29 Sep 2015 07:00
For Immediate Release | 29 September 2015 |
ScS Group PLC
("ScS" or the "Company")
Unaudited Preliminary Results for the year ended 25 July 2015
ScS, one of the UK's largest retailers of upholstered furniture and floorings, is pleased to announce its Preliminary Results for the year ended 25 July 2015.
Financial Highlights:
· Gross sales up 13.2% to £292.2m (2014: £258.2m)
· Revenue up 13.4% to £276.7m (2014: £244.1m)
· Like for like order intake for the year ended 25 July 2015 up 5.0%
· Gross profit increased 12.5% to £127.2m (2014: £113.0m)
· Adjusted EBITDA £11.3m (2014: £13.7m)
· EBITDA £7.6m (2014: £10.8m)
· Operating profit before exceptional items (relating to the IPO) of £6.4m (2014: £6.6m)
· Loss per share 5.56 pence (2014: earnings 14.78 pence)
· Adjusted earnings per share 13.75 pence (2014: 17.50 pence)
· Strong balance sheet with cash of £21.1m and no debt
· Recommended final dividend of 11.2 pence per share, total dividend 14.0 pence per share in line with the commitment made at the time of the company's IPO in January
Operational Highlights:
· House of Fraser concession launched in 30 stores in July 2014 with gross sales of £21.2m (2014: £3.4m)
· Three new stores opened in Abbotsinch in Glasgow, Croydon and Slough (total: 96 Stores)
· New e-commerce platform for ScS trading website and bespoke House of Fraser 'For Living' website launched
· ScS online gross sales up 25.4% to £8.4m (2014: £6.7m)
Current Trading:
· Sales order intake up 13.3% on a like-for-like basis for the 9 weeks to 19 September 2015
David Knight, Chief Executive Officer of ScS commented:
"We are encouraged by our trading performance since the start of the current financial year and we are in line with our expectations. However, we remain mindful that we continue to face strong comparatives during the remainder of the first half of the year and that a number of key trading periods are ahead of us.
With a strong brand, broad product range with good consumer appeal, an excellent network of well-invested stores, with an opportunity to expand, from our existing geographic footprint, and growth from the continued development of the House of Fraser concession, the Group has a clear growth strategy. We look forward to the year ahead and beyond with confidence."
Investor and Analyst Meeting
A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on 29 September 2015 commencing at 9.45am. ScS Group plc's Preliminary Results 2015 are available at www.scsplc.co.uk
An audio webcast will be available on:
http://vm.buchanan.uk.com/2015/SCS290915/registration.htm
Enquiries:
ScS Group PLC David Knight, Chief Executive Officer Ron Turnbull, Chief Financial Officer
| c/o Buchanan +44 (0)20 7466 5000 |
Buchanan Mark Edwards / Gabriella Clinkard / Jane Glover | Tel: +44 (0)20 7466 5000 scs@buchanan.uk.com |
Photography:
Photographs are available from Buchanan. To arrange to receive soft copies, please contact +44 (0)20 7466 5000 or scs@buchanan.uk.com.
Notes to Editors:
ScS is one of the UK's largest retailers of upholstered furniture and floorings, promoting itself as the "Sofa Carpet Specialist" seeking to offer value and choice through a wide range of upholstered furniture and flooring products. The Group's product range is designed to appeal to a broad customer base with a mid-market priced offering and currently trades from 96 stores.
In 2014 ScS began to operate the furniture and carpet concession ranges for the House of Fraser "For Living" brand. ScS currently operates in 30 House of Fraser stores across the UK.
CHAIRMAN'S STATEMENT
The Company's IPO in January was an important milestone in its development. By welcoming a new institutional shareholder base and an expanded board with the broader skills and experience that go with being a PLC, we have laid important foundations for the continued long term growth and success of the business.
Results
This has not been a year without challenges but the business has made good progress in many areas, particularly in pursuing key strategic priorities, including; continuing to broaden its sales base in new categories and channels; driving supply chain improvements to reduce costs and further improve customer service; and, delivering a good flow of new store openings. However, trading conditions during the important Easter and May Bank Holiday periods this year proved disappointing, caused primarily by a particularly warm early Spring and the timing of the general election campaign. As expected, a normal pattern of trading resumed towards the end of the financial year.
Revenue in the year grew by 13.4% with like for like order intake up 5.0% but adjusted EBITDA for the 2014/15 year declined to £11.3m (from £13.7m in 2014) due to the initial losses on the House of Fraser concession agreement and the period of weaker trading.
Further details of the trading and financial performance of the business during the year are provided in the Financial Review section of this report.
