15 Apr 2019 07:00
Moss Bros Group Plc (the "Company" or the "Group")
Annual Financial Report - DTR 6.3.5 Disclosure
15 April 2019
Following the release on 26 March 2019 of the Company's preliminary results announcement for the 52 week period ended 26 January 2019 (the "Preliminary Announcement"), the Company announces that its annual report and accounts for the 52 week period ended 26 January 2019, notice of Annual General Meeting for 2019 and form of proxy for use at the Annual General Meeting of the Company are being issued to shareholders today.
The Annual General Meeting of the Company is to be held on 15 May 2019 at 12 noon at the Company's registered office, 8 St John's Hill, Clapham, London, SW11 1SA. Copies of the Annual Report and Accounts, the Notice of Annual General Meeting and form of proxy are available on the Investor Relations page of the Company's website http://corp.moss.co.uk/
Copies of the Annual Report and Accounts, the Notice of AGM and the Proxy Form will shortly be available for inspection at the UK National Storage Mechanism at http://www.morningstar.co.uk/uk/NSM
Tony Bennett
Finance Director and Company Secretary
COMPLIANCE WITH DISCLOSURE AND TRANSPARENCY RULE 6.3.5
EXTRACTS FROM THE ANNUAL REPORT AND ACCOUNTS
The information below, which is extracted from the 2019 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's Preliminary Announcement issued on 26 March 2019. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2019 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2019 Annual Report and Accounts.
The information contained in this announcement and in the Preliminary Announcement does not constitute the Group's statutory accounts as defined in the Companies Act 2006 but is derived from those accounts. The statutory accounts for the 52 week period ended 26 January 2019 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 15 May 2019. On 26 March 2019, the Group announced its draft financial statements for the 52 week period ending 26 January 2019. The auditors have subsequently reported on those accounts, which were unchanged, their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.
DIRECTORS' RESPONSIBILITY STATEMENT
The following statement is extracted from page 42 of the 2019 Annual Report and Accounts and is repeated here for the purposes of complying with Disclosure and Transparency Rule 6.3.5. This statement relates solely to the 2019 Annual Report and Accounts and is not connected to the extracted information set out in this announcement or the Preliminary Announcement.
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have chosen to prepare the parent Company financial statements under IFRSs as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, International Accounting Standard 1 requires that Directors:
· properly select and apply accounting policies;
· present information including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
PRINCIPAL RISKS AND UNCERTAINTIES
BUSINESS AREA | RISK TO COMPANY | MITIGATION OF RISK | ASSESSMENT OF CHANGE IN RISK YEAR ON YEAR | |
1 | Economy - impact on retail
| Almost all of the Group's revenue is generated in the UK. A deterioration in the strength of the UK economy would be likely to reduce consumer demand for discretionary items.
This could materially and adversely affect the financial position of the Group
The Group is currently funded from its own cash reserves and any prolonged downturn will impact on these reserves.
| We continually focus on maintaining our product quality, customer service and supplier relationships, which will help us retain our competitive position and retain customers. The business has the flexibility to adjust its capital expenditure plans, restrict dividends and review operational expenditure to reduce or defer unnecessary expenditure. These measures will conserve cash and maintain the strength of our balance sheet. Property leases have short remaining lives allowing flexibility to reduce fixed overhead costs should the need arise. The Group is currently debt free and cash generative at an operating activity level but considers that it would be able to source funding facilities in the event that it needed to.
| + This risk has increased during the year as the economic outlook has toughened and as consumer confidence remains low.
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2 | Omni-Channel - Structural change within retail
| Retailing worldwide is undergoing unprecedented structural change at a very fast pace. Maintaining a competitive edge through customers being able to interact and transact with the Group in whichever way they choose, whether in store or online, offering product choice and availability, and allowing multiple payment and delivery/collection options are important in growing our omni-channel credentials.
| The Board regularly reviews the strategic plans in place for the business to ensure that they are appropriate to address structural changes within the retail industry. We have developed our understanding of our customer base during the year and we are focused on ensuring that the customer experience which we offer is in line with their expectations.. We increasingly encourage customers to return to our stores, where a more unified retail experience can be obtained regardless of channel of purchase. We invest where appropriate in the technology which supports improvements in our omni-channel capability. | + The pace of structural change within the retail marketplace has increased, meaning that the risk has increased commensurately.
