JOUL.L Regulatory News (JOUL)

Joules Group plc

("Joules", the "Group")

Interim Results for the 26 weeks ended 24 November 2019 (the "Period")

Robust first half sales and margin performance in the context of a challenging consumer environment

Highlights:

- Results were impacted by the timing of the Black Friday trading period, which was in H2 in FY20 but in H1 in the prior year

- Group revenue decreased by 1.4% to £111.6 million. On a comparable 27-week period¹, including Black Friday in both periods, Group revenue increased by 1.3% and Retail revenue increased by 3.1%

- International now represents 17.0% of Group revenue (H1 FY19: 15.8%)

- E-commerce now represents over 50% of Retail revenue

- Active customers⁴ increased by 8% to 1.4 million

- Group gross margin was in line with the prior year at 54.8%: Retail gross margin up 50bps to 60.8%, with disciplined management of promotions and benefit from exchange rate hedging

- PBT before exceptional costs² decreased by £0.9 million to £8.4 million, impacted by the timing of the Black Friday trading period and the adoption of IFRS 16 - Leases

- Statutory PBT decreased to £1.7 million (H1 FY19: £9.3m) after non-cash exceptional impairment charges of £6.7 million (H1 FY19: £nil), relating to stores, Head Office premises and changes in distribution arrangements

- Net cash of £2.1 million (H1 FY19: £4.3m), a decrease of £2.2 million due to Head Office capital expenditure and changes in timings of tax payments

- Interim dividend of 0.77 pence per share proposed (H1 FY19: 0.75 pence per share)

- As announced on 10 January, a disappointing Christmas trading period due to online stock availability issues, along with non-recurring costs associated with supply chain initiatives and China-US tariffs, has impacted full year profit expectations

Nick Jones, Chief Executive Officer, commented:

"Joules delivered a robust first half sales and margin performance in line with expectations, which was pleasing in the context of a challenging consumer environment and widespread discounting by other clothing brands and retailers. This performance reflects the appeal of the Joules brand, our growing customer base and the flexibility of our 'Total Retail' model.

During the Period, we invested further in our infrastructure and customer proposition in order to support long-term sustainable growth. This included the roll-out of our new point of sale system across our store estate, enhancing the future profitability and flexibility of our store channel, progressing our new Head Office development, and launching our 'Friends of Joules' marketplace. Post period end, this investment has continued with the announcement of improvements to our future logistics capability in the UK and US.

Since the period end, we have updated on our disappointing Christmas trading performance, resulting from a stock availability issue impacting our online channel. We identified the root cause, have taken steps to rebalance the allocation of stocks between channels for Spring / Summer 2020 and are strengthening our underlying processes. I am reassured by the performance we saw in the retail channels where we had good stock availability and by our continued online traffic growth, evidencing the strong customer demand which continues to exist for the Joules brand.

Since joining Joules in September, I have been impressed by the strength of the brand, the flexibility of our multiple routes to market and our fantastic teams. I am confident in the opportunities for long-term sustainable growth of the Joules brand across multiple territories and I am excited to lead Joules through this next chapter of growth."

Notes:

1. The 27-week comparable period, including Black Friday in both periods, is 27 May to 3 December 2019 compared to 28 May to 4 December 2018.

2. PBT before exceptional costs includes share-based payments in both periods, includes the impact of IFRS 16 - Leases for the Period but not the prior period and excludes the non-cash exceptional impairment charge. Further details of the impact of IFRS 16 - Leases in the Period are provided in the Financial Review.

3. Underlying PBT has historically been the Group's primary non-GAAP reporting metric and is stated before share-based payments, the impact of IFRS 16 - Leases and exceptional costs.

4. A customer registered on our database who has transacted in the last 12 months.

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, as well as ever-growing homeware, eyewear and licensed product collections. 

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. 

During 2019 the brand celebrated its 30th birthday, marking three decades of Joules delivering fun, quality clothing for families and friends to make lasting memories together. 

