wholesale sales, which were significantly impacted by COVID-19 in the final quarter, were £42.7 million, a reduction of 25.3% in the Period.

The Group recorded a loss before tax, pre-IFRS16 - Leases and exceptional costs, of £2.0 million (FY19: £12.9m profit). The statutory loss before tax for the Period, including the impact of IFRS16 of £1.4 million and exceptional costs of £21.5 million, was a loss of £25.3 million (FY19: £12.9m profit).

As announced in March 2020, the Board took the decision to cancel its proposed interim dividend considering the ongoing impact of the COVID-19 pandemic and subsequent macro-economic uncertainty. The Board believes it is prudent and in the long-term interests of shareholders to preserve its available cash resources during these unprecedented times and, consequently, is not declaring a full year dividend for FY20. The Board does not anticipate declaring a dividend in the FY21 year but will keep it under review with the intention to return to the previous progressive dividend policy as soon as it is financially possible and prudent to do so.

The CEO's Report and Financial Review that follow provide a more in-depth analysis of the trading performance and financial results of the Group.

BOARD UPDATE

Nick Jones was appointed to the Board as Chief Executive Officer on 30 September 2019, having joined the business on 2 September 2019. Nick brings a wealth of highly relevant experience to Joules and the Board is very pleased with the positive impact he has already made on the Group since joining.

Reflecting Joules' significant growth into the international lifestyle brand it is today, the role of Tom Joule, the Group's Founder and Chief Brand Officer, has continued to evolve over recent years. Following Nick's appointment and as the business moves into its next phase of long-term development, Tom and the Board have agreed updated terms of reference. These changes, in effect, formalise the evolution of Tom's role in the business and, effective from June 2020, Tom has moved to a more flexible, but reduced, working pattern anticipated to be a time commitment of approximately 50%. Going forward, in addition to his ongoing responsibilities as a Director of the company, which include supporting in the development of the business strategy these changes will enable Tom to increase his focus on providing guidance to our outstanding creative team in the product development process and driving new growth initiatives, such as 'Friends of Joules' and international expansion.

OUTLOOK

The Group demonstrated its resilience and flexibility in managing the initial impact of the COVID-19 pandemic. We are pleased to report that we have performed ahead of the Board's COVID-19 base case since the UK entered lockdown in terms of both trading and the Group's liquidity position. As consumers and businesses begin to emerge from the initial shock of the pandemic and into the 'new normal', we are under no illusions that the impact of the pandemic on businesses, communities and consumer confidence will be felt for some time to come.

Despite this, we remain as confident as ever in Joules' long-term prospects and potential. The investments we have made over recent years in our infrastructure to support the flexibility of our operating model means that we are well positioned to adapt and evolve to meet changing consumer behaviours, whether these are short-term adjustments or more fundamental and long-term trends. Since its foundation, Joules has been built as a truly integrated, multi-channel business with a focus on reaching and serving its customer base wherever they choose to shop. The Group's e-commerce channels already represented half of total retail sales prior to the impacts of COVID-19, and we anticipate that this will continue to increase in the years ahead. We have continued to invest in our e-commerce platform to support this anticipated growth with the addition of new payment methods, improved search and enhanced product merchandising as well the seamless integration of third-party products onto the platform as part of our 'Friends of Joules' digital marketplace.

On 15 June we were pleased to commence a phased re-opening of stores after a near three-month period of closure. Whilst it is still early in the process to fully predict to what extent store footfall and sales will recover, we remain confident that the Group's flexible and agile 'Total Retail' model puts Joules in a strong position to be able to adapt to the way customers choose to interact with our brand going forward. Across our portfolio of 128 stores, a large proportion are in 'lifestyle locations' and more than a third of our portfolio has a lease event within the next 18 months, with an average lease length of less than three years. We will continue to review the appropriate shape of our store portfolio and lease agreements.

Macro-economic uncertainty looks set to continue across the Group's key markets over the coming months and this will have an inevitable impact on consumer confidence and spending. Against this backdrop, the Group intends to continue to tightly manage its cost base until there is better visibility of sustained demand recovery across the Group's channels.

Joules is a very strong, differentiated and highly relevant brand that is well-positioned to meet consumers' evolving priorities. In addition, the Group has a solid financial position, well-invested operations and a clear strategy to continue to expand both in the UK and internationally, where we will focus on driving growth through our capital-light wholesale and digital channels. The Board remains confident in the Group's ability to adapt and react swiftly to a range of economic recovery scenarios and capture what the Board continues to believe are exciting, long-term growth opportunities.

CEO's REPORT

INTRODUCTION

I am pleased to provide my first report to Joules' stakeholders since joining Joules in September 2019. I have been incredibly impressed by the strength of the brand, the flexibility of our multiple routes to market and the skill and commitment of our teams. I am very excited to have the opportunity to lead this fantastic brand through the next chapters of its growth.

Before expanding on the Group's progress in FY20 in more detail it is appropriate to first address the impact of COVID-19 on the business and outline the actions we have taken in response to the pandemic.

COVID-19 - RESPONSE, MITIGATION AND MOVING FORWARD

First and foremost, it is right to acknowledge the tragic impact that COVID-19 has had on individuals and families across the world, and I would like to extend my deepest sympathy to those members of the wider Joules community who have been affected.

The disruption to the retail industry caused by the pandemic has been unlike anything we have seen before. Against this backdrop, I am incredibly proud with the decisiveness and speed with which the Joules team has responded and adapted. This has been made possible by the investments made over recent years in our infrastructure and IT systems, combined with a culture of agility which enabled a seamless transition to remote working across the business in March 2020 and the continuation of operations without disruption.

Since early March 2020, Joules has been focused on managing both the immediate and longer-term impact of COVID-19 on the business. As a result, management has taken a series of actions in order to deliver the following five key COVID-19 priorities:

Keeping our colleagues, customers and communities safe

Our top priority throughout the pandemic has been the health, safety and wellbeing of our colleagues, customers, business partners and communities:

• During March we temporarily transitioned to remote working and, between 20-23 March, we closed all our stores ahead of government guidance in order to protect our colleagues, customers and communities

• With our outsource logistics partner Clipper Logistics we introduced additional hygiene measures in our warehouse and temporarily reduced capacity in order to better protect our teams and ensure strict compliance with physical distancing requirements

• We introduced a range of new safeguarding measures as we began a phased re-opening of stores from 15 June in line with UK Government regulations. These included managing staffing levels to allow for physical distancing in our stores, limiting the number of customers in store at any one time, introducing new signage for customers and employees to remind them of physical distancing, introducing Perspex screens at points of sale, providing personal protective equipment for our employees, and enhancing hygiene including the provision of hand sanitiser for customers upon entry to stores.

Continuing to serve our customers to the best of our ability

Throughout this period of unprecedented disruption in the UK and our targeted international markets, we have strived to continue to be available to our loyal customers and satisfy their demand for Joules:

• We kept our UK e-commerce website open to customers throughout the lockdown period, albeit with constrained warehouse capacity

• We prioritised serving the brand's existing customers and making sure that Joules remained available to them

• As a result, we were pleased that e-commerce demand (order value including sales tax, excluding returns) during the final quarter of the year was significantly ahead of the Board's expectations and was more than 40% higher year on year. 

Managing liquidity

Given the pandemic's significant disruption to trading, we took swift action to strengthen the financial position of the business. These actions - several of which have involved the valued support of our suppliers, landlords, and employees - have included:

• Postponing non-critical capital expenditure

• Voluntary salary reductions taken by all the Board of Directors as well as other members of the Group's senior management and all non-furloughed colleagues

• Working collaboratively with product suppliers to reduce Autumn/Winter 2020 inventory commitments and add greater flexibility to Spring/Summer 2021 inventory commitments

• Utilising several of the UK Government's support initiatives including rates relief for stores, the Job Retention Scheme for furloughed employees, and deferring some payments due to HMRC

• Cancelling the Group's proposed Interim Dividend to shareholders, saving £0.7m of cash

• Announcing an equity placing on 3 April, from which the Group raised gross proceeds of £15 million

• Agreeing a £15 million increase to the Group's Revolving Credit Facility ('RCF') with Barclays Bank plc, announced on 21 April

• As a result, the Group ended FY20 with net cash of £4.5 million and headroom of £53 million against committed borrowing facilities, which was ahead of the Board's COVID-19-related base case at the beginning of Q4 2020.