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3 | Hire
| The Hire business demands the highest level of customer service. This is delivered through a highly developed and efficient infrastructure which enables consistent 'delivery to promise'. Any disruption to this infrastructure would affect our ability to maintain customer service levels which may subsequently result in reputational issues. | We have a dedicated operational team which actively seek to resolve any potential fulfilment issues ahead of delivery date. We are continually refreshing and replenishing our stock of hire garments to ensure that we are able to fulfil all orders as they become due. We continue to strengthen our back-end technology, systems and processes to ensure a robust platform for our operations. We completed a full Hire related training programme for in-store teams before the 2018 peak to ensure the best in-store experience. | = The risk is ongoing; we have successfully made additional improvements to our Hire operations during 2018 and will refine these further ahead of the 2019 Hire season to ensure that we continue to deliver on customer promise. |
4
| Supply chain | A disruption to supplier continuity may adversely affect our operation. Suppliers going out of business or unable to supply goods could have a significant impact on our ability to meet demand in store and online. As we increase the volume of garments sourced directly from supplier factories we must ensure that the supply chain critical path is closely monitored and proactively managed Additional uncertainty regarding the eventual form that 'Brexit' will take means that there may be delays to or additional costs suffered as a result of the import of our products.
| We are continually reviewing and refreshing our supplier list. The diversification of product buying across a range of suppliers limits the Group's over reliance upon any individual supplier. We have implemented controls which enable us to identify early any potential deviations from product and supply chain critical paths In addition, following the challenges seen early in 2018 we have increased the number of suppliers and supply routes through which we source our product. Foreign currency exposure, principally the US Dollar, is hedged for 6 to 9 months in advance.
| + The risk is increasing as we source more product directly from factories. We continue to monitor the enhanced controls and reporting successfully implemented during 2018.
|
5 | Brexit | The key indirect risks surrounding the UK leaving the EU and particularly leaving the EU without any transition period or any separation 'deal' in place (a 'no deal' Brexit) are significant. The Group acquires a significant proportion of its goods from overseas, and this exposes us to the following possible issues: • Increases in tariffs and duties on goods imported to the UK may increase our costs. • Delays at border controls may lead to stock shortages. • Reduction in the value of Sterling may lead to higher costs. | We have reviewed these issues in detail and determined that there may be some additional costs, but these are expected to be limited following the Government's publication of the UK's temporary tariff regime for 'no deal'. The majority of our products are sourced from countries outside the EU. We have sought to temporarily hold greater levels of stock in the UK by the end of March 2019 in an effort to mitigate the effects of any delays at UK borders. The mitigation of indirect risks, which remain beyond our control, are highly reliant on the preparedness of national authorities and other businesses.
| N The risk is new this year as the deadline for the UK to leave the EU approaches. The level of risk is compounded as a result of the uncertainty regarding the specific form and timing of the UK's departure along with a lack of clarity regarding the readiness of the EU and UK authorities to deal with each potential eventuality
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6
| Costs | Supply chain cost price increases and currency fluctuation could have a materially adverse effect on results A fluctuation in currency rates could materially affect the Group's cost base and margins. A re-emergence of general price inflation could affect profitability We continue to face significant cost headwinds including; business rates, National Living Wage, Apprenticeship Levy and Pension auto-enrolment costs as well as increasing government fossil fuel levies | Management has in part mitigated the cost price risk as a significant proportion of inventory is direct sourced and prices have been agreed as a result of competitive tendering. In addition, the Group operates a treasury policy which hedges a significant proportion of the foreign exchange risk from such direct sourcing arrangements. Management closely monitor the effectiveness of these arrangements. If general price inflation returns this may allow an increase in retail selling prices albeit subject to market conditions. Ongoing review of store profitability, combined with shorter lease durations ensures that we proactively manage the fixed overhead of our store estate. Remuneration policies are under review to ensure we remain competitive in the marketplace. | + The risk has increased during the year as the cost headwinds which we face continue un-abated. We continually monitor the potential impacts and address these via the actions noted here. |
7 | Cyber crime | A cyber crime attack could disable the Group's key IT systems and compromise data security | Customer bank or payment card details are not processed or stored in the Group's IT systems. Comprehensive security measures are in place with regular tests carried out. We have deployed additional security products to further strengthen our protection and invested during 2017 in technology infrastructure to afford us better protection. Development in cybercrime and preventative strategies are constantly reviewed.
| + Whilst we invested in increased levels of protection during 2017, the frequency and severity of cybercrime attacks against companies continue to increase.
