JOUL.L Regulatory News (JOUL)

Joules Group plc

('Joules' or the 'Group')

Annual Results for the 52 weeks ended 27 May 2018

Continued expansion of the Joules brand within the UK and international markets

Highlights:

· Revenue increased by 18.4% to £185.9 million - up 18.8% in constant currency to £186.0 million

· Underlying1 Profit Before Tax increased by 28.5% to £13.0 million

· Statutory PBT increased by 25.6% to £11.2 million

· Underlying EBITDA2 increased by 24.4% to £21.1 million

· Underlying basic EPS increased by 28.5% to 11.8 pence, with statutory basic EPS up by 36.0% to 9.9 pence

· Gross margin increased by 25 basis points to 55.7%

· Active3 customers increased by 23.4% to 1.15 million

· International revenue increased by 35.7% (40.4% constant currency) - now representing 13.1% of Group revenue

· Final dividend of 1.3 pence per share proposed

Colin Porter, Chief Executive Officer, commented:

"It has been another strong year of growth for the Joules brand, with our continued expansion within the UK and international markets enabling the Group to a profit performance ahead of initial expectations. This performance is testament to the strength and appeal of the Joules brand, our unique product offer and our growing and loyal customer base. We have made excellent progress against our strategy of expanding the brand both at home and abroad, and the Board remains confident that this momentum will continue in FY19." 

1. Underlying excludes exceptional items, primarily related to the costs of admission to AIM and the expense of share based compensation awards.

2. EBITDA is a non-GAAP measure, a reconciliation to operating profit is provided in the Financial Review.

3. Active customer is a customer registered on our database who has made a transaction in the last 12 months.

Reconciliation to statutory profit before tax:

Enquiries:

Joules Group plc Tel: +44 (0) 1858 435 255

Colin Porter, CEO

Marc Dench, CFO

Hudson Sandler LLP (Financial PR) Tel: +44 (0) 20 7796 4133

Alex Brennan

Lucy Wollam

Peel Hunt LLP, Nominated Advisor Tel: +44 (0) 20 7418 8900 Dan Webster

George Sellar

Liberum Capital Limited Tel: +44 (0) 20 3100 2000 John Fishley

Joshua Hughes

Joules - 'a premium lifestyle brand with an authentic British heritage'

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

A true multi-channel lifestyle brand, Joules carefully designs clothing, footwear and accessories for women, men and children, as well as an expanding range of homewares, toiletries and eyewear collections, with personality to match those of its customers' colourful and uplifting outlooks, available through its own retail stores, online, rural shows and events and wholesale channels.

Quality, Britishness, family values, colour and humour make Joules stand out from the crowd. This approach, along with an unwavering attention to detail, and drive to surprise and delight its customers with unexpected product details, has been central to the brand's success and expansion and remains at the heart of everything Joules creates.

www.joules.com | www.joulesgroup.com

Joules Fast Facts

* Figures are stated as at 27 May 2018

CHAIRMAN'S STATEMENT

INTRODUCTION

I am very pleased to update the Group's stakeholders on what has been another outstanding year of progress. We have continued to expand Joules as a premium lifestyle brand across distribution channels, product categories and geographic markets and, I am delighted to say, delivered a profit performance for the year that exceeded the Board's initial expectations.

Group revenues increased by 18.4% year on year, reflecting strong growth across both our Retail and Wholesale segments. This momentum, in combination with improved Group Gross margin and disciplined cost management, has resulted in a 28.5% increase in underlying profit before tax (with statutory profit before tax up 25.6%). This very pleasing outcome reflects the strength and appeal of the Joules brand and the quality of product offering as well as our loyal and growing customer base.

STRATEGIC PROGRESS

The Group has a clear growth strategy which Colin Porter expands upon in the Chief Executive's review of this Annual Report. This focused strategy is built on four key pillars: increasing customer value; expanding brand sales in the UK market through appropriate channels; developing the brand in targeted international markets, primarily the US and Germany; and expanding the product range into new areas that are appropriate for Joules. 

At the core of this growth strategy, and indeed everything we do, is our much-loved and special brand. The Joules brand is strong, distinctive and offers a unique product proposition that supports our customers' lifestyles. We continue to nurture and develop the brand by ensuring that our entire proposition continually meets and exceeds our loyal customers' expectations for the quality and values that collectively make Joules stand out from the crowd. 

The Group's resolute attention to carefully nurturing the brand has never been more important. The retail landscape is changing globally as technology provides customers with new ways to buy their favourite products. We are investing in and developing the channels through which we engage with our customers to ensure that their experience is as great online, on social media or through one of our partners as it is in our own stores. 