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 124* 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 

·; Nick Jones joined the business in September 2019, taking over as CEO in October 2019. Tom Joule continues to focus on the creative side of the business in his capacity as Chief Brand Officer

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

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

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

·; Best Licensed Gifting Product Award - Brand & Lifestyle Licensing Award 2019

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

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

*As at 24 November 2019, excluding concessions and franchises (33 concessions and 3 franchise stores)

CHIEF EXECUTIVE'S STRATEGIC REVIEW

My first report to the Group's stakeholders since taking over as CEO in October 2019 provides an update on performance and strategic progress in the first half of FY20 and my reflections since joining Joules.

Performance and progress in the first half

Performance in the first half was in line with our expectations, with revenue growing by 1.3% on a comparable 27-week period, including Black Friday in both periods, with a good performance in our owned retail channels. We are pleased to have improved Retail gross margin with a disciplined approach to promotional events, despite the context of widespread discounting across the sector.

We made good progress against our strategic goals in the Period. We continued to invest in our 'Total Retail' model with the roll-out of a new point of sale system across our store estate, a platform which enables improved integration across channels. We made good progress in the management of our store portfolio, extending several leases on more favourable rents and lease terms. We also launched our exciting new customer initiative 'Friends of Joules', a curated digital marketplace for third-party sellers to sell their complementary products on the Joules website, which has received a very positive early customer response.

My reflections since joining Joules in September

Since joining Joules in September, I have been struck by the strength of the brand and its appeal to our customers, the passion and talent of our people, and the scale of opportunity for the business. I am excited by the breadth of our distribution channels and the flexibility and nimbleness this affords. I have confidence in the strategic growth drivers for the brand: increasing our customer base; broadening the reach of the brand in the UK; expanding internationally; and extending through a greater range of product categories.

I believe we now have an opportunity to refine our strategy in order to set ourselves up for the next chapter of our growth. Initial outputs include our recently announced UK and US supply chain initiatives and the completion of our store portfolio review.

We have announced that we are making significant enhancements to our supply chain operations in both the UK and the US that will deliver both future capacity for growth and efficiencies. As indicated, these initiatives will incur non-recurring costs in FY20 and the first half of FY21 but are anticipated to deliver cost improvements from FY22 onwards.

In the context of our positive store portfolio management progress noted above, we have also identified a small number of stores which do not make a positive contribution to our 'Total Retail' metrics which we plan to relocate or close. Our recent store channel performance, and agreements achieved on lease renewals, have given us confidence to open four new stores since the end of the first half and to identify a potential pipeline of 5-10 new stores, in desirable locations and with attractive flexible terms, being evaluated for opening over the coming 12-18 months.

We have made excellent progress on the development of our new Head Office in Market Harborough. We expect to occupy the new facility from Summer 2020, with all Head Office colleagues being housed under one roof, a move that I believe will deliver significant benefits to creativity, collaboration and productivity for our people.

Despite the well-publicised challenges facing the retail sector in the UK, Joules remains well positioned to continue to deliver against its strategic growth objectives. We have a distinctive brand and unique products much loved by our customers; a flexible and integrated 'Total Retail' model to service evolving customer behaviours; and a platform for continued international growth and product extension.

STRATEGIC PROGRESS

We have a consistent 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 pillars described below and is underpinned by our distinctive brand, unique products and unwavering customer focus. This strategy is delivered by our exceptional team of people, supported by well invested systems and infrastructure.

The brand's continued success was recognised again at the 2019 Drapers Awards where Joules won Mainstream Brand of the Year, against strong competition from other leading lifestyle brands.

Increasing 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. Our goal is to increase awareness of the Joules brand amongst potential customers and for customers who are aware of our brand to allocate more of their clothing, footwear, accessories, home and gifting spend to our unique Joules-branded products. We do this by providing fantastic quality products and enjoyable experiences across all distribution channels, as well as relevant, authentic and targeted customer communications.