We have a clear strategy for growth underpinned by strong cash flows and the board remains positive about the Group's long-term prospects for the business. We are also encouraged by a strong trading performance in the first 9 weeks of the current financial year.
Dividend
The Board is recommending an aggregate dividend payout of £5.5m, representing a dividend per share of 14.0 pence, which reflects the Board's confidence in the Company's future and is in line with our commitment at the time of our IPO. This level of payout is the equivalent of a dividend yield of 8% at the IPO issue share price of 175 pence per share.
Governance and the Board
We have put together a strong, balanced board with a good blend of skills and relevant experience. David Knight CEO and Ron Turnbull CFO, were joined on the board by myself and two other independent non-executive directors; Ron McMillan at the time of the IPO, and George Adams more recently. Paul Daccus continues on the board as a non-independent non-executive director having been appointed by Sun Capital Partners Management V, LLC in their capacity as principal shareholder.
Ron Turnbull announced in early August 2015 that he intends to step down from the Board once a successor has been identified. We are very grateful to Ron for the significant contribution he has made to ScS during his 11 years with the business and wish him well for the future.
Ron McMillan is the Senior non-executive Director and Chair of the Audit Committee. George Adams is Chair of the Remuneration Committee. They each contribute diverse, thoughtful and informed perspectives and also apply independent judgement and assiduous oversight to the operation of the board.
Colleagues
Through our expansion programme in new stores and, concessions in House of Fraser stores, I'm delighted that we have welcomed 150 new colleagues into the business this year, bringing the total to over 1,700.
On behalf of the board I would like to thank everyone in ScS, whether they work in stores, in the supply chain or in the office support areas, for their continued dedication and hard work. We want ScS to continue to be a great place to work and to shop, because only through the commitment and expertise of our colleagues can we deliver our mission to provide our customers with excellent service, value and quality.
Outlook
Improving consumer confidence in the UK and a robust housing market supports our belief that demand for high ticket items, and in particular for furniture and floor coverings, will continue to grow. We expect to benefit from this trend as we continue to pursue our strategy which is tightly focused on the targeted marketing of our range of branded and own designed products through our national ScS store portfolio, our House of Fraser concessions and our rapidly growing on-line channel.
Alan Smith
Chairman
29 September 2015
CHIEF EXECUTIVE'S REPORT
Overview
This has been a challenging first year with trading over the Easter and early summer period being behind the prior year, and our expectations. However, in many key areas we have made substantial progress on our strategic priorities. The growth of our flooring business, the development of the House of Fraser concession, our online sales channel and our broad product range allow us to drive sales across a more diverse range of customers, keeping operating expenses tightly controlled - and thereby also building the adaptability and resilience of the business to changing economic conditions. The main elements of this strategy, which were laid out at the time of the IPO, remain the same and we're pleased to report that we have continued to make good progress, in particular with attracting a wider customer demographic.
Results
Our results for the financial year were adversely affected by a short, sharp dip in trading momentum in April and early May, which is seasonally a very important period for the business. This downturn in trading was caused primarily by a particularly warm early spring and the timing of the general election campaign. Our analysis suggests that the business did not lose market share during this period. Whilst trading returned to a normal pattern through the summer and beyond, the business wasn't able to recover the impact from the loss of footfall and trade in our stores during this key period.
The Board and senior management are confident that this was no more than a temporary setback as demonstrated by the positive like for like order intake to the end of the financial year and a continuation of that trend in the first nine weeks of the current financial year.
Expansion
We now operate from 96 stores across the UK, almost all of which are in modern out of town retail parks, often alongside competing furniture and floorcoverings retailers - plus the 30 House of Fraser concession units which we opened at the start of the last financial year.
We opened three new stores in the year - at Abbotsinch in Glasgow, Croydon and Slough, generating combined gross sales of £6.8 million and a positive contribution to the profitability in line with our expectations. Our first full year operating the House of Fraser concession has proved challenging for us as we have learned more about the customer and operating as a "third party" but it did generate sales of £21.2m in its first full year, albeit with a negative impact on our result. We believe that as the concession matures, it will make a positive contribution to the Group's profits.
Given the nature of our business and particularly the high-ticket character of the products we sell, we see the website primarily as a marketing tool and support for customers in their buying decisions, in conjunction with a visit to a store. However, the launch of our new website has made excellent progress - the convenience of ordering online continued to grow during the year with revenue increasing by £1.7million, or 25.4%, to £8.4million.
Current Trading and Outlook
We are encouraged by our trading performance since the start of the current financial year and we are in line with our expectations. However, we remain mindful that we continue to face strong comparatives during the remainder of the first half of the year and that a number of key trading periods are ahead of us.