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8 | Brand image | Maintaining our store presentation is important for attracting customers and growing our brand The historical underinvestment in the store estate in previous years has meant that some of our stores lack the level of presentation that we require to grow the business and the brand. | We continued with our store redevelopment programme to both modernise the look and feel of the stores and to meet more routine maintenance that has been deferred for many years. This has now been substantially completed. We regularly consider the appropriateness of our sub brand line up, under the master brand 'Moss Bros' originally implemented in Autumn 2014. | = The risk remains the same year on year as the store redevelopment programme nears completion. |
9 | Distribution centre (DC) | Operating our distribution centre from one location leaves the Group exposed to business catastrophes occurring at that location Any business catastrophe affecting our distribution centre could severely affect the Group's ability to supply to stores and customers. | We continually review and monitor our disaster recovery plan to ensure that all business risks are adequately covered. Our financial risk of operating from one location is mitigated through our comprehensive insurance cover, however due to the single location of the DC, operational mitigation beyond fire safety and security measures and rigorous adoption of good process limit mitigation somewhat.
| + With new and increased operating pressures on the DC through our multi-channel approach, the reliance and consequent exposure to risk of the DC failing has again increased during the year. |
10 | People | The Group's reliance on key management and other personnel could put pressure on the business if they were to leave Attracting and retaining high calibre people is a key priority and a central focus in striving for excellent customer service across the Group's business channels. | Effective recruitment policies and people development means the Group can take full advantage of the market opportunities which it is presented. Long term incentive share awards were granted to senior employees during the year to more closely align their interests to those of the Group and a SAYE scheme is in operation. | = We continue to invest in our people and have made important changes within our senior leadership team during 2018. We continue to be mindful of the risk within that senior team as a result of no incentives being paid for a second consecutive year. We continue to manage Board succession closely and have delivered high calibre replacements for retiring Board members The risk is continually monitored and addressed through a Management Talent Review and Board evaluation. |
11 | GDPR | The General Data Protection Regulations come into force in May 2018 This legislation significantly extends requirements of companies to ensure that all personal data is handled in accordance with the new regulations. The penalties for non-compliance are potentially severe. | The company has a good understanding of GDPR and has executed a detailed plan to address the resulting requirements. We have strong policies and procedures in place to address any GDPR related issues and requests and are committed to maintaining our positive response to the legislation to date. We have in place company wide training programmes to highlight the importance of good data protection to all employees across the business.
| = The risk remains level on last year. We have invested significantly in our GDPR capability and have robust processes and procedures now in place . We will continue to develop our capability and responses to GDPR related issues as 'real life' scenarios arise. |
Key to change in Risk:+ Risk has increased- Risk has decreased= No changeN New Risk |
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RELATED PARTY TRANSACTIONS
The Group had no material related party transactions which might reasonably be expected to influence decisions made by users of these Financial Statements. Directors' remuneration is disclosed in the Annual Report on Remuneration on pages 46 to 54. Other related parties are key management (employees below Director level who have authority and responsibility for planning, directing and controlling the Company) and major Shareholders. The key management personnel compensation is as follows:
2018/19 £'000 | 2017/18 £'000 | |
Short-term employee benefits Termination payments Contributions to defined contribution plans Share based payments expense | 1,071 322 62 122 | 1,488 123 68 54 |
1,577 | 1,733 |
Total remuneration is included in administrative expenses and relates to 8 employees in the period ended 26 January 2019 (2017/18: 10).
TRADING TRANSACTIONS
The Group entered into the following transactions with related parties who are not members of the Group:
Berkeley Burke Trustee Company Limited is considered a related party of the Group because Brian Brick, Chief Executive Officer of Moss Bros Group plc is a beneficiary of the pension fund. On 8 December 2011, Moss Bros Group plc agreed a long-term lease with Berkeley Burke Trustee Company Limited, a pension fund and the superior landlord, for a store in Hounslow, on an arm's length basis.
AAK Limited is considered a related party of the Group because Maurice Helfgott, Senior Independent Non- Executive Director of Moss Bros Group plc, has a close relative holding a key management position with significant influence and who is a significant shareholder at AAK Limited. All transactions with AAK Limited have been on an arm's length basis. At 26 January 2019, total purchase from AAK Limited was £555k, including VAT, (27 January 2018: £2.5m, including VAT). £15,888 was outstanding at year end (27 January 2018: £14,000).
Moss Bros agreed a sublet of a store lease to White Stuff Ltd. Debbie Hewitt, Chairman of Moss Bros Group plc, is also Chairman and director of White Stuff. The transaction was at an arm's length commercial terms and Debbie Hewitt took no part in determining the commercial terms offered by Moss Bros or in the decision to accept them taken by White Stuff. The sublet is from June 2014 until December 2021 at a rent of £50,000 per year. A capital contribution of £50,000 was paid to White Stuff on completion of the agreement. At 26 January 2019 the balance due from White Stuff was £1,156 in respect of insurance payable in arrears.
For further information please contact:
Moss Bros Group plc
Tony Bennett, Finance Director and Company Secretary 0207 447 7200