Supporting our local communities and partners

The pandemic provided a strong reminder of the responsibilities we have as a business to continue our commitment to positively contribute to the communities around us. We identified several ways through which we could support the fight against the virus by utilising our relationships and resources:

• We leveraged our supplier partnerships to source and donate vital personal protective equipment to key workers. We delivered 50,000 civilian-grade face masks to key workers in urgent need across the University of Leicester Hospitals Trust, Hospice UK, and various other regional key worker end user groups. In addition, we partnered with the University of Leicester Hospitals Trust to source urgently needed hospital gowns

• In March we launched a specially curated 'Rainbow Edit' collection comprising a range of products featuring colourful splashes of bright rainbows and rainbow colours. All profits from sales of products included within the edit have been donated to the NHS Charities Together Urgent COVID-19 Appeal to fund a wide range of initiatives including wellbeing packs for staff and vital accommodation for frontline workers. To date, the edit has raised over £70,000

• In order to provide support for our valued partners selling through our 'Friends of Joules' digital marketplace, we waived platform fees for a period of time to alleviate financial pressure and actively used our social media channels to promote our partners and support their businesses.

Keeping sight of the bigger picture

Whilst the effects of the pandemic are still being felt and long-term impact on consumer behaviour and the economy remains uncertain, it has been vital over recent months that we do not lose sight of the bigger picture and the significant, long-term opportunities for Joules.

We have a distinctive brand and unique products much loved by our customers; a flexible and integrated 'Total Retail' model to adapt to evolving customer behaviours; and a strong platform for continued international growth and product extension. We are confident that the actions taken over recent months to drive digital sales and manage liquidity in combination with the investments made over recent years in our infrastructure mean that the long-term future for Joules remains as bright as ever.

STRATEGY & BUSINESS MODEL

GROWTH STRATEGY

We have a consistent and established strategy for the long-term development of Joules as a premium lifestyle brand, both in the UK and internationally. I have confidence in the continued relevance of our four proven strategic growth drivers for the brand, namely: increasing customer value; driving total UK brand sales; expanding internationally; and carefully extending the brand into a greater range of product categories.

1. INCREASE CUSTOMER VALUE

Increasing customer value means two things for Joules: firstly, growing our active customer base and secondly, increasing those customers' frequency of interaction and spend with the brand. We do this by providing standout products and enjoyable experiences for consumers across all channels as well as communicating with our customers through relevant, authentic and targeted campaigns and engaging content.

We believe we have significant capacity to further grow the brand's active customer base in both our core UK market, where we still have significant headroom to grow, as well as our target international markets, the US and Germany.

2. DRIVE TOTAL UK BRAND SALES - 'TOTAL RETAIL'

Our flexible 'Total Retail' model enables Joules to continually adapt to meet evolving customer expectations and shopping behaviours. Our goal is to provide a great experience for our customers however they wish to engage with our brand:

- E-commerce - We expect to continue to increase the mix of e-commerce sales as a proportion of our total retail sales through ongoing enhancements to our digital platforms

- Stores - Joules operates a portfolio of stores across the UK that enables our customers to shop and interact with the brand. As well as being important sales channels, our increasingly digitally enabled stores offer valuable touch points to showcase the brand to both existing and potential customers

- Wholesale - We continue to broaden the reach of the Joules brand through selected wholesale partners that are closely aligned with our brand values and product categories - including specialist independents, department stores, destination lifestyle retailers, subscription services and online retailers. Wholesale is an important, capital light, capability that facilitates our international growth strategy

- Country shows and events - Over the past 30 years, Joules has developed a strong brand presence at a wide range of country shows and events across the UK. The channel remains an important part of the Joules brand's heritage and provides real customer connectivity

- Marketplaces & concessions - As well as supporting the more traditional concession model, we continue to leverage our wholesale capabilities and relationships to support emerging new retail channels such as online marketplaces and 'fulfilled by' models that provide us with new routes to reach our target customer base in the UK and internationally.

3. INTERNATIONAL EXPANSION

The Joules brand and products have demonstrated their appeal in our primary international markets, the US and Germany. We develop our brand presence in these markets via a proven wholesale model supported by e-commerce. We leverage the investments made in our central creative and design functions, supply chain and infrastructure with support from local teams, sales agents and product showrooms.

4. PRODUCT & BRAND EXTENSION

The strength of the Joules brand means that we can extend into new product categories that meet our customers' lifestyle needs. We continue to work with carefully selected licence partners to create new Joules-branded products and categories that are complementary to our core ranges.

During FY20 we were proud to launch an exciting brand extension for Joules in the form of our new digital marketplace, 'Friends of Joules', that offers everything that our customers need for a contemporary country lifestyle. Through 'Friends of Joules' we are bringing together and integrating into our existing e-commerce platform thousands of complementary lifestyle products from a wide range of carefully curated creative businesses in one easy-to-shop online marketplace.

UNIQUE BRAND & MULTI-CHANNEL BUSINESS MODEL

Our ability to progress against each of the pillars of this growth strategy is underpinned by the Group's flexible, multi-channel business model and our strong, differentiated brand.

The Joules brand - brightening our customers' lives with the joy of the countryside.

The Joules brand takes inspiration from nature and the changing British seasons. We design and create unique design-led clothing and accessories that reflect our customers' lifestyles, come rain or shine. The brand stands out with its signature uses of colour and distinctive prints that are hand drawn by our in-house team in Market Harborough.

What has been most striking to me since joining the Group is the relevance of the Joules brand to our customers' lifestyles. I believe that this relevance will only grow stronger over the coming years as we expect a continuing trend for consumers to feel increasingly loyal and connected to brands that share their personal values. It is for this reason that our Responsibly Joules ethos is more important than ever. From the day Joules started with nothing more than a table in a field, to the brand our customers know and love today, we have always been conscious of our impact on the environment, the wildlife within it, the people we work with, and the communities where we operate. We work hard to make sure that what we do is right and are committed to fighting for the environment that inspires us. Further details on our Responsibly Joules strategy and activity during the year can be found in the Annual Report.

The strength of the brand was again recognised by being named winner in the Mainstream Brand of the Year category at the 2019 edition of the prestigious Drapers awards. Joules picked up the accolade for the third time in four years with the judges commending the exceptional strength and relevance of the brand.

Multi-channel business model

Joules has been developed as a truly multi-channel business. We distribute our products to customers seamlessly across multiple channels, enabling customers to engage with and shop the brand wherever, whenever and however they choose. Our flexible and integrated approach balances the Group's exposure to any single route to market in what is set to become an even more dynamic, competitive and increasingly digital-led retail landscape. We continue to believe the flexibility of our 'Total Retail' approach will remain critical to Joules' ongoing expansion and future success.

FY20 BUSINESS REVIEW

Joules delivered a resilient performance in the year to 31 May 2020 despite facing challenging external trading conditions in the UK throughout the year, which resulted in high levels of promotional activity across the sector, as well as additional COVID-19-related disruption during the final months of the Period. We made further pleasing progress against our strategic goals including investing to strengthen our flexible 'Total Retail' model; enhancing our UK and US supply chain operations to support our growth plans; and launching an exciting new digital marketplace called 'Friends of Joules' to deepen our customer relationships.

FY20 STRATEGIC PROGRESS

The Group's Strategic KPIs have been selected based on their link to the successful delivery of our strategy. They are monitored by the Board on a regular basis. The Group's financial KPIs are covered in the Financial Review.

Strategic KPIs

1 Joules retail stores only, excludes concessions and franchise stores; 33 concessions operated at May 2020

(33 at May 2019; 5 at May 2018 and previous years) and 3 franchises.

2 Customer registered on our database who has transacted in the last 12 months. Prior years restated to reflect enhanced customer database matching processes

Despite the external challenges we faced during FY20, particularly those encountered during the final months of the year as a result of COVID-19 and the internal, previously reported, stock availability issue that impacted our e-commerce sales over the Christmas trading period, I am pleased with the significant progress made by Joules across each pillar of our growth strategy:

INCREASING CUSTOMER VALUE

The Joules brand continued to expand during FY20, with brand awareness* increasing by 3.1%pt and brand health*achieving its highest ever levels. The Group's customer base also continued to increase, with 1.43 million active customers at the end of the Period (FY19: 1.39 million). At the end of the year we had more than 560,000 Facebook followers (FY19: 530,000) and more than 300,000 Instagram followers (FY19: 240,000), with these communities continuing to demonstrate high levels of monthly engagement. These encouraging metrics continue to underpin our excitement and confidence in the significant future growth opportunities for the business.

We have continued to invest in marketing the brand in our own unique way, with emphasis on digital channels. Before Christmas 2019 we launched our first ever digital Christmas ad in collaboration with the much-loved duo Wallace and Gromit who, similarly to Joules, also celebrated their milestone 30th year in 2019. The campaign, titled 'Christmas at the Click of a Button', was incredibly well received by customers.

We continue to innovate new ways to drive customer value and, towards the end of 2019, we were delighted to launch a significant new customer initiative in the form of our new digital marketplace, 'Friends of Joules'. Through 'Friends of Joules' we have partnered with hundreds of like-minded creative people and businesses in order to offer our customers everything they could ever need for a contemporary country lifestyle. Our digital marketplace aims to replicate and make accessible to customers the experience of walking around and exploring a bustling market town from the comfort of their own home. Customers have responded very positively to the curated ranges that are now integrated into our online platform and sales have been ahead of our initial expectations. Moving forward, we will continue to add new sellers to the platform and anticipate seeing a positive impact on customer acquisition, retention and value.