During the Period, awareness of the Joules brand continued to grow, and our active customer base increased by 8% against the prior year to 1.4 million. Engagement from our customers across social media channels continues to increase, reflecting the growing importance of these channels for strengthening the brand-customer connection. Our multi-channel customers (those that shop across stores and online channels) continue to be our most valuable and to grow as a proportion of our overall active customer base.

During 2019, Joules celebrated its 30th Birthday, running '30 years of making memories' campaigns encouraging customers to share their memories of the brand. This generated a strong response and engagement from customers. Our Christmas campaign, partnering with Wallace & Gromit, launched at the end of the Period, was viewed over 360,000 times and received widespread critical acclaim.

We launched a further significant customer initiative in the Period with our new digital marketplace 'Friends of Joules'. This broadens the range of products available to our customers and we anticipate benefits to customer acquisition, retention and value. We have already received great engagement and feedback from customers.

We believe we have significant capacity, within our target customer segments, to grow the active customer base in our core UK market where we have seen continued improvement in our still relatively low brand awareness.

Drive Total UK Brand Sales - 'Total Retail'

We aim to grow sales of Joules products in the UK by increasing accessibility 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, exchange or return, our products. We achieve this by being available to our customers however they wish to engage with our brand, including being located where our customers choose to spend their time.

We continued to invest in our e-commerce platform and customer proposition in the Period, with e-commerce channels, including third party retail concession models, now representing over 50% of all retail sales. Our owned UK e-commerce channel performed strongly, and our growing active customer base helped to support online traffic growth of 25% to our owned websites.

We ended the Period with 124 stores, one fewer than at the beginning of the Period. Our stores are in desirable locations and play an important role in the 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 now representing 24% of all store transactions in the Period. As part of our store portfolio management approach we have successfully completed several lease renewals on attractive terms during the Period and now have an average lease length of 2.7 years to break. This success, coupled with encouraging recent store performance, has given us confidence to restart selective and targeted new store openings. We have opened four new stores since the period end, with a pipeline of c. 5-10 desirable locations on flexible and favourable terms being evaluated for opening in the next 12-18 months. We also completed the roll-out of our new point of sale system to the whole store estate in the Period, which will deliver even greater integration between channels in our 'Total Retail' approach, for example enabling much simpler order-in-store capability.

Sales through our wholesale partners in the UK have been impacted by sector challenges, especially for our smaller, usually high-street located 'field' accounts. We also now have a smaller base of wholesale accounts in the UK following the transition of some of the larger accounts to the retail concession model in FY19.

International Expansion

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

Total international revenue in the Period increased by 6.1% to £18.9 million, representing 17.0% of Group revenue.

Our international e-commerce business increased by approximately 40% in the Period, with a growing customer base and continued positive responses to our brand and products in the US, Germany and across other international markets following the launch of our new 'rest-of-world' platform in the prior period. We also increased our social media and digital marketing activity in the US and saw a very pleasing increase in the engaged customer base.

Our US wholesale business continued to grow, albeit at a slower rate than the prior period, as we annualised new customer gains made in previous years and prepared for the transition of supply chain operations commencing in the second half of FY20. The next six months will see us onboard new customers and extend the range of our products in existing customers. Our German wholesale business performance was more challenging in the Period, with more cautious buying from wholesale customers in this market; as referenced above we did however deliver strong growth in our German e-commerce business.

Product Extension

The strength of the Joules brand and our understanding of, and connection with, our customers mean that Joules-branded products can extend into new areas to meet many of their lifestyle needs. Joules has successfully extended the product offer within existing and into new product categories.

We continued to extend our in-house developed ranges in the Period, with customers responding well to new styles in dresses, knitwear and bags.

We grew revenue from licensed products, through both existing and new category partnerships. Our new 'Patterdale' sofa with DFS has been particularly successful. We launched new licensed categories, including a well-received range of dog pet products and we have an exciting pipeline of new, brand relevant product category extensions, with further launches planned over the coming year.