With a strong brand, broad product range with good consumer appeal, an excellent network of well-invested stores with an opportunity to expand, from our existing geographic footprint, and growth from the continued development of the House of Fraser concession, the Group has a clear growth strategy. We look forward to the year ahead and beyond with confidence. Supported by our highly cash generative business model and strong cash position, the Board has proposed a final dividend payment of 11.2p making the total dividend 14.0p for the year, which meets the commitment made at the IPO.
David Knight
Chief Executive Officer
29 September 2015
FINANCIAL REVIEW
Gross sales and revenue
Gross sales increased by 13.2% on the previous financial year to £292.2 million (2014: £258.2 million) as a result of:
- An increase in upholstered furniture gross sales in ScS stores of £6.4 million or 2.9%
- An increase in flooring gross sales in ScS stores of £1.4 million or 4.6%
- An increase in online gross sales of £1.7 million or 25.4%
- 3 new stores, contributing gross sales of £6.8 million
- Gross sales from the House of Fraser concession, which was launched in 30 sites from the start of the financial year (2014: 3 sites), of £21.2 million (2014: £3.4 million)
Revenue, which represents gross sales less charges relating to interest free credit sales (see note 3 - Segment information), increased by 13.4% on the previous financial year to £276.7m (2014: £244.1m).
Like for like order intake for the financial year ended 25 July 2015, calculated on the basis of all stores opened for 12 months or longer, was 5.0% up on the previous financial year.
Gross profit
Our focus on generating growth has resulted in an increase in gross profit of £14.2 million or 12.5% to £127.2 million (2014: £113.0 million). However, gross margin as a percentage of gross sales, reduced by 30 basis points to 43.5% (2014: 43.8%) reflecting the competitive promotions throughout the financial year, in particular, a "free carpet" offer during the Autumn (pre-Christmas) sale as we continued to successfully promote and grow the flooring business as well as increasing combined sales of furniture/flooring.
Operating profit
Costs, whilst carefully controlled, increased due to ongoing investment to support the strategy for profitable growth.
Distribution costs were £14.0 million (2014: £12.3 million), an increase of £1.7 million. This includes the impact of a new distribution centre in West Thurrock, London which was fully operational at the beginning of the financial year, to provide capacity for certain House of Fraser sites and the two ScS stores opened during the financial year in that region, Croydon and Slough. This also provides capacity for future growth in the South East of England. Distribution costs expressed as a percentage of revenue were 5.1% (2014: 5.0%).
Administration expenses comprise store operating costs, advertising and marketing expenditure and the cost of all head office based functions and business support costs and include the IPO related costs of £3.7 million (see "Exceptional items" - note 4). Administration expenses were £110.3 million (2014: £94.1 million), an increase of £16.2 million, which, in addition to the exceptional costs, includes the operating costs of the additional 27 House of Fraser concession sites and the new ScS stores when compared to prior year. Administration costs, adjusted to add back the IPO related costs of £3.7m and other exceptional items (see "Exceptional items" - note 4), expressed as a percentage of revenue were 38.6% (2014: 38.5%).
Operating profit before exceptional items was £6.4 million (2014: £6.6 million). Although disappointing relative to our expectations, this reflected the dip in trading momentum in April and early May (referred to in the Chief Executive Officers' report).
Net finance costs/income
Net finance costs comprised principally the interest payable on the pre-IPO US$ denominated debt owed to the principal shareholder together with movements on exchange thereon, which are no longer payable (see "Trade and other payables - current" - note 9). Net finance costs were £4.5 million (2014: net finance revenue £0.5 million) and included exceptional items of £0.6m (2014: £nil) and a loss on exchange of £2.8 million (2014: gain on exchange £2.5 million).
Taxation
The total tax charge for the financial year of £0.5 million (2014: £1.2 million) comprises a corporation tax charge of £1.5 million (2014: £1.1 million) and a deferred tax credit of £1.0 million (2014: charge £0.1 million) which includes credits of £0.6 million in respect of prior years (2014: charges £0.5 million). The tax charge based on profit before tax adjusted for IPO costs charged as exceptional operating items is an effective rate of 25.8% (2014: 17.4%) which is higher than if the standard rate of corporation tax had been applied due to charges/(credits) not deductible for tax purposes, principally foreign exchange losses/(gains).
(Loss)/profit after tax and earnings per share
The statutory loss after tax is £2.2 million (2014: profit £5.9 million) and, based upon the number of shares in issue at admission, the basic and fully diluted loss per share is 5.56p (2014: earnings 14.78p). Earnings per share based upon the number of shares in issue at admission and the (loss)/profit after tax adjusted for exceptional/non-recurring operating costs and non-recurring net finance (costs)/income are 13.75p (2014: 17.50p).