*Brand Awareness and Brand Health are measured as part of an independent YouGov consumer survey

DRIVING TOTAL UK BRAND SALES - 'TOTAL RETAIL'

E-commerce sales, including sales through third party retail concession models, now represent more than half of all retail sales. E-commerce sales increased by 5.0% with e-commerce sales through the Group's own channels increasing by 10.8%. The growth in our customer base helped to drive traffic to Joules' e-commerce websites of more than 20% above the prior year.

We made further improvements to our digital customer proposition during the year including the launch of 'Friends of Joules', extending order cut-off times for next day delivery, and enhancing our web front end user experience with improved check-out experience, enhanced search functionality and new payment methods including ApplePay and Klarna's "buy now, pay later" service to provide more options and flexibility to our customers.

Whilst the Group's overall online sales performance for the year was impacted by a one-off stock availability issue through the important end of Autumn/Winter season sales period, the underlying cause of which has been addressed, as well as restricted capacity in the final quarter of the year as we managed the impact of the COVID-19 pandemic, we have been incredibly encouraged by the strong customer demand through our e-commerce channel and plan to continue to invest in further driving digital sales in the year ahead.

Joules' stores are in desirable locations and we continue to believe that they play an important role in the ongoing expansion of the Joules brand in the UK, as well as in our customers' digital purchase journeys, with digital transactions such as click & collect, order-in-store and online returns representing over 20% of all store transactions in the Period.

We ended the Period with 128 stores, three more than at the start of the Period. We opened stores on a very selective and targeted basis - considering the role they play in new customer acquisition and brand awareness alongside flexible rent arrangements that are better suited to the current retail environment.

We continue to actively manage our store portfolio and successfully completed several lease renewals on attractive, flexible terms during the Period. Across the Group's portfolio of 128 stores, a large proportion are in 'lifestyle locations' and over a third of the portfolio has a lease event within the next 18 months. In the context of our store portfolio management, and rebased store sales forecasts following the impact of COVID-19, we have booked an impairment charge of £15.8 million in relation to those stores where their cash flows through to the next lease break does not support the carrying value of the store asset. Two-thirds of this impairment relates to 15 of the Group's stores. If we cannot achieve suitable rent terms for these stores at the next lease event, we will relocate or close in these locations.

We will continue to carefully appraise new openings in attractive locations that are appropriate for our brand and product range and where flexible and attractive leases can be secured.

Whilst wholesale remains an important distribution channel for the brand, particularly in our international markets, in FY20 the Group operated a smaller base of wholesale accounts in the UK reflecting the transition of some of our larger accounts to the retail concession model in the prior year. Sales through our UK wholesale partners during the Period were also impacted by sector-wide trading pressures as a result of lower footfall and subdued consumer confidence which impacted our smaller, typically high-street located 'field' accounts. In addition, our wholesale partners were heavily impacted by disruption resulting from the COVID-19 pandemic during the final months of the year. As a result of these factors, wholesale sales in the Period were approximately £42.7 million, a reduction of 25.3%.

INTERNATIONAL EXPANSION

The Group's international expansion is focused on establishing and growing the Joules brand in selected international markets, primarily the US and Germany, through wholesale partnerships and local currency e-commerce channels. During the Period, international revenue was £29.5 million (FY19: £35.1m) and represented 15.5% of Group revenue (FY19: 16.1%).

Our international e-commerce sales were up by 25% in the first three quarters of the year reflecting our growing customer base and continued positive responses to our brand and products in the US, Germany and across other international markets. With the final quarter being heavily impacted by international distribution restrictions due to COVID-19, the full year increased by a more modest 11%.

We also continued to increase our social media and digital marketing activity in the US resulting in encouraging levels of customer engagement.

International wholesale faced challenging trading conditions through the year and was heavily impacted by the closure of most of our wholesale partners retail outlets through the final quarter.

Overall, we remain highly confident in the resonance of our brand in our target markets of the US and Germany and believe we are well positioned to resume growth in these markets as the trading environment normalises.

PRODUCT & BRAND EXTENSION

We continue to extend the brand into new product categories that are complementary to our core clothing ranges and relevant to our customers' lifestyles. We do this by partnering, typically on a licence basis, with carefully selected businesses that align to Joules' values. We continue to take a very disciplined approach to establishing partnerships with a focus on home and gifting categories which complement our clothing ranges.

Our existing partnerships performed well during the year. The Joules sofa range in partnership with DFS has continued to perform particularly well, supported by the addition of the new Patterdale sofa to positive customer response. During the year we also launched a men's formalwear range in partnership with Next plc, a collection comprising suits, jackets, shirts, ties, pocket squares and shoes. Each item in the collection features Joules' distinctive designs, attention to detail and tailoring, and uses quality British fabrics which reflect the British countryside roots on which our brand is built. We have been pleased with the customer reaction so far.

During the year we were delighted to win in two award categories at the Brand & Lifestyle Licensing Awards (B&LLA), which celebrate the best performers in product licensing. We were honoured to win in the Best Licensed Gifting Product category for our stationery and gifting collection created in partnership with Portico. We were also pleased to have the continued development of our licensing category recognised when we were named Best Licensed Fashion or Talent Brand.

Our new 'Friends of Joules' digital marketplace has given us an additional channel to extend Joules' reach and customer offering into new product categories that are relevant to our customers' lifestyles. In the years ahead we are aiming to continue to expand the sellers and options available to customers through 'Friends of Joules' to offer an increasingly broad range of curated and relevant products to our customer base.

INVESTING IN INFRASTRUCTURE TO SUPPORT LONG TERM GROWTH

To support the Group's long-term growth plans, we have made further investments in our e-commerce proposition, stores, infrastructure, systems and colleagues.

During the second half of the year we began a supply chain modernisation programme across both our UK and US operations aimed at building future capacity for growth, enhancing efficiencies and improving customer service levels. In the UK, we extended the lease for our Corby Joules Distribution Centre ("JDC") and completed the outsourcing of our JDC operations to Clipper Logistics plc. We also commenced an investment programme at the JDC, which will continue for the remainder of 2020, that will expand capacity and modernise the facilities to support Joules in its aim to continue to meet customer demand into the future. In the US, during the second half of the year we transferred to a new third-party logistics provider in order to add additional capacity for our future growth and deliver operational efficiencies. These supply chain initiatives incurred incremental and non-recurring costs during the transition phase but are expected to deliver significant benefits from FY22 onwards.

In addition, during FY20 we completed the roll-out of our new point-of-sale system to the entire store estate which will deliver even greater integration between channels in our 'Total Retail' approach, including enabling much simpler order-in-store capability and visibility of customer activity across channels.

We continue to make progress on the development of our new Head Office in Market Harborough which, following COVID-19-related disruption, we expect to move in from early 2021. This new environment, which will bring all Head Office business functions together under one roof, will be an important driver of our culture, creativity and efficiencies moving forward. Our team's amazing response - seamlessly adapting to new ways of working - through the lockdown period demonstrates the benefits of more flexible and remote working. The new Head Office development layout has been reviewed and adapted to enable us to continue to maximise the benefits of this including more touch-down spaces and open collaboration and meeting areas. Our trade showrooms will also be incorporated into the office with advanced 'digital showrooming' capability.

OUR TEAM & THE JOULES COMMUNITY

Throughout my time with the Group so far, I have been struck by the talent and commitment of our colleagues, from our store and international teams to our Head Office. These attributes have been highlighted during the recent period of COVID-19-related disruption. Our teams have shown fantastic flexibility during this very challenging period and I would like to thank them for their continued hard work and dedication.

Throughout recent months, and in order to support the COVID-19 response discussed above, we have also received fantastic support from our suppliers, landlords, business partners, financial stakeholders and customers. I would like to take this opportunity to thank everyone across the Joules community for their ongoing support for our business and brand.

LOOKING AHEAD

I remain highly confident in the significant long-term opportunities for Joules. We have a fantastic brand, a flexible business model and a relevant growth strategy. Our strategic focus over the coming years will be to build on our strong foundations for continued growth by delivering the following priorities:

Growing brand presence

We have a loyal customer base and strong customer relationships. Our priority will be to continue to attract more new customers to the brand and grow customer numbers both in the UK, where we still have significant room to increase brand awareness, as well as across our targeted international markets.

Developing one strong team

We have an incredibly talented and committed team of colleagues across our business. Our priority is to continue to attract, develop, reward and retain this talent. We are committed to building on our, already strong, colleague engagement and firmly believe that committed and highly engaged colleagues are central to the successful delivery of our growth strategy. The Black Lives Matter movement has, rightly, shone a light on diversity and inclusion. As a business, we need to work harder to ensure that diversity is better represented across many areas of our business including our teams. The Joules leadership team with support from colleagues across the business is actively working on a range of activities so that we can listen, understand, learn and do better.