We further developed our product offering to customers in the Period with the launch of our exciting new initiative, 'Friends of Joules', a curated digital marketplace for third-party sellers to sell their complementary products on the Joules website, which has received a really positive early response from our customers and "friends".

Infrastructure

To support the Group's long-term growth plans, we continue to invest in our infrastructure, systems and people. In the second half of FY20 we are making changes to our UK and global supply chain infrastructure to support future growth and enhance customer service levels.

After the period end, we announced future investment in our UK distribution centre, with an extension of the lease on our current facility, an investment programme to increase capacity and deliver productivity benefits, and a transition to an outsourced operation.

We also intend to transition our supply chain operations in the US to a new third party run distribution centre commencing in the second half of FY20. This move is designed to provide capacity for future growth, capabilities for direct-to-consumer operations and ongoing efficiencies. These initiatives will incur incremental non-recurring costs during the transition phase but are expected to deliver significant cost benefits from FY22 onwards.

During the Period we have made good progress on the development of our new Head Office in Market Harborough. We expect to occupy the new facility from Summer 2020, with all Head Office colleagues being housed under one roof, a move that will deliver significant benefits to creativity, collaboration and productivity, as well as demonstrate our commitment to sustainability.

Responsibly Joules

Responsibly Joules sets out our approach to corporate social responsibility, reflecting on how we want our business to operate: fairly, responsibly and sustainably. We work hard to make sure that what we do is right - not just for us, but also for the people we work with, the communities we are based in and the world around us.

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 and the people we work with. That's why we are committed to protecting, respecting and giving back - because we wouldn't be Joules otherwise.

We plan, manage and report our Responsibly Joules progress under four pillars: Sustainable Sourcing, Respecting the Environment, Charitably Joules and Our Joules Family, and we have continued to make exciting progress in the Period.

We focussed our Sustainable Sourcing initiatives in the first half on increasing awareness amongst our colleagues and customers of our approach to sourcing our core materials in a more sustainable way. This has included blogs explaining how to prolong the life of our products and educating on our target for sourcing more sustainable cotton by 2022. We have furthered our Better Cotton Initiative membership, with the introduction of 'swinglets' on products in store and have also introduced our first organic Baby collection.

We made progress against our Respecting the Environment objectives, with continued great feedback from customers for our Green PE 'Hello Sugar' e-commerce mailbags. We also launched our welly recycling programme with our partner 'Safer Surfacing' to turn unwanted wellies into equestrian surfacing. We have also built innovative sustainability features into our new Head Office development, with approximately 70% of the original building structure being re-used and a photovoltaic system being incorporated to partly power the building using renewable energy.

We were delighted to welcome The Woodland Trust into our Charitably Joules family during the Period, with Joules colleagues taking part in a tree planting day and sales of Woodland Trust jute bags in store. Colleagues in our stores, distribution centre and Head Office ran events over 'Charity Month', raising £35k for our five Charitably Joules partners.

FINANCIAL REVIEW

Introduction

In the first half of FY20, there have been several factors that have impacted the presentation and quantum of our reported results:

To aid understanding of the impact of each of these factors and to provide comparability across periods, we have included appropriate non-GAAP measures and reconciliations within this Financial Review.

Profit before Tax

PBT before exceptional costs decreased by £0.9 million to £8.4 million (H1 FY19: £9.3m). This was impacted by the timing of the Black Friday trading period and the adoption of IFRS 16 - Leases.

Statutory PBT decreased to £1.7 million (H1 FY19: £9.3m). This includes the impact of non-cash exceptional impairment charges of £6.7 million which is explained further below.