FINANCIAL RESULTS & DIVIDEND

Group revenue of £185.9 million increased by 18.4% compared to the prior period (FY17: £157.0m). This reflects strong growth in both the Retail and Wholesale segments. Joules delivered growth across all product categories with a strong performance in the core Womenswear category - with outerwear, dresses and tops continuing to prove particularly popular with our customers. Further development of our Accessories, Footwear and Childrenswear categories also contributed to the strong revenue growth.

On a geographic basis, UK sales increased 16.2% and international sales increased 40.4% on a constant currency basis, now representing 13.1% of Group revenue (FY17: 11.5%). 

Underlying profit before tax increased by 28.5%, and basic underlying EPS was 11.8 pence per share (FY17: 9.2 pence). Statutory profit before tax increased by 25.6% and statutory EPS was 9.9 pence per share (FY17: 7.3 pence).

The Board has proposed a final dividend of 1.3 pence per share, which, if approved at the shareholders AGM, will take the dividend for the full year to 2.0 pence per share (FY17: 1.8 pence).

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

BOARD CHANGES

As announced on 18 May 2018, I will step down as Non-Executive Chairman of Joules on 31 July 2018, having completed more than five years in the role. It has been a great pleasure to chair the Joules Board throughout a period of such strong growth and transformation, including our successful IPO in 2016. I am confident that Joules is in a tremendous position to continue to deliver its growth strategy and look forward to following the brand's journey as it goes from strength to strength.

The Group has identified and secured a fantastic replacement Non-Executive Chairman in Ian Filby. Ian has extensive public company and retail experience and I am sure he will contribute a huge amount to the Board over the coming years.

OUR TEAM

The creativity, energy and talent of our entire team remains critical to driving the business forward. I would like to take this opportunity to thank all colleagues across the world for their outstanding efforts throughout the year, and indeed throughout my entire time with Joules. The passion and dedication of our team, from management in head office through to our stores and those in other markets, creates a true competitive advantage for our business. 

OUTLOOK

The brand has strong momentum and we have seen good growth in the first few weeks of our new financial year with positive early feedback on our Spring/Summer 2019 ranges from our wholesale customers.

The challenges facing the wider UK retail sector are well documented. The shift towards online shopping in combination with sector discounting, cost and consumer spending pressures is making life incredibly challenging for some retail businesses. 

However, Joules is a distinctive brand with a strong connection with its customers and we have a flexible business model and multiple routes to market supported by a well invested infrastructure and a committed and enterprising team. I therefore believe that Joules remains very well positioned to continue to grow and flourish in the UK and internationally despite the uncertain and changing nature of the retail sector. 

CHIEF EXECUTIVE'S STRATEGIC REPORT

I am very pleased with the strategic progress achieved by the Group in FY18 as the brand continued to grow across distribution channels and product categories both in the UK and internationally. Our performance continues to reflect the strength of the Joules brand, the appeal of our products and our flexible multi-channel business model.

THE JOULES BRAND

Joules is a brand with authentic heritage and strong brand values that underpin the Group's exciting growth potential. Ever since Tom Joule established the brand nearly three decades ago, Joules has been committed to surprising and delighting its growing community of customers with a sense of fun and quirky Britishness.

Maintaining and developing a strong brand that has real affinity and connection with its customers has never been more important than when market conditions are challenging across the retail sector. During the year, we have taken steps to invest further in the development of the Joules brand to reinforce what it stands for and ensure consistency of how it is conveyed across all customer touch points.

"Contemporary country loving" is at the heart of the Joules brand and provides the vision we all work towards. Our in-house creative team take inspiration from nature and the changing British seasons to design clothing that enables our customers' lifestyles, come rain or shine. We stand out with our unique use of colour and print - all of which are hand drawn by our in-house team - as well as unexpected details. The Joules brand is all about connecting with life's happy feelings and embracing quality time, doing the things we love with the people who matter.

We were pleased that the brand's continued success was recognised at the 2017 Drapers Awards where the business won Fashion Retail Business of the Year (between £101m-£500m turnover), as well as at this year's Retail Week Awards, where Joules received a Mark of Excellence within The Best Fashion Retailer category, demonstrating an industry-wide recognition of our distinctive brand, quality products and outstanding customer engagement. What's most important is what our customers say about our brand, so we are very proud of our 9.3/10 Trust Pilot rating from more than 2,000 customer reviews.