Being increasingly digitally led

To further build our customer base, we will need to be increasingly digitally led in our marketing and sales focus. The investments made in recent years into our digital channels have driven e-commerce sales to represent half of our retail sales and I strongly believe that we now have a great opportunity to build on this platform and ramp-up our e-commerce market penetration. We will continue to consider the appropriate shape and size of our retail store estate, including renegotiating leases where appropriate to ensure that our store estate remains highly relevant to our customers and contributes to our 'Total Retail' model.

Taking international to the next level

We know that the brand resonates well with customers in the US and Germany. We believe that we have a fantastic opportunity to leverage our differentiated core rainwear and outerwear products as a real point of difference in these international markets so that we can extend our wholesale reach and build customer awareness. This will be supported by investment in a digital, direct-to-consumer approach to driving sales.

Delivering product with purpose

Joules is loved by its customers for its unique prints, use of colour and product quality. We must build on this by ensuring that our products and collections always have a clear purpose. This means being design and not fashion led, being innovative in our market so that our core products stand-out with our trademark details that surprise and delight customers and ensuring that our products are responsibly sourced.

Protecting our financial position

As detailed above, we have taken several actions to preserve cash resources over recent months in response to the severely disrupted trading patterns seen across our global markets. Going forward we will maintain our firm focus on liquidity and reducing net debt, including those payments that have been deferred.

Driving fit and focussed business operations

I have been incredibly proud of the efficiency and flexibility shown by the Group during the COVID-19 related lockdown. We have a great team and culture, but there are ways that we can work smarter and more efficiently through streamlined decision making, removing complexity and enhancing our communications across teams. The transition to increased remote working and the move to our new, more collaborative Head Office environment gives us a great opportunity and catalyst to be an even more efficient, nimble organisation.

In addition, we will focus on investing and deploying our resources into areas of the business that will drive our long-term development.

At the core of all the above is our Responsibly Joules approach to sustainability and social responsibility. Responsibly Joules sets out the framework and principles that underpin 'how we do things' and 'what we do'. These principles, that have been central to the Joules brand since we started in the fields of Great Britain over 30 years ago, have never been more important than they are now and, in the years, ahead.

FINANCIAL REVIEW  

The challenges faced in the final quarter of the Period, as the impact of the COVID-19 global pandemic fully and rapidly materialised are unprecedented in modern times and certainly not experienced since Joules started trading more than thirty years ago. Despite a material impact upon revenue and profitability in the Period, the Group's response, as we entered the crisis, and positioning, as we emerged out of the UK lockdown, highlight many of Joules' strengths and its ability to navigate potential further disruption and volatility as well as capitalise on the growth opportunities. These include:

· Brand strength and momentum, with increasingly relevant products and a loyal customer base

· Flexible and agile business model with over half of revenue from digital platforms prior to COVID-19

· Well invested infrastructure to support the business model, with further enhancements to the Group's logistics capabilities completed in the second half of the year

· Supportive shareholders, lenders and suppliers

· Experienced, capable and decisive leadership team

Following a robust first half trading performance across the business, the second half of the year started with a stock availability issue that impacted our e-commerce performance over the important Christmas trading period and closed with the COVID-19 pandemic materially impacting our final quarter (March to May).

COVID-19 - IMPACT ON THE GROUP'S FINANCIAL POSITION AND RESULTS FOR THE PERIOD

The CEO's report provides detail on the impact of COVID-19 on the Group's sales channels and operations together with the actions taken to reduce costs, preserve cash and strengthen the Group's financial position. The financial impact in the Period is summarised below, with more detail, where appropriate included in the relevant section of this Financial Review.

 Impact on business operations and sales channels

· The Group's stores experienced materially lower footfall and sales from early March, and were all closed from the weekend of 21/22 March through the remainder of the Period with phased re-openings commencing from 15 June

· No country shows or events were attended from mid-March onwards

· Wholesale despatches slowed to effectively nil through the final quarter as our wholesale partners across the world closed their own retail locations

· The Group's UK e-commerce channel remained open through the lockdown period, initially operating at a reduced capacity due to warehouse constraints, but quickly recovering to deliver very strong growth across the last seven weeks of the Period

· Group revenue for the final two months of the year, although materially down on the comparable prior year period, was significantly ahead of management's COVID-19 base forecast that was prepared in March 2020, driven by UK e-commerce performance.

Actions taken to reduce costs

· Variable costs: Variable costs including turnover rents, merchant fees, distribution costs and to a lesser extent utilities and travel & expenses that naturally reduced with declining sales activity

· Payroll costs: The Government's Coronavirus Job Retention Scheme ('CJRS') subsidised a large proportion of payroll costs for store colleagues, all furloughed from 23 March, and for approximately a third of Head Office colleagues furloughed from 1 April. In addition, from 1 April all non-furloughed colleagues agreed to a voluntary pay reduction for a four-month period.

Actions taken to preserve cash and enhance the Group's financial position and liquidity

· Inventory purchase commitments were reduced and rephased - in collaboration with our suppliers

· Capital expenditure projects, including the Head Office development, were paused

· Rent deferral arrangements were agreed with the majority of the Group's landlords

· Agreements were reached with HMRC to defer VAT and PAYE

· In April the Group raised gross proceeds of £15.0 million from an equity placing and agreed a £15.0 million increase to its Revolving Credit Facility.

Financial position, liquidity and going concern

At 31 May 2020, the Group had net cash of £4.5 million, comprising cash of £26.2 million and total borrowings of £21.7 million. The Group had £52.5 million total liquidity headroom at 31 May 2020, comprising cash of £26.2 million and £26.3 million of undrawn committed financing facilities. The cash and liquidity headroom position were both significantly ahead of management's COVID-19 base case and downside case projections prepared in late March.

The Directors' have concluded that it is appropriate to prepare the financial statements on the going concern basis. Further detail on financial position, liquidity and going concern assessment is provided later within this Financial Review.

SUMMARY INCOME STATEMENT

PROFIT/(LOSS) BEFORE TAX ('PBT')

PBT before exceptional costs and the impact of IFRS16 - Leases was a loss of £2.0 million (FY19: £12.9m profit). The transition to IFRS16 had a net impact on PBT - before exceptional costs of £(1.8) million (FY19: nil), resulting in a £3.9 million loss before tax and exceptional costs for the Period. This result reflects the impact of COVID-19 on the final quarter of the Period - that is estimated to have negatively impacted PBT by £12.5 million in the Period*, the previously reported stock availability issue over the Christmas trading period and includes non-recurring costs of £2.4 million as detailed further below.

In prior Periods, Underlying PBT was reported as the Group's primary non-GAAP metric. Underlying PBT is stated before share-based compensation, the impact of IFRS 16 (Leases) and exceptional costs. From FY20 onwards, share-based compensation charges are reported 'above the line' so Underlying PBT measure is no longer considered relevant. For comparison with last year Underlying PBT would be a loss of £2.4m (FY19: £15.5m profit)

Statutory PBT, which includes an exceptional impairment charge of £21.5 million in the Period, was a loss of £25.3 million (FY19: £12.9m profit). The non-cash exceptional impairment charge is detailed further below. 

* COVID-19 PBT impact estimated with reference to the revenue impact over the impacted period at the channel average gross margin rate, adjusting for variable cost savings, government support (rates relief, CJRS), management's cost saving actions and the impact of wholesale customer returns, discounts or receivables write-off.

FACTORS IMPACTING GROUP RESULTS

Our reported results for the Period were impacted by the following:

IFRS16 - LEASES

The Group adopted IFRS16 - Leases from the start of the Period, applying the modified retrospective approach with no restatement of the prior year. On transition at the end of FY19, qualifying lease commitments have been brought onto the balance sheet as both a 'Right-of-use' asset and a corresponding lease liability. On adoption, the Group recognised a 'Right-of-use' asset of £58.7 million and a lease liability of £56.4 million. The 'Right-of-use' asset at the end of the Period was £32.0 million, the movement in the year comprising: net additions, disposals and modifications of £2.7 million; impairment of £(16.7) million; and depreciation of £(12.6) million.

The net impact on PBT before exceptional costs for the Period was £(1.8) million, comprising £12.2 million add back of rent expense, £(12.6) million depreciation of the right of use asset and £(1.4) million interest expense on the lease liability.

Further detail on the impact of IFRS16 is provided in the Consolidated Financial Statements.

SHARE-BASED COMPENSATION

Share-based compensation reflects the IFRS2 accounting standard treatment for the non-cash expense in relation to employee share plans. These include long-term incentive plans, deferred bonus awards and Save-as-you-Earn ("SAYE") plans as detailed in the Consolidated Financial Statements and the Directors' Remuneration Report of the Annual Report. In the Period an income of £0.4 million was recognised (FY19: £(2.6)m expense) following a revision to the projected achievement of the current share plans' performance targets.