Cash flow and cash equivalents
At an operational level the Group remained strongly cash generative with net cash flow from operations, after adjusting for total IPO costs and net interest paid, of £12.6 million (2014: £16.9 million).
Total investing activities of £4.1 million (2014: £3.1 million) included £2.5 million on new stores (2014: £nil), refurbishment expenditure £0.5 million (2014: £0.5 million) and £0.2 million (2014: £0.6 million) on the website.
The group reorganisation pre-IPO included a small repayment of group debt of £0.8 million (2014: £6.6 million) and capitalisation of the group debt outstanding at that date.
The Group's cash and cash equivalents at the end of the financial year are very strong at £21.1 million (2014: £18.8 million), whilst debt, following the group reorganisation, is £nil (2014: £22.5 million). At IPO, the Group also put in place a £12 million committed revolving credit facility.
Dividend
An interim dividend of 2.8p per ordinary share was paid in May 2015. With confidence in the Group's future growth prospects, and supported by strong cash flow dynamics, robust financial position and new committed banking facilities, it is proposed to pay a final dividend of 11.2p per ordinary share, resulting in a total dividend of 14.0p, as indicated at IPO.
KEY PERFORMANCE INDICATORS
The Group's key financial performance indicators and how we have performed against them are as follows:
2015 | 2014 | 2013 | |
(1) Total year on year gross sales growth %
| 13.2% | 5.1% | 17.9% |
(2) Like for like order intake growth % | 5.0% | 4.7% | 13.3% |
(3) Gross margin % of gross sales |
43.5% |
43.8% |
43.7% |
(4) Adjusted EBITDA
2015 | 2014 | 2013 | |
£m | £m | £m | |
Operating profit | 2.8 | 6.6 | 6.1 |
Depreciation and impairment | 4.2 | 4.0 | 4.2 |
Amortisation | 0.6 | 0.2 | 0.3 |
EBITDA | 7.6 | 10.8 | 10.6 |
IPO related costs |
3.7 |
- |
- |
House of Fraser roll out costs | - | 1.4 | - |
Management fees and other | - | 1.5 | 1.3 |
Total EBITDA adjustments | 3.7 | 2.9 | 1.3 |
Adjusted EBITDA | 11.3 | 13.7 | 11.9 |
(5) Adjusted cash generated from operations
2015 | 2014 | 2013 | |
£m | £m | £m | |
Net cash from operating activities | 8.2 | 13.8 | 8.1 |
EBITDA adjustments (4) | 3.7 | 2.9 | 1.3 |
Net interest paid | 0.7 | 0.2 | 0.1 |
Adjusted cash generated from operations | 12.6 | 16.9 | 9.5 |
(6) Adjusted earnings per share - pence
2015 | 2014 | 2013 | |
£m | £m | £m | |
(Loss)/profit after tax | (2.2) | 5.9 | 2.6 |
EBITDA adjustments (4)* | 3.7 | 2.3 | 1.0 |
Net finance costs/(income)* | 4.0 | (1.2) | 1.9 |
Adjusted profit after tax | 5.5 | 7.0 | 5.5 |
Number of shares in issue at admission | 40,000,000 | 40,000,000 | 40,000,000 |
Adjusted earnings per share - pence | 13.75p | 17.50p | 13.75p |
* net of tax
Unaudited consolidated statement of comprehensive income for the year ended 25 July 2015
Note | 2015 £'000 | 2014 £'000 | |
Gross sales | 3 | 292,163 | 258,206 |
Revenue | 3 | 276,734 | 244,133 |
Cost of sales | (149,583) | (131,131) | |
Gross profit | 127,151 | 113,002 | |
Distribution costs | (14,041) | (12,303) | |
Administrative expenses | (110,343) | (94,091) | |
Operating profit from continuing operations | 2,767 | 6,608 | |
Analysed as: | |||
Operating profit before exceptional items | 6,420 | 6,608 | |
Exceptional items | 4 | (3,653) | - |
Profit after exceptional items | 2,767 | 6,608 | |
Finance costs | 5 | (4,515) | (1,967) |
Finance income | 6 | 20 | 2,515 |
Net finance (costs)/income | (4,495) | 548 | |
(Loss)/profit from continuing operations before taxation
| (1,728) | 7,156 | |
Taxation | 7 | (496) | (1,243)
|
(Loss)/profit for the year from continuing operations | (2,224) | 5,913 | |
Attributable to: | |||
(Loss)/profit attributable to the owners of the parent | (2,224) | 5,913 | |
(Loss)/earnings per share (expressed in pence per share): | |||
Share) | |||
Basic (loss)/earnings per share | 8 | (5.56)p | 14.78p |
There is no variance between the diluted and basic earnings per share.