OUR BUSINESS MODEL - A TRULY MULTI-CHANNEL LIFESTYLE BRAND

Joules was established as a multi-channel brand with a vision of being available to our customers whenever and wherever they choose to spend their time. We distribute the brand through what we call our "Total Retail" platform, which provides a fully Joules-branded customer experience across our portfolio of stores and concessions; our fast-growing e-commerce platform; country shows and events; and, more recently, across a range of selected online marketplaces. In addition, and to further support our goal of ensuring the brand is present wherever our customers spend their time, we have a large network of wholesale customers in the UK and internationally. The Joules brand is also increasingly available through the retail channels of our brand licence partners.

This flexible and adaptable approach to distributing the brand enables our customers to engage with Joules in a way, and at a time, that works for them, and means that the Group is not reliant on any single route to market. This is reflected in the Group's balanced revenue mix across these complementary distribution channels.

OUR GROWTH STRATEGY

We have a clear strategy for the long-term development of Joules as a premium lifestyle brand, both in the UK and internationally. This strategy is built on the following key pillars and is continuously underpinned by our distinctive brand, unique products and unwavering customer focus. This strategy is delivered by our exceptional team of people and supported by well-invested systems and infrastructure.

1. INCREASING CUSTOMER VALUE

For Joules, 'Customer Value' means increasing our base of active customers and their frequency of interaction with and spend with the brand. Our goal is for customers who are actively engaging with and amplifying our brand, to ultimately choose to allocate more of their clothing, footwear and accessories spend on our unique Joules products. This is achieved through delivering relevant, consistent and increasingly tailored, cross-channel experiences and communications, for both new and existing customers.

2. DRIVE TOTAL UK BRAND SALES

As a multi-channel brand, we seek to grow total UK brand sales within our target customer segments by increasing the availability and accessibility of our products across existing and emerging distribution channels. Our goal is to make it easy for our customers to discover, be inspired by, purchase, receive and, if necessary, return or exchange, our products. We achieve this by being located where our customers choose to spend their time. Our priorities are:

- TOTAL RETAIL

Our Joules branded retail proposition spans stores & concessions, e-commerce and online marketplaces. The in-store and e-commerce proposition are increasingly converging and the development of these channels as part of an integrated and consistent, customer focused, proposition is central to our growth strategy and reflected in our infrastructure investments.E-commerce - is a fast-growing and evolving channel. 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 e-commerce platform, the customer proposition and our customer relationship management capability. Stores & concessions - there is further potential for the brand to increase its physical retail space in the UK and ROI. This will be achieved through selective openings of new stores in attractive locations, opening concessions with carefully selected partners, and selected relocations of existing stores to larger sites that better reflect our brand and product range. Concession openings can include the conversion of existing wholesale accounts where there is an opportunity to improve the brand presence and customer experience.Marketplaces - we will leverage our wholesale capabilities and relationships to support emerging new retail channels such as online marketplaces and 'fulfilled by' models that offer new routes to reach our target customer base in the UK and internationally.

- WHOLESALEWe 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 and online retailers.

3. INTERNATIONAL EXPANSION

The Joules brand and products resonate well in international markets. We develop international markets via a wholesale model supported by e-commerce, leveraging our investment in our central creative and design functions, supply chain and infrastructure. Our priority markets are the US and Germany, where our brand and products are resonating well with our growing customer following.

4. PRODUCT EXTENSION

The Joules product offer extends to meet many of the lifestyle needs of our customers. Joules has had success extending the product offer within existing categories and into new categories; we will continue to expand into new product categories that are appropriate for the development of the Joules brand both organically and by working with carefully selected licence partners.

Key Performance Indicators

Our 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.

Strategic KPIs:

- Revenue by channel - delivering balanced growth across our core-sales channels

- Group Gross margin - maintaining overall product level profitability whilst developing the different channels to market

- Underlying EBITDA margin - how we are effectively leveraging our cost base and infrastructure

- Return on Capital Employed ('ROCE') - how we are managing working capital and growth capital investments

Revenue by channel3 £M

1Active customer defined as a customer who is registered on our database and has transacted within the last 12 months.

2FY15 was a 53-week period.

3Revenue by channel excludes Shows and Licensing.

4Return on Capital employed ('ROCE') is calculated as Underlying Operating Profit after Tax divided by Average Capital employed (Capital employed defined as Underlying Net Assets adjusted for excess cash balances). FY14 and FY15 restated for consistency.