NON-RECURRING COSTS

During the Period the Group incurred non-recurring costs of £2.4 million (FY19: £nil). These relate to:

· Distribution centre (DC) transformation programme costs of £1.7 million. This programme commenced and completed in the Period and included the outsourcing of the UK DC to Clipper Logistics plc and the transition of our US DC to a new third-party partner. £1.3 million of the cost was in operating costs and £0.4 million in cost of goods sold

· COVID-19 impacts on our wholesale sales channel has resulted in a non-cash write-down of £0.7 million in relation to certain wholesale customer receivable balances. The write-down reflects management's assessment, based on historic trading patterns, of the incremental expense relative to normal trading.

The UK Financial Reporting Council (FRC) issued guidance on 20 May 2020 on reporting for the treatment of incremental costs in relation to COVID-19. In accordance with this guidance, the non-recurring cost of £0.7 million in relation to wholesale receivables has not been treated as exceptional costs or adjusted for in a non-GAAP measure.

EXCEPTIONAL COSTS

The Group regularly conducts a review of its assets to identify if there is any impairment to the carrying value of the assets. This review incorporates the impact of IFRS16 - Leases, where property leases are now capitalised as a 'Right-of-use' asset on the balance sheet.

An exceptional charge of £21.5 million (FY19: £nil) has been made in the Period. £21.0 million of the charge is a non-cash impairment charge, as detailed below, and £0.5 million is restructuring costs incurred in the Period.

Stores impairment of £15.8 million: An impairment assessment has been undertaken for each of the Group's 128 stores using assumptions consistent with management's COVID-19 base case as used for the Group's going concern assessment. For stores where the value-in-use (discounted future cash flows to the lease break) was below the carrying value (IFRS16 'Right-of-use' asset and net book value of store fixed assets) an impairment charge has been made. Five stores make up one third of the impairment charge, with a further ten stores making up another third. We anticipate that we will relocate or close these stores at the lease break if we are not able to agree economically viable lease renewal terms.

Head Office & showroom lease impairment of £3.8 million: As previously communicated, we are relocating our Head Office to a newly developed freehold site in Market Harborough that also enables consolidation of existing rented showroom space. A non-cash exceptional impairment charge has been made against the 'Right-of-use' asset for the current rented offices and showrooms, assuming a 30-month vacancy period until the leases expire or are assigned. Fixed assets that will not be moved to the new location have also been impaired.

Other assets impairment of £1.4 million: mainly includes the impairment of certain fixed assets no longer in use following our distribution centre transformation programme.

GROUP PERFORMANCE IN THE PERIOD

REVENUE

Group revenue decreased by 12.5% to £190.8 million (FY19: £218.0m). Revenue for each of our reporting segments is summarised below.

The impact of COVID-19 on the Group's revenue in the final quarter of the Period is estimated as an approximate £31 million reduction. With an £18 million adverse impact on Retail sales and a £13 million adverse impact on Wholesale sales. This estimate is based on management's forecast for the final quarter that reflected the sales run rate prior to the final quarter, the wholesale order-book, and sales in the comparable period last year.

Retail 

Retail revenue decreased by 8.3% to £145.9 million. For the first half, the Group reported retail revenue growth of 3.1% (adjusted for Black Friday timing[1]). On the same basis, the second half of the year, impacted by COVID-19 and the stock availability issue over the Christmas period, saw a year-on-year reduction of 22.4%.

The adverse impact of COVID-19 was partly mitigated by the Group's flexible 'Total Retail' model. This enabled us to continue to trade our e-commerce channel effectively through the period of COVID-19.

E-commerce

E-commerce performed well, with revenue growth of 5.0% in the Period, building on very strong growth in recent years. Our owned e-commerce channels performed particularly well, with growth of nearly 11% in the Period, supported by increased website traffic, driven by effective digital marketing activities and improved conversion, driven by ongoing enhancements to the customer experience and digital platforms that make it easier for our customer to shop.

During the period of the UK lockdown, from 23 March 2020, e-commerce sales via the Group's own UK website were particularly strong, with demand sales (sales incl. sales tax, excl. returns) growth of more than 50% versus the comparable period. Traffic growth was up by more than 40% in the same period, with improved conversion rates also experienced. Overall e-commerce revenue growth was held back by the closure of our international and 3rd Party e-commerce channels for a large part of the period.

E-commerce now represents 56.6% of all retail sales (FY19: 49.5%). For the first nine months of the Period, prior to stores being closed, e-commerce represented 50.9% of retail sales.

Stores

Store revenue declined by 21.4% in the Period. For the first three-quarters of the year, stores sales declined by approximately 8%, reflecting structural industry trends and reduced promotional stance in the first half of the year. Notwithstanding their temporary closure through most of the final quarter, stores are an important part of our flexible 'Total Retail' model. At the end of the Period, the Group operated 128 owned stores, in addition to 33 concessions and three franchises.

Wholesale

Wholesale revenue decreased by 25.3% to £42.7 million, compared to underlying growth of 22% in the prior year (adjusting for the conversion of two large wholesale accounts to retail concessions in FY18). In the first half of the year, wholesale revenue declined by 5.1% reflecting the timing of wholesale despatches and a softer EU wholesale market. In the second half, wholesale revenues declined by approximately 50% as nearly all wholesale partners globally closed or contracted their operations in response to COVID-19.

International wholesale represented half of total wholesale sales (FY19: 48%).

Other 

Other revenue increased by 24.1% to £2.2 million (FY19: £1.8m). Other revenue includes royalties from the sale of Joules branded products produced and sold under licence with a partner, including toiletries & gifting in partnership with Boots and the Joules sofa collections in partnership with DFS. Commission from the sale of third-party products on the new 'Friends of Joules' digital marketplace are also included in Other revenue.

International revenue

Total international revenue decreased by 15.8% and represented 15.5% of total Group revenue (FY19: 16.1%), with disappointing performance in the second half of the year, which was materially impacted by COVID-19 - with international wholesale and e-commerce both effectively closed for most of our final quarter, reversing the growth delivered in the first half.

The appeal of the Joules brand in our target international markets remains strong. E-commerce sales in the US and Germany continued to deliver encouraging growth despite our websites being closed to customer orders in these markets for a large part of the final quarter, due to COVID-19 restricting the operations of our fulfilment partners. Following the easing of these restrictions, international e-commerce sales have returned to the growth levels experienced in the first nine months of the year.

International wholesale decreased by 21.3% (22.8% in constant currency), with many of our international wholesale partners closing stores in response to COVID-19 earlier than in the UK and adjusting their purchasing accordingly.

GROSS MARGIN

Gross margin at 50.7% was 4.1% points lower than the prior year, impacted by an increased mix of e-commerce and US wholesale sales and a higher than usual level of Q4 promotional activity and wholesale discounts.

Retail gross margin of 56.9% was 3.7% points lower than the prior year, impacted by the increased mix of e-commerce sales (with stores closed for most of Q4), which have a lower gross margin than store sales. There was a higher level of promotional activity to drive customer demand in the final quarter and, as reported at the half year, we also saw an increased level of customer participation in core annual promotional events.

Wholesale gross margin of 27.1% was 10.0% points lower than the prior year, as a result of an increased mix of US wholesale as a proportion of total wholesale sales and the provision for a higher than usual level of returns and wholesale customer discounts in the final quarter of the year.

ADMINISTRATIVE EXPENSES

Total administrative expenses before exceptional costs decreased by 6.9% to £98.9 million (FY19: £106.3m).

Prior to the impact of IFRS16 - Leases, operating expenses (being administrative expenses excluding share-based compensation and depreciation & amortisation) decreased by 4.0% to £92.0 million (FY19: £95.9m).

The final quarter of the Period benefitted from lower costs related to COVID-19, including: management's cost reduction actions; lower variable costs linked to reduced sales activity; and, UK Government support initiatives, including business rates relief and the Coronavirus Job Retention Scheme (CJRS). These government support initiatives improved Q4 costs by approximately £3.0 million.

As referenced above, the Group incurred non-recurring costs of £2.4 million in relation to the UK and US distribution centre transformation programmes and the write-off of wholesale receivables due to COVID-19. Of the total non-recurring cost £2.0 million is within operating costs and £0.4 million in Cost of Sales.

Sales costs decreased by 8.2% to £12.2 million (FY19: £13.3m). Sales costs reflect commissions due to third-party retail concession partners and wholesale sales agents. The decline in the year is a result of lower third-party retail sales in the final quarter.

Marketing costs decreased by 2.7% to £9.3 million (FY19: £9.5m). For the first three-quarters of the year, we increased digital marketing investment by nearly 30%, focused on new customer acquisition, customer retention and social media in the UK and target international markets, the results of which are reflected in the strong e-commerce performance and customer and brand metrics. In the final quarter, we reduced all channel marketing and new customer acquisition spend.