IFRS 16 - Leases

The Group has adopted IFRS 16 - Leases from the beginning of the Period, using the modified retrospective approach. 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. Due to the adoption approach taken, the prior year Income Statement has not been restated. IFRS 16 - Leases has a net impact of £(0.1) million on the Income Statement for the Period. The Income Statement impact is summarised in the table below and further detail is provided in the Condensed Consolidated Financial Statements and notes to the Condensed Consolidated Financial Statements.

Income Statement impact of IFRS 16 - Leases:

*Underlying PBT has historically been the Group's primary non-GAAP reporting metric. As previously advised, share-based payments are, from FY20, to be reported 'above the line'. 'Underlying PBT' is stated before share-based payments, the impact of IFRS 16 - Leases and exceptional costs.

Non-cash exceptional impairment

The Group regularly conducts a review of its assets to identify if there are any impairments to the carrying value of the assets. This review has reflected the impact of IFRS 16 - Leases, where property leases are now capitalised as a 'Right-of-use' asset on the balance sheet, as well as considering the progress made on several strategic initiatives in the first half, as noted below:

- Stores: During H1 we have made substantial progress on lease renegotiations, typically seeing improved rents and more flexible terms upon renewals. As part of this portfolio management process we have identified a small number of stores with low or negative contribution where we do not expect to achieve an adequate rent reduction upon lease renewal. For these stores we anticipate a relocation or closure if we cannot identify a suitable alternative site. Four stores make up 70% of the store element of the impairment charge set out in the table below.

- Head Office: As previously communicated, we are relocating our Head Office teams to our newly developed freehold site in Market Harborough during Summer 2020. A non-cash exceptional impairment charge has been made against the 'Right-of-use' asset for the current rented Head Office premises assuming a period of vacancy before the current leases expire or are assigned. Fixed assets that will not be moved to the new location have also been impaired.

- Distribution & Other: The anticipated extension of our UK distribution centre lease (that was concluded after the Period end) and resulting modifications to the facility to improve capacity and throughput will result in the obsolescence of certain assets located within the facility.

As a result of the above, a non-cash exceptional impairment charge of £6.7 million (H1 FY19: £nil) has been booked by the Group in the Period as summarised below and with more detail in the notes to the Condensed Consolidated Financial Statements.

Revenue

Group revenue decreased by 1.4% to £111.6 million from £113.1 million. Retail revenue in the Period was impacted by the timing of the Black Friday trading period which fell in H2 in FY20 but in H1 in the prior year. On a comparable 27-week period, including Black Friday in both periods, Group revenue increased by 1.3%.

Retail

Retail revenue was in line with the prior year at £79.9 million. On a comparable 27-week period, including Black Friday in both periods, Retail revenue increased by 3.1%.

Our e-commerce channel continued to perform well in the first half, with good growth in the UK and strong performances in the US and Germany. Revenue increased by 10.2% to £40.9 million (H1 FY19: £37.1m) and now represents 51.2% of total retail sales (H1 FY19: 46.5%).

Stores continue to play an important role in our 'Total Retail' model. Stores revenue decreased by 9.2% to £36.2 million (H1 FY19: £39.9m). We ended the Period with one fewer store than at the beginning of the Period, with the focus in the half being on both portfolio management and the roll-out of our new point of sale system.

Wholesale

Wholesale revenue decreased by 5.1% to £30.8 million (H1 FY19: £32.5m). This represented continued growth in international revenue, albeit at a slower rate than in the prior year, offset by an anticipated decline in sales to the UK wholesale customer base, which has been impacted by sector trends, especially for our smaller, usually high-street located 'field' accounts. We also now have a smaller base of wholesale accounts in the UK following the transition of some of the larger accounts to the retail concession model in FY19.

Other

Other revenue increased by 6.3% to £0.9 million (H1 FY19: £0.8m).

Other revenue consists of royalties from sales of licensed products sold in partner channels and commission on sales on the 'Friends of Joules' digital marketplace that was launched during the Period.

International revenue

Total international revenue increased by 6.1% and now represents 17.0% of total Group revenue (H1 FY19: 15.8%).