BUSINESS REVIEW

RETAIL: MULTI-CHANNEL PROGRESS

Retail revenue, which includes stores and concessions, e-commerce and shows, continued to increase impressively, up by 15.9% during the year to £129.7m (FY17: £111.9m). This reflected growth from stores and very strong e-commerce growth, with e-commerce revenue increasing by 28.0% to represent 38.4% of total retail revenue (FY17: 34.8%).

The Group's store coverage across the UK and ROI increased to 123 stores at the end of the Period (FY17: 108 stores), with 17 new openings and two closures (15 net new stores). We also relocated six stores in the year (FY17: 3), typically this was to larger sites that better reflect our brand and product range. This expansion increased our total selling space to 163,400 square feet (FY17: 135,100 square feet) at the Period end. The average payback on new stores, opened for more than one year, continues to be well within our appraisal threshold of 24 months, and all but two of our stores deliver a positive profit contribution, with plans in place to achieve positive contribution in the two marginally negative contribution stores.

The new openings were spread across our different store location types, reflecting the breadth of appeal of the Joules brand, including:

- Lifestyle: Abersoch, Ambleside, Holt (2nd store), Salcombe (2nd store), Lyme Regis, St Ives (2nd store), Alnwick

- Local - Nantwich

- Metro - Oxford, Peterborough, Southampton

- High Street - Bracknell, Ipswich, Perth, Salisbury

- Regional Shopping Centre - Rushden Lakes

- Premium Outlet - Gloucester Quays

Our UK store presence continues to play an important role in building brand awareness and driving new customer acquisition and retention. In FY19, we anticipate opening 29 concessions, as we transition our existing wholesale partnership with John Lewis to a retail concession model for the womenswear category, and around six new stores.

E-commerce continued to achieve strong growth, increasing by 28.0% to represent 38.4% of total retail sales (FY17: 34.8%). We have continued to invest in our e-commerce platform including enhancements to digital content, payment and delivery propositions, as well as in targeted customer marketing which has helped us to grow visitor numbers and improve conversion rates. Mobile is now the most important e-commerce channel for our customers, with traffic from a mobile device (including tablets) representing around three quarters of total traffic.

Our 'Total Retail' approach allows us to adapt to meet evolving customer expectations and behaviours - this includes offering an increasingly seamless in-store/on line experience including services such as Click & Collect and Order-in-Store fulfilment options, seamless in-store returns and exchanges for e-commerce orders and consistent cross-channel communications and promotions.

WHOLESALE: UK AND INTERNATIONAL EXPANSION

Wholesale continued to deliver strong revenue growth, up by 24.1% to £55.5m (FY17: £44.7m). This reflects the differentiation and appeal of the Joules brand amongst wholesale customers both in the UK and our target international markets of the US and Germany.

In the UK, we continued to see good growth in both our 'house account' channel (which consists of multi-site retailers and large online players) and from the 'field account' channel, where we have over 500 independent stockists. The house account channel saw growth with existing customers and from new customers as we continue to develop new partnerships across lifestyle sectors. During FY19 our existing wholesale activity with John Lewis womenswear and with Next Label will be transitioned to the retail concession model.

INTERNATIONAL

Total international sales increased by 40.4% (in constant currency) to £24.6m (FY17: £17.5m), now representing 13.1% of total Group revenue (FY17: 11.5%). Strong international wholesale growth was supported by good performance in our international e-commerce activity where an increase in digital marketing drove strong revenue growth across both our US and German websites.

In the US, we continued to progress with our proven expansion strategy which consists of extending our brand presence with new wholesale partners as well as expanding our category penetration and developing new categories with existing partners. During the year we expanded our presence in leading department stores with Nordstrom increasing the range of Joules products in response to their customers' appetite and demand for the brand. In addition, Dillard's launched Joules womenswear across 100 of their stores for the Spring/Summer 2018 season following the launch of childrenswear in Dillard's in the Autumn/Winter 2016 season. We are pleased with the customer reactions and the brand's momentum so far and we see significant further potential for Joules across the US market.

During the year, we also took the important step of bringing the management of our US independent stockist accounts in-house, to be managed by our New York-based sales and marketing team rather than through a third-party distributor. The transition completed in the second half of the year and we anticipate future benefits of having full control over the long-term growth of the brand within the US.

In Germany we continued to perform in line with expectations and have good momentum, particularly within the independent stockist channels.

DEVELOPMENT AS A LIFESTYLE BRAND

Joules delivered sales growth across all product categories with a particularly good performance in the core Womenswear category - outerwear. This includes our colourful "Right as Rain" ranges, which proved particularly popular with our customers, as did our core jersey top ranges.