Store costs decreased by 11.7% in the year to £27.9 million (FY19: £31.6m). For the first three quarters of the year store costs were broadly level with the prior year, reflecting strong cost control and the initial benefit of reduced store rents realised through our ongoing store portfolio management programme. In the final two months of the Period, a large proportion of store costs were offset by the CJRS and business rates relief.

Distribution costs increased by 19.1% in the year to £9.9 million (FY19: £8.4m). Excluding non-recurring costs, distribution costs were level with the prior year, with the growth in UK e-commerce being offset by the reduction in activity to support other sales channels through the final quarter of the year.

In the second half of the Period we completed the outsourcing of our UK distribution centre to Clipper Logistics plc and, in the US, we moved our wholesale distribution centre from a third-party in New Jersey, to a new provider based in Georgia. These initiatives incurred non-recurring costs of £1.3 million in the Period. The completion of the distribution centre transformation initiatives in the UK and the US will provide the Group with a robust, well invested and efficient logistics platform that is anticipated to support future growth over, at least the next five years, with both improved customer service levels and unit cost economics.

Head Office costs decreased by 1.1% in the year to £32.7 million (FY19: £33.1m). In the first three quarters of the year, costs increased by 4.1% against the comparable period, a slower rate of growth relative to prior years as we realised benefits from historic investments in Head Office functions and teams whilst continuing to invest in areas of strategic growth including creative, design, digital and e-commerce. The final two months of the year saw a temporary reduction in Head Office costs following management's COVID-19 actions and the benefit from the UK Government's CJRS.

Depreciation & amortisation (excluding IFRS16) decreased to £6.8 million (FY19: £7.8m), with higher amortisation charge due to the ERP platform completed in the prior period and a new store point-of-sale solution completed in the Period being more than offset by several stores being fully depreciated and lower levels of capital expenditure. Depreciation of the IFRS16 right of use asset was £12.6 million (FY19: na).

IFRS16 - Leases net impact on administrative expenses of £0.4 million (FY19: na) comprising of the right of use asset depreciation charge of £12.6 million partly offset by the exclusion of rent expense of £12.2 million in the Period.

NET FINANCE COSTS

Net finance costs were £1.8 million (FY19: £0.3m). Net finance costs comprise interest on lease liabilities £1.4 million (FY19: £nil) following the Group's adoption of IFRS16 - Leases, and interest and facility charges of £0.4 million (FY19: £0.3m) on the Group's revolving credit facility and term loan with Barclays Bank PLC.

TAXATION

The Group recognised a tax credit of £4.6 million in the Period (FY19: £2.7m charge), reflecting the Group's loss in the Period. The effective tax rate for the Period was 17.8% (FY19: 21.0%), which was lower than the applicable UK corporation tax rate largely due to the net deduction in respect of share-based compensation and the impact of recalculating deferred tax balances (following the UK tax rate being maintained at 19%, reversing the previously enacted change from 19% to 17% from April 2020) net of non-deductible expenditure and fixed asset timing differences.

EARNINGS PER SHARE

Statutory basic earnings per share for the Period, were (23.7) pence (FY19: 11.6 pence). The weighted number of shares in the Period were 93.8 million (FY19: 87.7 million). The increase in the Period resulting from shares issued to employees of the Group as share plans vested and the equity placing completed in the final quarter of the Period.

EQUITY PLACING

On 3 April 2020 the Company announced the completion of an equity placing, conducted by way of an accelerated bookbuild, to provide the Company with additional liquidity in response to the impact of COVID-19.

A total of 18,750,000 new ordinary shares of 1 pence each were placed at a price of 80 pence per share, raising £15.0 million gross proceeds. Following admission of the placing shares, the Company's issued and fully paid share capital consisted of 108,135,920 ordinary shares.

CASH FLOW

Free cash flow, excluding expenditure on the new Head Office development, was £5.0 million inflow in the period (FY19: £8.6m inflow).

*See summary Income Statement above for reconciliation of this non-GAAP measure

CAPITAL EXPENDITURE

Core capital expenditure in the Period was £6.4 million (FY19: £10.5m). Major areas of capital expenditure included the new store point-of-sale system, the development and launch of the 'Friends of Joules' digital marketplace and developments to our e-commerce platform.

The Group's new Head Office development incurred spend of £7.3 million in the Period (FY19: £1.0m) with cumulative spend to date of £13.8 million, including £4.4 million for the purchase of the land. The timing for completion has been extended to early 2021 and the total investment reduced following actions undertaken to respond to COVID-19. The new building will enable a collaborative working environment and facilitate remote working to a significantly greater degree than our current offices. On completion, the Group will vacate all leased Head Office space in Market Harborough and consolidate its separately leased showroom space.

INVENTORY

Inventory at the end of the Period was £35.3 million (FY19: £35.9m).

In response to COVID-19, the Group, working collaboratively with its suppliers, took actions to reduce and rephase stock purchase commitments for the current season (Spring/Summer 20) and the subsequent season (Autumn/Winter 20). These actions, combined with better than anticipated trading in the final quarter of the year, relative to management's COVID-19 downside scenario, enabled the Group to end the Period with a lower than anticipated inventory balance.

DIVIDEND

Following the actions taken to preserve cash in the light of COVID-19, that included the deferral of payments due to HMRC and landlords, and with continued uncertainty on the speed of recovery for many of the Group's sales channels, the Board is not proposing a dividend for FY20 (FY19: 2.1 pence per share). The Board will keep this position under review.

FINANCING FACILITIES AND LIQUIDITY

At the end of the Period the Group had total available facilities of £48.0 million, of which £21.7 million was drawn.

The Group has a £25 million Revolving Credit Facility (RCF1) provided by Barclays Bank PLC ('Barclays') to fund seasonal working capital requirements. This facility matures in July 2022. In April 2020, the Group established another Revolving Credit Facility (RCF2), also with Barclays, to provide additional financial headroom through to April 2021.

The development of the Group's new Head Office is being funded, in part, by way of a £9.5 million loan from Barclays. The loan is repayable by way of quarterly payments of £264,000 and a final bullet payment in December 2023. In April 2020, the Group agreed the deferral of the subsequent four quarterly repayments, with the deferred amounts added to the final bullet payment.

NET CASH/(DEBT) AND LIQUIDITY

Net cash at the end of the Period was £4.5 million (FY19: £5.8m). Cash balances were £26.2 million (FY19: £16.0m) and Group borrowings were £21.7 million (FY19: £10.2m).  

The Group's total liquidity headroom at 31 May 2020 was £52.5 million, comprising £26.2 million cash balances and £26.3 million undrawn committed financing facilities.

To preserve cash and improve the short-term liquidity position in response to COVID-19, the Group agreed the deferral of certain liabilities falling due in the final quarter of the financial year with HMRC and with landlords. At 31 May 2020 the total amount deferred under these arrangements was £6.7 million (FY19: £nil). The Directors anticipate that these amounts will be repaid over the period to May 2021.

BREXIT

The Group is preparing for a 'hard Brexit' scenario as the UK leaves the European Union's single market and customs union at the end of 2020. The Group's Brexit task force has been established and several steps have been taken to mitigate the potential for adverse impact on the Group including AEO certification and establishing the primary UK logistics facility as a bonded warehouse. Notwithstanding these mitigating actions, the Group's wholesale and e-commerce sales into the European Union could face a period of operational disruption and potentially increased costs as a consequence of a hard Brexit.

GOING CONCERN

As for many businesses in the retail sector, the Group has been significantly impacted by COVID-19. The impact and management's initial response is set out in detail within the CEO's report and the Financial Review.

Considering the significant uncertainties faced by the retail sector, including short-term and potentially more fundamental long-term changes in consumer behaviour as well as the potential for ongoing operational disruption, the Directors have undertaken a comprehensive assessment to consider the going concern and longer-term viability of the Group and Company. In making their assessment the Directors have considered the following:

- The Group's financial position, as at the date of this report, and its committed borrowing facilities available for the time period under consideration

- The support from the Group's shareholders and bank, including the successful equity placing and financing facility extension that were completed during the early stages of the UK lockdown

- Alternative sources of financing, including sale & leaseback of freehold property and asset financing that might reasonably be assumed to be available to the Group - noting that any financing from these sources has not been included within the forecasts that support the going concern assessment

- Financial commitments, including capital commitments, lease commitments, stock purchases and other non-variable/non-discretionary costs. In respect of property leases, the Directors note the relatively short lease commitments, of less than three years on average, that the Group has across its store portfolio together with recent progress on renewing leases on favourable terms

- The extent of continued Government support initiatives including business rates relief and the Coronavirus Job Retention Scheme (CJRS)

- Strength of brand, reflected in active customer growth, brand awareness and brand health metrics - as detailed more fully in the Strategic Review

- The flexibility and agility of the Group's business model, as described in the Strategic Review, noting that over half of the Group's retail sales are via e-commerce and that the Group has diversified sources of revenue, operating across several channels and geographic markets, with owned and third-party channels including wholesale and marketplaces. Newer income streams of brand licensing and the Group's digital marketplace provide additional comfort on the strength of the brand and diversity of income channels

The Directors have also considered the trading performance of the Group's stores as they have re-opened on a phased basis following the easing of the UK's lockdown restrictions on 15 June 2020, as well as the performance of the Group's e-commerce channel, which has continued to exceed management's expectations since the start of the UK lockdown.