International e-commerce performance was particularly pleasing at c.40% growth, with the brand resonating well with customers in the US and Germany.

 Gross margin

Group gross margin was maintained in line with last year at 54.8%, despite the competitive and highly promotional retail environment.

Retail gross margin improved by 50bps to 60.8%, as a result of a disciplined approach to promotions. We maintained our calendar of core promotional events and improved the length of full price selling periods, in particular during the Summer. We also benefited from favourable exchange rate hedging.

Wholesale gross margin was 180bps lower than last year at 38.1%, driven by a higher mix of US sales, where margins are lower.

Administrative expenses before exceptional costs

Administrative expenses before exceptional costs decreased by 1.2% to £51.9 million, representing 46.5% of revenue (H1 FY19: 46.4%). This was impacted by the adoption of IFRS 16 - Leases. Excluding this impact, administrative expenses increased by 0.3%.

Operating expenses excluding IFRS 16 - Leases increased by 3.1% to £48.8 million (H1 FY19: £47.4m), with increased investment in digital and social marketing, in both the UK and international markets, and higher distribution costs. Head Office costs were in line with the prior period, reflecting leverage of previous investments.

Share-based payments decreased by £0.2 million to £1.2 million in the Period. Whilst share-based payments are now comparable between periods, the charge in each period can fluctuate based on projected performance outcome, the share price at reporting date and National Insurance charges.

Depreciation and amortisation excluding IFRS 16 - Leases decreased by £1.1 million to £2.6 million (H1 FY19: £3.7m), the decrease being primarily due to several older stores now being fully depreciated.

Net finance costs

Net finance costs were £0.9 million (H1 FY19: £0.2m). Net finance costs consist of: IFRS 16 - Leases interest on lease liabilities £0.8 million (H1 FY19: £nil) and interest and facility charges on the Group's revolving credit facility ('RCF') and term loan with Barclays Bank Plc ('Term Loan') £0.1 million (H1 FY19: £0.2m).

Taxation

The tax charge for the period was £0.6 million (H1 FY19: £2.0m). The effective tax rate for the Period was 35.2% (H1 FY19: 21.9%), which was higher than the applicable UK corporation tax rate due to the relative impact of non-deductible share-based payments and the non-cash exceptional impairment charge as a proportion of PBT. Excluding these two impacts, which are expected to partly reverse in the second half, the 'normalised' effective tax rate was 20%. The estimated effective tax rate for the full year is expected to be lower than the first half, although higher than the prior year rate due to the higher non-deductible expenses.

Earnings per share

Statutory basic earnings per share for the Period, including the impact of share-based payments, IFRS 16 - Leases and the non-cash exceptional impairment charge, were 1.3 pence (H1 FY19: 8.3 pence).

To aid comparability, the Group provides an underlying basic earnings per share measure, which for the Period were 8.7 pence (H1 FY19: 9.7 pence). This measure is calculated using previously reported 'Underlying PBT', being PBT before exceptional costs, adding back share-based payments and the impact of IFRS 16 - Leases, with tax deducted at a consistent rate, and on the weighted average number of shares in issue during each period.

Dividend

The Board is pleased to declare an interim dividend of 0.77 pence per share (H1 FY19: 0.75 pence per share). The interim dividend will be paid on 7 April 2020 to those shareholders on the register at the close of business on 6 March 2020.

Cash flow and capital expenditure

Free cash flow, excluding expenditure on our new Head Office development, was £1.0 million in the period (H1 FY19: £6.2m). This reflects lower EBITDA, for reasons explained above, higher working capital outflow and higher tax payments due to transition to HMRC's quarterly in-advance instalment payments ('QIPS'), with four tax payments in the first half compared to two in the prior year, with an impact of £1.2 million. From H2 onwards the number of payments will normalise at two per half year.

Core capital expenditure in the first half was in line with the prior year at £5.0 million (H1 FY19: £5.0m). Major areas of capital expenditure included the deployment of our new point of sale system to our store estate and the launch of the 'Friends of Joules' digital marketplace platform.