Our famous, colourful and functional wellington boot ranges continued to be well received by our customers, whilst our broader footwear range was also expanded in the year, following positive customer feedback and demand, with our Chelsea Boot range featuring new colourways and embroidered styles, as well as a new slipper collection and expanded summer sandal range.

Our accessories offer continued to develop in the year, with notable successes including handbags, purses and hats.

We will continue to expand our product offer into core categories where the brand is relevant to our customer base. In the year we saw developments within women's nightwear and knitwear and in our baby category with an increased range of baby outfits, hats and socks.

We will also build the brand through entering new product categories that are relevant to our customers' lifestyles by partnering, typically on a licence basis, with carefully selected businesses that align with Joules' values. In December 2017 we launched the Joules sofa range in partnership with DFS. Working closely with DFS, we created four sofa collections, all of which showcase elements of Joules' unique prints, design features and colour. Following a positive customer response to the range in the initial 10 stores, the collections were rolled out to 40 DFS stores and online via the DFS website.

We also expanded the brand through a partnership with Fulton for Joules umbrellas and further expanded the Joules-branded toiletries and gift range in Boots.

CUSTOMER COMMUNITY

Joules has a loyal and highly engaged customer community. Active customers - customers registered on our database who have purchased in the last twelve months - increased by 23.4% over the year, to stand at 1.15 million (FY17: 931,000). This growth was supported by effective new customer acquisition activity, both in-store and through digital marketing, as well as improved retention of existing customers. Our average customer acquisition cost remained in line with that of the prior year.

Our customers engage with, and amplify, our distinctive brand across their social media platforms. Our Facebook and Instagram followers both increased in the year - to more than 475,000 and 160,000 followers respectively - with both platforms having high levels of monthly engagement.

We ran several brand relevant campaigns during the year including a 'Design a Lunchbox' competition, which was launched during the September back to school period and gave our customers the opportunity to win a family holiday. The winning print was also applied to product that was available to buy online. Our social media and digital campaigns have also worked well internationally. In the US our launch of womenswear at Dillard's department stores was supported by a range of social media activity including a "win a Joules Mini" competition, that reached nearly 300,000 people.

The year also saw us increasing our focus to 'surprise and delight' our most valuable customers including exclusive offers and invitations to in-store events, such as our very successful Christmas wreath making evenings.

INVESTING IN LONG TERM GROWTH

The Group's strategy and focus is aimed towards the long term and sustainable development of the Joules brand. We continue to invest in our e-commerce proposition, stores, infrastructure, systems and people to deliver this.

In the second half of the year, we completed the implementation and migration to our new group-wide ERP system, Microsoft Dynamics AX. We anticipate that, following a period of transition, this investment will bring benefits including enhanced stock management across channels, process efficiencies and simplification of the IT environment over the coming years.

At the beginning of the financial year we acquired the freehold for a new head office premises located very close to our existing head office in Market Harborough. The site includes an existing office building and development land to support future growth. The design phase for the new head office facility is now complete and we anticipate that work will start on the development early in the second half of FY19. This important investment will further strengthen our brand values and culture and create a more flexible, modern working environment for our head office teams.

PEOPLE

The creativity, skill and commitment of the Joules team are key to the brand's continued success and I would like to take this opportunity to thank all colleagues across the Group for their hard work throughout the year. We remain committed to investing in the skills and development of our people across the business, with the aim of making our customers' experiences with Joules the very best they can be.

In May 2018 the Company announced that Neil McCausland will step down as Non-Executive Chairman of Joules on 31 July 2018 having completed more than five years of service on the Board. Neil has made a fantastic contribution to Joules' development and he leaves the business in great health and with multiple growth opportunities ahead.

At the same time, we look forward to welcoming Ian Filby into the role of Non-Executive Chairman from 1 August 2018. Ian is a highly respected retail executive and I am delighted that he is joining Joules. 

FINANCIAL REVIEW

PROFIT BEFORE TAX - UNDERLYING AND STATUTORY

Underlying profit before tax ('PBT') was £13.0 million for the 52 weeks to 27 May 2018, an increase of 28.5% on the prior period (FY17: £10.1m). Statutory PBT including share-based compensation and exceptional IPO transaction costs was £11.2 million (FY17: £8.9m), an increase of 25.6%.