The Directors have reviewed management's business plan forecasts that cover the period to 28 May 2023, being the Group's strategic plan horizon. The forecasts have been produced on the following basis:

- Base plan - gradual sales recovery post-COVID-19, reflecting management's estimates for the speed and extent of recovery across its different sales channels and markets. It reflects phased store re-openings from mid-June 2020 through to mid-August 2020 with the re-opened stores initially trading significantly below the prior year, improving to 75-80% of the prior year's sales level by the end of FY21, with modest growth thereafter. Third-party wholesale channels are assumed to follow a similar trajectory, with sales into the European Union also reflecting potential disruption arising ahead of and following the end of the Brexit transition period. The Group's e-commerce sales are forecast to grow at double-digit levels reflecting performance over recent years and experienced since the UK lockdown in late March 2020

- Downside scenario - the 'Base plan' adjusted to reflect a slower recovery of the Group's stores channel with total store revenues only achieving approximately 60% of the pre-COVID-19 levels by the end of FY21, and a deterioration in the wholesale channel receipts with receivable days more than double the level of FY20.

Within each forecast, management have reflected financial commitments and the impact of realised or anticipated cost savings from discretionary and variable costs. No Government support or subsidies, other than those announced and committed at the date of this report, are included.

The Directors have stress tested the forecast to consider situations under which the Company would have insufficient liquidity under its current secured borrowing facilities and/or it would not meet its banking covenant tests. One such 'Stress test scenario' is that of ongoing material disruption to retail store operations from COVID-19 that result in no store channel revenue going forward and lower receipts from the Group's wholesale channels as per the Downside case. The Stress test scenario assumes higher e-commerce revenue growth than the Base case on the basis that loyal customers can no longer access the brand via the store environment - as demonstrated during the period of the UK lockdown, plus ongoing income from brand licensing and digital marketplace activities. The Stress test scenario assumes that the Group will reduce its obligations and financial commitments, such as property leases, in line with existing contractual terms and that there is no additional Government support or subsidies to offset costs or support cash flow. The Directors believe, with reference to the considerations noted above, that, firstly the likelihood of this situation arising in its most extreme form is remote and, secondly, that they anticipate that the Group would be able to adapt and respond to mitigate the impacts and continue to trade and meet its obligations through the period of consideration.

Going concern

The Base plan and Downside scenario forecasts indicate that the Group will remain within its available committed borrowing facilities and in compliance with covenants throughout the forthcoming 12-month period. Under the Downside scenario, the Group has more than £25 million available liquidity headroom through-out the period under consideration and has EBITDA headroom of £2.9 million against its first covenant test arising in the period with headroom increasing further for the second covenant test arising in the period.

The Group would also remain within its borrowing facilities and comply with covenants under the Stress test through this period.

Following consideration of these forecasts and having made appropriate enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence until at least 12 months after the approval of the Financial Statements. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements.

PRINCIPAL RISKS AND UNCERTAINTIES

Set out below are the principal risks and uncertainties that the Directors consider could impact the business. The Board regularly reviews the potential risks facing the Group and the controls in place to mitigate any potential adverse impacts. The Board also recognises that the nature and scope of risks can change and that there may be other risks to which the Group is exposed and so the list is not intended to be exhaustive.

The Corporate Governance Report includes an overview of our approach to risk management and internal control systems and processes.

EXTERNAL RISKS

External risks reflect those risks where we are unable to influence the likelihood of the risk arising and therefore focus is on minimising the impact should the risk arise.

INTERNAL RISKS

Internal risks reflect those where we can influence the likelihood of the risk arising and the impact should the risk arise.

CONSOLIDATED INCOME STATEMENT

JOULES GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

JOULES GROUP PLC

Note on IFRS 16 - Leases:

As previously noted, the modified retrospective transition approach has been adopted by the Group, which is available within the new accounting standard and therefore comparative disclosures have not been restated for the impact of IFRS 16 - Leases, which came into effect for accounting periods commencing after 1 January 2019.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note on prior year restatement: For further details on the restatement of prior year balances, refer to Note 1 - Basis of preparation of preliminary announcement.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

JOULES GROUP PLC

CONSOLIDATED CASH FLOW STATEMENT

JOULES GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.1. BASIS OF PREPARATION OF PRELIMINARY ANNOUCEMENT

The preliminary consolidated financial information for the 53 weeks ended 31 May 2020 was approved by the Directors on 5 August 2020.

This preliminary consolidated financial information has been prepared in accordance with the principles of International Financial Reporting Standards ('IFRS') as adopted by the EU and has been prepared on a going concern basis. The preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 53 weeks ended 31 May 2020 as defined in section 434 of the Companies Act 2006 but is derived from those financial statements.

The Annual Report and Group Financial Statements for the 53 weeks ended 31 May 2020 are the fifth for Joules Group plc and were approved by the Board of Directors on 5 August 2020. The report of the auditor on those Group Financial Statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Annual Report and Group Financial Statements for the 52 weeks ended 31 May 2020 will be filed with the Registrar in due course. The auditors have consented to the publication of the Preliminary Announcement.

Application of new and revised International Financial Reporting Standards (IFRSs)

With the exception of IFRS 16, which has been incorporated in to these financial statements, there have been no new IFRSs adopted in the current year which have materially impacted the Group's financial statements.

IFRS 16 - Leases Overview

This is the first set of the Group's financial statements where IFRS 16 - Leases has been applied. The impact of adopting IFRS 16 - Leases is material to the financial statements and is described below, with the financial impact being set out in the table below.

The standard is effective for periods commencing on or after 1 January 2019. Under the new standard, the distinction between operating and finance leases is removed and most leases will be brought onto the Consolidated Statement of Financial Position, as both a right-of-use asset and a corresponding lease liability.

The Group has used the modified retrospective transitional approach on adoption of IFRS 16 - Leases which means that the right-of-use asset and the lease liability are brought onto the Statement of Financial Position at the discounted amount applicable at the transition date, which is 27 May 2019. Operating leases that were active at 27 May 2019 and beyond have been incorporated into the results for the 53 weeks ended 31 May 2020.

The right-of-use asset has been depreciated in accordance with IAS 16 "Property, Plant and Equipment" and in line with the Group's existing policies (straight-line over the lease term), whilst the lease liability has been increased for the accumulation of interest and reduced by lease payments. There has been no impact on cash flow overall, however, classifications within the Consolidated Cash Flow Statement have changed to reflect the interest and capital elements of each lease payment.

When applying IFRS 16 - Leases, the Group has applied the following practical expedients, on transition date:

· Reliance on the previous identification of a lease (as provided by IAS 17) for all contracts that existed on the date of initial application;

· The accounting for operating leases with a remaining lease term of less than 12 months as at 27 May 2019 as short-term leases, therefore will continue to be expensed to the Consolidated Income Statement; and

· The use of hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

The impact of IFRS 16 on the Statement of Financial Position at the transition date is as follows:

IFRS 16 - Leases Policy

The Group leases its stores and offices where it operates, with the exception of the new Head Office development of which the Group owns the freehold land and building development. Other lease contracts include office equipment and motor vehicles.

On entering into a contract, the Group assesses whether a contract is a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Group recognises a right-of-use asset and a lease liability on the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability, adjusting for any lease payments made on or before the commencement date, plus any initial direct costs incurred, less any lease incentives received. The assets are depreciated over the full lease term using the straight-line method. Right-of-use assets are reviewed for indicators of impairment.

The lease liability is initially measured at the present value of the lease payments that are outstanding 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 for the same term as the underlying lease. Lease payments included in the measurement of the liability contain fixed payments, break fees where appropriate, less any lease incentives receivable as at the commencement date. Lease modifications result in a remeasurement of the lease liability.

Depreciation is recognised under administrative expenses and the interest expense is recognised under finance costs in the Consolidated Income Statement.

The Group has elected to use the exemption not to recognise the right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The payments associated with these leases are recognised as administrative expenses on a straight-line basis over the lease term, the total amount expensed in the period amounted to £792,000.