The development of our new Head Office incurred spend of £2.7 million in the Period (H1 FY19: £0.7m). Cumulative spend on the development to the end of the Period was £9.5 million, including £4.4 million for the purchase of the land in FY18. Further capital expenditure of approximately £10 million is expected until the completion of the project in FY21, in line with previously guided expenditure.

Net cash and borrowings

Net cash at the end of the Period was £2.1 million (H1 FY19: £4.3m). This was lower than the prior period due to £1.2 million impact from tax payments as described above and £2.0 million higher Head Office capital expenditure.

Gross cash was £14.3 million at the end of the first half (H1 FY19: £15.7m) and Group borrowings were £12.1 million (H1 FY19: £11.4m).

The Group has a £25 million RCF provided by Barclays Bank Plc to fund seasonal working capital requirements. This facility matures in July 2022.

The development of the new Head Office is being funded, in part, through a £9.5 million Term Loan. The Term Loan is repayable by December 2023.

At the first half Group borrowings comprised the RCF £6.7 million (H1 FY19: £8.0m), the Term Loan £5.4 million (H1 FY19: £3.2m) and legacy asset loans of £nil (H1 FY19: £0.2m).

CURRENT TRADING AND OUTLOOK

As previously reported in our Trading Update on 10 January, our sales over the Christmas period were disappointing, reflecting a lack of available stock to meet online demand. We identified the root cause, have taken steps to rebalance the allocation of stock between channels for Spring / Summer 20 and are strengthening our underlying processes. We are reassured by the underlying demand for the brand we saw over the period in our online traffic, third party retail channels and licensed products.

In our announcement of 10 January we also provided an update on our supply chain. We will face cost headwinds from China-US tariffs on our US wholesale business during the second half of FY20. We cautiously expect these to continue into FY21. In addition, we are making strategic developments to our supply chain operations in the UK and US which are planned to commence over the second half of FY20, to support long term growth, improved customer service levels and better productivity. We anticipate non-recurring costs from these initiatives in FY20 and the first half of FY21, with ongoing cost efficiencies from FY22 onwards.

Despite the well-publicised challenges facing the retail sector in the UK, Joules remains well positioned to continue to deliver against its strategic growth objectives. We have a distinctive brand and unique products much loved by our customers; a flexible and integrated 'Total Retail' model to service evolving customer behaviours; and a platform for continued international growth and product extension.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

We confirm to the best of our knowledge that:

- The condensed interim set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;

- The Interim Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

- The Interim Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Note on IFRS 16 - Leases:

As previously noted, the modified retrospective 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 from 1 January 2019. The statutory results have been split out in the Financial Review to show the IFRS 16 - Leases impact to aid comparison between periods.

Notes to the condensed consolidated financial statements

For the six months ended 24 November 2019

Reporting entity

Joules Group plc is a company domiciled in the United Kingdom limited by shares. The condensed interim financial statements of Joules Group plc as at, and for the 26 weeks ended, 24 November 2019 comprise the Company and its subsidiaries (together referred to as the "Group").

The Group financial statements as at, and for the 52 weeks ended, 26 May 2019 are available on request from the Company's registered office at Joules Group plc, 16 The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU or at www.joulesgroup.com.

1. Basis for preparation

The interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board (IASB), adopted by the European Union.

The accounting policies adopted in the preparation of the interim financial statements are the same as those set out in the Group's financial statements for the 52 weeks ended 26 May 2019, except for the adoption of the new IFRS 16 -Leases standard. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not effective.

This report is prepared in accordance with IAS 34. The interim financial statements do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts for Joules Group plc for the year ended 26 May 2019 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unmodified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

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 that the Company and Group will have adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to prepare the financial statements on the basis of going concern.

New significant accounting policies

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.

IFRS 16 - Leases

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 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 six months ended 24 November 2019.