EARNINGS BEFORE INTEREST, TAX, DEPRECIATION & AMORTISATION - UNDERLYING ('EBITDA')

Underlying EBITDA increased by 24.4% to £21.1 million (FY17: £16.9m) and the underlying EBITDA margin increased by 55 basis points from 10.8% to 11.3%.

UNDERLYING AND STATUTORY RESULTS

Certain items have been excluded from the underlying results reported in the front section of this Annual Report. In the Period these solely relate to non-cash share-based compensation plan expense. The prior period also included IPO transaction costs. These adjustments are intended to provide the reader with a more meaningful year-on-year comparison.

Executive and employee share-based compensation plans were established at the time of the IPO, in May 2016. In accordance with IFRS 2, the non-cash expense related to awards under the share plans is accounted for within administrative expenses over the period until the shares are exercised, typically assumed as three years. The first awards under these plans were made in FY17 and the second awards were made in FY18. As the share plan award cycle matures over the first three years, the related expense is anticipated to increase each year. At maturity, the annual share-based compensation charge is anticipated to be approximately £2.0 million per year on achieving target performance, rising to approximately £2.8 million per year on achieving maximum performance. During this maturity phase of the new share plans, the expense is treated as 'non-underlying'.

Further detail on the share plans is contained within the Directors' Remuneration Report and the Consolidated Financial Statements.

A reconciliation between Underlying and Statutory (GAAP) results is provided below.

REVENUE

Group revenue increased by 18.4% to £185.9 million from £157.0 million in FY17 (up 18.8% on a constant currency basis), with Retail revenue increasing by 15.9% to £129.7 million (FY17: £111.9m) and Wholesale revenue increasing by 24.1% to £55.5 million (FY17: £44.7m) (up 25.8% on a constant currency basis). Sales in international markets, which are predominantly wholesale, increased by 35.7% (40.4% on a constant currency basis) and now represent 13.1% of Group revenues (FY17: 11.5%).

Retail - Stores & Concessions

Store revenue at £75.0 million increased by 9.8% in the year. During the year we opened 17 new stores and closed two stores, resulting in an increase in owned store numbers from 108 to 123. We also relocated six stores during the year, to increase selling space or improve location. We had three franchise stores at the end of FY18 (FY17: 3).

Retail - E-commerce

E-commerce revenue at £49.8 million increased by 28.0% and represented 38.4% of total Retail revenue (FY17: 34.8%). The e-commerce channel continued to benefit from higher visitor numbers and improved conversion which was supported by our ongoing new customer acquisition and retention activity as well as enhancements to the customer experience and e-commerce platform.

Wholesale

Wholesale revenue at £55.5 million increased by 24.1% (25.8% on a constant currency basis). Good revenue growth was seen in the UK and in international markets, and across both larger 'house account' and smaller 'field account' customers. In the US, we successfully completed the transition for independent stockists from the third-party distributor to an in-house distribution model during the second half of the Period.

Licensing

Although still a relatively small contribution to Group revenue, revenue from licensing activity increased by 81.7% in the year to £0.7 million. The increase follows the successful launch of the Joules sofa range in partnership with DFS and an increased focus on existing brand licence partnerships that include toiletries, bedding and eyewear.

GROSS MARGIN

Gross margin at 55.7% was 25 basis points higher than the prior year. The Retail segment Gross margin improved by 20 basis points, despite a challenging UK retail sector environment, as a result of a disciplined approach to promotional activity and our strong product offering. Gross margin in the Wholesale segment improved by 130 basis points with improvements in the US wholesale channel more than offsetting its dilutive impact to the overall segment and Group Gross margin. US Gross margins benefitted from a favourable product mix, with a higher proportion of clothing sales, and the initial benefit of transitioning the independent stockist channel to an in-house distribution model in the second half of the Period.

ADMINISTRATIVE EXPENSES - UNDERLYING

Underlying administrative expenses increased by 17.6% from £76.7 million to £90.2 million and now represent 48.5% of revenue (FY17: 48.9%).

Sales & Marketing costs increased by 21.4% in the year to £13.7 million. During the year we increased marketing investment to support the growth of our US wholesale business and to increase customer acquisition and digital marketing in the UK and our target international markets, the results of which are reflected in the strong e-commerce channel performance and our active customer numbers at the year-end which increased by 23.4% to 1.15 million.

Store costs increased by 22.9% in the year to £30.4 million. This increase was ahead of the growth of store revenues, reflecting the increases in National Living Wage and the 2017 Business Rates revaluation as well as the higher than typical number of new store openings and relocations in the year.

Distribution costs increased by 22.2% in the year to £6.9 million, this increase is in line with volume growth.