Restatement of prior periods' Statements of Financial Position

An adjustment has been made to prior periods' Statements of Financial Positions to accruals and other debtor balances in relation to a prior period error on the treatment of Employer's National Insurance on the Group's share schemes. Management identified that the liability for share based payments at 1 June 2018 was understated as a result of historical errors in the calculation of the National Insurance liability. In addition, management identified that in the year ended 31 May 2018 the deferred tax calculated on shared based payments had been posted twice in error and credited through both the income statement and equity. This resulted in a debtor balance being recognised in error which has been corrected by management in the period in which it arose. There is no impact on the prior year's Consolidated Income Statement. The effect on specific financial statement line items within the Consolidated Statements of Financial Position is as follows:

Exceptional Administrative Expenses

Exceptional Administrative Expenses are those that, in management's judgment, should be disclosed by virtue of their nature or amount. Exceptional Administrative Expenses will typically include material items that are significant in nature, non-recurring and are important to users in understanding the business.

Going concern

As for many businesses in the retail sector, the Group has been significantly impacted by COVID-19. The impact and management's initial response is set out in detail within the CEO's report and the Financial Review.

Considering the significant uncertainties faced by the retail sector, including short-term and potentially more fundamental long-term changes in consumer behaviour as well as the potential for ongoing operational disruption, the Directors have undertaken a comprehensive assessment to consider the going concern and longer-term viability of the Group and Company. In making their assessment the Directors have considered the following:

· The Group's financial position, as at the date of this report, and its committed borrowing facilities available for the time period under consideration

· The support from the Group's shareholders and bank, including the successful equity placing and financing facility extension that were completed during the early stages of the UK lockdown

· Alternative sources of financing, including sale & leaseback of freehold property and asset financing that might reasonably be assumed to be available to the Group - noting that any financing from these sources has not been included within the forecasts that support the going concern assessment

· Financial commitments, including capital commitments, lease commitments, stock purchases and other non-variable/non-discretionary costs. In respect of property leases, The Directors note the relatively short lease commitments, of less than three years on average, that the Group has across its store portfolio together with recent progress on renewing leases on favourable terms

· The extent of continued Government support initiatives including business rates relief and the Coronavirus Job Retention Scheme (CJRS)

· Strength of brand, reflected in active customer growth, brand awareness and brand health metrics - as detailed more fully in the Strategic Review

· The flexibility and agility of the Group's business model, as described in the Strategic Review, noting that over half of the Group's retail sales are via e-commerce and that the Group has diversified sources of revenue, operating across several channels and geographic markets, with owned and third-party channels including wholesale and marketplaces. Newer income streams of brand licensing and the Group's digital marketplace provide additional comfort on the strength of the brand and diversity of income channels

The Directors have also considered the trading performance of the Group's stores as they have re-opened on a phased basis following the easing of the UK's lockdown restrictions on 15 June 2020, as well as the performance of the Group's e-commerce channel, which has continued to exceed management's expectations since the start of the UK lockdown.

The Directors have reviewed management's business plan forecasts that cover the period to 28 May 2023, being the Group's strategic plan horizon. The forecasts have been produced on the following basis:

· Base plan - gradual sales recovery post-COVID-19, reflecting management's estimates for the speed and extent of recovery across its different sales channels and markets. It reflects phased store re-openings from mid-June 2020 through to mid-August 2020 with the re-opened stores initially trading significantly below the prior year, improving to 75-80% of the prior year's sales level by the end of FY21, with modest growth thereafter. Third-party wholesale channels are assumed to follow a similar trajectory, with sales into the European Union also reflecting potential disruption arising ahead of and following the end of the Brexit transition period. The Group's e-commerce sales are forecast to grow at double-digit levels reflecting performance over recent years and experienced since the UK lockdown in late March 2020

· Downside scenario - the 'Base plan' adjusted to reflect a slower recovery of the Group's stores channel with total store revenues only achieving approximately 60% of the pre-COVID-19 levels by the end of FY21, and a deterioration in the wholesale channel receipts with receivable days more than double the level of FY20.

Within each forecast, management have reflected financial commitments and the impact of realised or anticipated cost savings from discretionary and variable costs. No Government support or subsidies, other than those announced and committed at the date of this report, are included.

The Directors have stress tested the forecast to consider situations under which the Company would have insufficient liquidity under its current secured borrowing facilities and/or it would not meet its banking covenant tests. One such 'Stress test scenario' is that of ongoing material disruption to retail store operations from COVID-19 that result in no store channel revenue going forward and lower receipts from the Group's wholesale channels as per the Downside case. The Stress test scenario assumes higher e-commerce revenue growth than the Base case on the basis that loyal customers can no longer access the brand via the store environment - as demonstrated during the period of the UK lockdown, plus ongoing income from brand licensing and digital marketplace activities. The Stress test scenario assumes that the Group will reduce its obligations and financial commitments, such as property leases, in line with existing contractual terms and that there is no additional Government support or subsidies to offset costs or support cash flow. The Directors believe, with reference to the considerations noted above, that, firstly the likelihood of this situation arising in its most extreme form is remote and, secondly, that they anticipate that the Group would be able to adapt and respond to mitigate the impacts and continue to trade and meet its obligations through the period of consideration.

The Base plan and Downside scenario forecasts indicate that the Group will remain within its available committed borrowing facilities and in compliance with covenants throughout the forthcoming 12-month period. Under the Downside scenario, the Group has more than £25 million available liquidity headroom through-out the period under consideration and has EBITDA headroom of £2.9 million against its first covenant test arising in the period with headroom increasing further for the second covenant test arising in the period.

The Group would also remain within its borrowing facilities and comply with covenants under the Stress test through this period.

Following consideration of these forecasts and having made appropriate enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence until at least 12 months after the approval of the Financial Statements. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements.

2. EXCEPTIONAL ADMINISTRATIVE EXPENSES

Store impairments

Retail stores are subject to impairment based on whether current or future events and conditions suggest that their recoverable amount may be less than their carrying value.

The recoverable amount of each store is based on the higher of the value in use and fair value less costs to dispose. As all of the Group's retail stores are leasehold, only the value in use has been considered in each impairment assessment. Value in use is calculated from expected future cash flows using suitable discount rates, management assumptions and estimates on future performance. The carrying value for each store is considered net of the carrying value of any cash contribution received in relation to that store.

For impairment testing purposes, the Group has determined that each store is a separate CGU. Each CGU is tested for impairment if any indicators of impairment have been identified.

The value in use of each CGU is calculated based on the Group's latest budget and forecast cash flows. Cash flows are discounted using the weighted average cost of capital ("WACC") and are modelled for each store through to their lease expiry or break date. No lease extensions have been assumed when forecasting.

As a result of this assessment impairment charges of £13,144,000 and £2,608,000 were recognised in the period against the right-of-use asset and property, plant and equipment respectively for the stores which are impaired.

Other leases and fixed assets

Management have also assessed whether any other lease arrangements show impairment indicators. The development of the Group's new Head Office which is due to be completed in 2020 has resulted in the current Head Office leasehold buildings undergoing an impairment assessment. An in-depth review of other fixed assets has also been performed to identify any which are intrinsically associated with the current Head Office buildings as well as other locations, and those that have a value in use which is below the carrying value.

The calculation of the net present value of future cash flows is based on the same assumptions for growth rates and expected changes to future cash flows as set out above. The cost of exiting leases as set out in the lease agreement, either at the end of the lease or the lease break date (whichever is shorter), have been considered in the calculation.

Based on the factors set out above, the Group has recognised £3,573,000 relating to other leases and £4,259,000 relating to fixed assets which are impaired.

Other exceptional costs

During the year one-off charges of £504,000 were incurred relating to restructuring costs.

Any amounts which subsequently become recoverable for which an amount has been recognised as an exceptional expense will be recognised as a gain through exceptional items in the relevant period.

3. SEGMENT REPORTING

The Group has three reportable segments; Retail, Wholesale and Other. For each of the three segments, the Group's chief operating decision maker (the "Board") reviews internal management reports on a monthly basis. Each segment can be summarised as follows:

· Retail: Retail includes sales and costs relevant to stores, e-commerce, shows and franchises.

· Wholesale: Wholesale includes sales and costs relevant to the sale of products to other retail businesses or distributors for onward sale to their customer.

· Other: Other includes income from licencing and the 'Friends of Joules' digital marketplace, central costs and items that are not distinguishable into the segments above.

The accounting policies of the reportable segments are the same as described in note 1. Information regarding the results of each reportable segment is included below. Operating results being earnings before exceptional administrative expenses, share-based compensation, interest and taxation are used to measure performance as management believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries.

There are no discontinued operations in the period.

GEOGRAPHICAL INFORMATION

The Group's revenue from external customers and non-current assets by geographical location is as detailed below.

4. PROFIT FOR THE YEAR

Profit before tax is stated after charging/(crediting):

\* The movement in this line compared to the prior period is largely due to the transition to IFRS 16. The Group has also benefited from Government business rates relief, which totalled £776,000 during the period.