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 liability has been increased for the accumulation of interest and reduced by lease payments. There will be no impact on cash flow overall, however, classifications within the Statement of Cash Flows will change to reflect the interest element of each lease payment. A reconciliation of results on a pre and post IFRS 16 - Leases basis is included in the Financial Review.

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; and

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

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. 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, 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 unaudited Condensed Consolidated Interim 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.

Critical accounting judgements and key sources of estimation uncertainty



Drawing up the financial statements in accordance with IFRS requires management to make the necessary estimates and assessments. Estimates are based on past experience and other reasonable assessment criteria. However, actual results may differ from these estimates and assessments will bring about an adjustment in the value of the assets and liabilities in the next financial year.

In accordance with IAS 1 the Group is required to disclose critical accounting judgements and key sources of estimation uncertainty, the Directors have identified the following key judgements and estimates:

In preparing the financial statements the Directors have made estimates with regard to the variable consideration element within product sales as a result of returns. The Directors use their accumulated historical knowledge of returns to model the level of provision required.

A key estimate in relation to the impairment charge recognised for stores and other leases is the calculation of the value in use for each separate cash-generating unit ("CGU"). The 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.

A key judgement associated with the adoption of IFRS 16 - Leases is the identification of the discount rate to be used to calculate the present value of the future lease payments on which the reported lease liability and right-of-use asset are based. For any new lease, an interest rate might be determined at the point of entering the lease. However, with no such information available for existing leases, a notional discount rate of 2.5% has been used to reflect the impact of the transition to IFRS 16 - Leases, derived from existing borrowing rates.

2. Revenue

An analysis of turnover by geographical market is given below:

3. Exceptional administrative expenses

The exceptional administrative expenses recognised in the period relate to store impairments, other leases and fixed assets which are impaired. The total charge recognised in respect of these assets and leases is £6.7m for the period.

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 owned 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 an impairment charge of £3.8m was recognised in the period against the Right-of-use asset 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 £1.5m relating to other leases and £1.4m relating to fixed assets which are impaired. 

4. Segmental review

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 owned stores, e-commerce, shows, 3rd party concessions 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 licensing and the 'Friends of Joules' digital marketplace, central costs and items that are not distinguishable into categories 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. Segment results, being earnings before interest, taxation and share-based payment charge, are used to measure performance as the Board 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.

5. Profit for the Period

Profit before tax is stated after charging:

6. Tax

The Group's tax expense for the Period of £0.6m (November 2018: £2.0m) represents an effective tax rate of 35.2% compared to 21.9% in the comparative Period. The difference between the Group's tax rate for the Period of 35.2% and the UK statutory rate of 19.0% is due to expenses not deductible for tax purposes (including exceptional costs), and share-based payments.

Factors affecting the tax expense for the period are as follows:

7. Property, plant and equipment and intangibles

During the Period the Group made additions of £8.4m (November 2018: £5.7m) and impairments of £1.4m (November 2018: £nil). During the Period the Group's capital expenditure consisted of new stores, investment in IT systems to support e-commerce and stores, and the ongoing development of the Group's new Head Office.

8. Leases

The movements in period ended 24 November 2019 were as follows:

8. Leases (continued)

The following table shows the breakdown of the lease expense between amounts charged to operating profit and amounts charged to finance costs:

9. Dividends

In the Period a final dividend of 1.35 pence per share was paid with a total value of £1,201,581 (November 2018: £1,141,118) in respect of the year ended 26 May 2019. The Board has declared an interim dividend for the year ending 31 May 2020. The interim dividend of 0.77 pence per share (H1 FY19: 0.75 pence per share) will be paid on 7 April 2020 to those shareholders on the register at the close of business on 6 March 2020.

10. Hedging and Translation reserve

Hedging reserve

The reserve represents the cumulative gains and losses on hedging instruments in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedge transaction impacts the profit or loss or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy.

Translation reserve