Head office costs increased by 10.6% in the year to £31.5 million. We continue to invest in support of the areas of strategic growth including further expansion of our US wholesale team and showroom based in New York and the creative and design teams based at our head office in the UK. During the year we saw the benefit from historic investments in head office functions and teams.

Depreciation and amortisation increased to £7.8 million (FY17: £6.6m), the increase mainly being due to our new store opening and relocation programme and IT investments in the current and prior period.

The total rental expense, including service charges, for the period was £13.4 million (FY17: £11.7m) with the increase due to new store openings and rent reviews in the Period.

Business rates expense increased from £3.7 million to £4.8 million in the year, reflecting the growth in store numbers and the impact of the Business Rates revaluation undertaken at the end of the prior year.

ADMINISTRATIVE EXPENSES - NON-UNDERLYING

Non-underlying administrative expenses totalled £1.8 million (FY17: £1.2m). In the year, this all related to non-cash share-based compensation expense of £1.8 million (FY16: £0.8m). In the prior year, exceptional IPO transaction costs of £0.3 million were also incurred.

Share-based compensation plans are accounted for in accordance with IFRS 2, with the total fair value of each share plan award being amortised to administrative expenses over the period between grant of the award and the expected exercise date, typically three years. FY18 includes the expense for the first and second cycle of the Group's share plans. The share plans are detailed more fully in the Directors' Remuneration Report and the fair value calculation and annual expense within the Consolidated Financial Statements.

NET FINANCE COSTS

Net finance costs of £0.3 million (FY17: £0.2m) related to interest and facility charges on the Group's revolving credit facility and term loan with Barclays Bank Plc.

TAXATION

The tax charge for the period was £2.6 million (FY17: £2.6m). The effective tax rate for the Period was 22.9% (FY17: 28.8%).

The effective tax rate was higher than the applicable UK corporation tax rate of 19.8% for the period, due to the impact of non-deductible expenses including certain professional fees and non-deductible expenses incurred in the fit-out and refurbishment of new and relocated stores. The FY17 effective tax rate was further impacted by non-deductible fees in relation to the IPO.

EARNINGS PER SHARE

Statutory basic earnings per share for the period were 9.9 pence per share (FY17: 7.3 pence per share). Statutory diluted earnings per share for the period were 9.7 pence per share (FY17: 7.2 pence per share).

On an underlying, pro forma basis the FY18 basic earnings per share were 11.8 pence (FY17: 9.2 pence).

To facilitate meaningful comparison of earnings per share, earnings are adjusted for the non-underlying items detailed above, to reflect a consistent tax rate across the periods and on the basis of a consistent number of shares in issue.

DIVIDEND

The Board is recommending a final dividend of 1.3 pence per share in respect of FY18 (FY17: 1.2 pence per share). This brings the total dividend for FY18 to 2.0 pence per share (FY17: 1.8 pence per share). Following approval by shareholders at the AGM on 27 September 2018, the dividend is expected to be paid on 15 November 2018 to shareholders on the register at 26 October 2018.

CASH FLOW AND NET CASH/(DEBT)

Free cash flow, excluding expenditure on our new head office development, was £0.1 million in the Period (FY17: £3.7m). Growth in the Group's EBITDA was offset by a higher net working capital outflow of £5.9 million (FY17: £1.0m outflow) and higher core capital expenditure of £12.5 million (FY17: £10.7m), as explained below.

The Group ended the period with net cash of £nil (FY17: £6.3m), a decrease of £6.3 million in the period.

INVENTORY

Inventory at year end, including inbound goods-in-transit, was £32.8 million (FY17: £21.2m). The increase in inventory reflects the growth of the business in the UK and internationally, and the timing of seasonal stock deliveries relative to the prior year.

CAPITAL EXPENDITURE

Investment in property, plant, equipment and intangible assets totalled £17.3 million in FY18 (FY17: £10.7m). The increase in the year was due to a higher number of new store openings and relocations, the completion of our Microsoft Dynamics AX ERP implementation and the acquisition of the site for our new head office development.

At the start of the year we acquired the freehold interest in a plot of land and an existing office facility for £4.5 million. This site will be the location for our new head office facility. After a period of development including construction of a new building and refurbishment of the existing building we anticipate that the capital expenditure on this development will be in the range of £16 million to £18 million over the next two to three years.

BORROWINGS

Group borrowings were £8.5 million at the year-end (FY17: £0.6m). During the year, the Group entered into a five-year term loan agreement with Barclays Bank Plc for £3.5 million (the Term Loan) to part fund the acquisition of the site for development of our new head office facility in Market Harborough.

The Group has a £25 million revolving credit facility provided by Barclays Bank Plc to fund seasonal working capital requirements (the RCF). This facility matures in July 2021.

At the year-end the total Group borrowings comprised the RCF £5.0 million (FY17: £nil); the Term Loan £3.2 million (FY17: £nil), and legacy asset finance loans £0.3 million (FY17: £0.6m).

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 (UNAUDITED)

JOULES GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

JOULES GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

JOULES GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

JOULES GROUP PLC

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

JOULES GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION OF PRELIMINARY ANNOUNCEMENT

The preliminary consolidated financial information for the 52 weeks ended 27 May 2018 was approved by the Directors on 24 July 2018.

This preliminary consolidated financial information has been prepared in accordance with the principles of International Financial Reporting Standards ('IFRS') and has been prepared on a going concern basis. The preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 52 weeks ended 27 May 2018 as defined in section 434 of the Companies Act 2006.

The Annual Report and Group Financial Statements for the 52 weeks ended 27 May 2018 are the third for Joules Group plc and were approved by the Board of Directors on 24 July 2018. 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 27 May 2018 will be filed with the Registrar in due course.

Going concern

The Directors have prepared a detailed forecast with a supporting business plan for the foreseeable future. The forecast indicates that the Group will remain in compliance with covenants throughout the forecast period. As such, the Directors have a reasonable expectation the Company and Group will have adequate resources to continue in operational existence for the foreseeable future. As such, they continue to prepare the financial statements on the basis of going concern.

2. 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, concessions, 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, central costs and items that are not distinguishable into the segments above.

Information regarding the results of each reportable segment is included below. Segment results before non-recurring costs, being underlying earnings before interest, taxation, depreciation and amortisation, 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.

Segment review and results

GEOGRAPHICAL INFORMATION

The Group's revenue from external customers by geographical location is as detailed below.

3. PROFIT FOR THE YEAR

Profit (before tax) is stated after charging:

Other expenses include non-recurring items of £nil for 52 weeks to 28 May 2018 (2017: £341,000) which have been disclosed separately on the face of the income statement in order to summarise the underlying results. The non-recurring costs in the prior period of £341,000 relate to IPO transaction costs. Neither 'underlying profit or loss' nor 'non-recurring items' are defined by IFRS, however, the Directors believe that the disclosures presented in this manner provide a clear presentation of the financial performance of the Group. Amortisation of intangible assets is included within administrative expenses in the income statement.

Other services pursuant to legislation:

4. FINANCE COSTS

5. INCOME TAX

In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised in other comprehensive income.

5. INCOME TAX (Continued)

b) Factors affecting the tax charge for the period

There are reconciling items between the expected tax charge and the actual which are shown below:

The Finance Act 2015 included provisions to reduce the rate of UK corporation tax to 19% with effect from 1 April 2017. The Finance Act 2016 included provisions to further reduce the rate of UK corporation tax to 17% with effect from 1 April 2020. Deferred taxation is measured at tax rates that are expected to apply in the periods in which temporary timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Accordingly the rate used to calculate deferred tax assets and liabilities is the effective rate at the date the deferred tax is expected to be realised.

The UK corporation tax at the standard rate for the year is therefore 19.0% (2017: 19.8%).

6. PROFIT PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment

During the Period the Directors conducted a detailed review of the Group's fixed assets. As a result of this review £7,366,000 of Leasehold improvements, Fixtures and fittings and Motor vehicles of nil book value items which were no longer in existence or in use as at the balance sheet date were identified, these were recorded as a disposal in the Period.

Transfers in the Period relate to capital expenditure with regard to the new ERP System which was previously recorded within Plant, Property and Equipment being reclassified to Intangible Assets - IT Systems expenditure.

Land & buildings additions relates to the acquisition of the freehold interest in the site intended for use as the Group's new head office following a period of refurbishment. The Term loan detailed in note 8 is secured against the Land & buildings.

7. INTANGIBLE ASSETS

Intangible assets

During the Period the Directors conducted a detailed review of the Group's intangible fixed assets. As a result of this review £1,111,000 of nil book value items which were no longer in existence or in use as at the balance sheet date were identified, these were recorded as a disposal in the Period.

Transfers in the Period relate to capital expenditure with regard to the new ERP System which was previously recorded within Plant, Property and Equipment being reclassified to Intangible Assets - IT Systems expenditure.

8. BORROWINGS