There are no other sources of comprehensive income.
Unaudited consolidated statement of changes in equity
Share capital | Sharepremium | Capital Redemptionreserve | Merger reserve | Retainedearnings |
Total equity | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
At 28 July 2013 | - | - | - | - | 4,839 | 4,839 | |
Profit for the year | - | - | - | - | 5,913 | 5,913 | |
Share based payments | - | - | - | - | 56 | 56 | |
Dividend paid | - | - | - | - | (6,555) | (6,555) | |
At 26 July 2014 | - | - | - | - | 4,253 | 4,253 | |
At 27 July 2014 | - | - | - | - | 4,253 | 4,253 | |
Loss for the year | - | - | - | - | (2,224) | (2,224) | |
Share based payments | - | - | - | - | 234 | 234 | |
Proceeds from shares issued | 50 | 70,000 | - | - | - | 70,050 | |
Capital reduction | (70,000) | - | - | - | (70,000) | ||
Share buyback | (13) | - | 13 | - | - | - | |
Group re-organisation | - | - | - | 25,511 | - | 25,511 | |
Dividend paid | - | - | - | - | (1,044) | (1,044) | |
At 25 July 2015 | 37 | - | 13 | 25,511 | 1,219 | 26,780 |
Full details of the movement in share capital pursuant to the pre-IPO group reorganisation are given in note 10.
Unaudited consolidated statement of financial position as at 25 July 2015
| Note | 2015 £'000 | 2014 £'000 |
Non-current assets | |||
Intangible assets | 1,291 | 1,407 | |
Property, plant and equipment | 25,005 | 25,524 | |
Total non-current assets | 26,296 | 26,931 | |
Current assets | |||
Inventories | 20,705 | 20,001 | |
Trade and other receivables | 8,887 | 8,316 | |
Cash and cash equivalents | 21,055 | 18,794 | |
Total current assets | 50,647 | 47,111 | |
Total assets | 76,943 | 74,042 | |
Capital and reserves attributable to the equity shareholders of the parent | |||
Share capital | 10 | 37 | - |
Capital redemption reserve | 13 | - | |
Merger reserve | 25,511 | - | |
Retained earnings | 1,219 | 4,253 | |
Equity shareholder funds | 26,780 | 4,253 | |
Total equity | 26,780 | 4,253 | |
Non-current liabilities | |||
Trade and other payables | 5,668 | 5,332 | |
Deferred tax liability | 530 | 1,569 | |
Total non-current liabilities | 6,198 | 6,901 | |
Current liabilities | |||
Current income tax liabilities | 675 | 227 | |
Trade and other payables | 9 | 43,290 | 62,661 |
Total current liabilities | 43,965 | 62,888 | |
Total liabilities | 50,163 | 69,789 | |
Total equity and liabilities | 76,943 | 74,042 |
Unaudited consolidated statement of cash flows for the year ended 25 July 2015
2015 £'000 | 2014 £'000 | |
Cash flows from operating activities | ||
(Loss)/profit before taxation | (1,728) | 7,156 |
Adjustments for: | ||
Depreciation of property plant and equipment | 4,185 | 3,938 |
Amortisation of intangible assets | 596 | 225 |
Share-based payments | 234 | 56 |
Finance costs | 4,515 | 1,967 |
Finance revenue | (20) | (2,515) |
7,782 | 10,827 | |
Changes in working capital: | ||
Increase in inventories | (704) | (1,443) |
(Increase)/decrease in trade and other receivables | (571) | 1,619 |
Increase in trade and other payables | 3,492 | 4,267 |
Decrease in provisions | - | (260) |
Cash generated from operations | 9,999 | 15,010 |
Interest paid | (731) | (189) |
Income taxes paid | (1,088) | (1,000) |
Net cash flow from operating activities | 8,180 | 13,821 |
Cash flows from investing activities | ||
Purchase of property, plant and equipment | (3,666) | (1,992) |
Payments to acquire intangible assets | (480) | (1,102) |
Interest received | 20 | 13 |
Net cash flow from investing activities | (4,126) | (3,081) |
Cash flows from financing activities | ||
Repayment of borrowings from related party | (799) | (6,583) |
Dividends paid | (1,044) | (6,555) |
Proceeds of share issue | 50 | |
Net cash flow from financing activities | (1,793) | (13,138) |
Net increase/(decrease) in cash and cash equivalents | 2,261 | (2,398) |
Cash and cash equivalents at beginning of year | 18,794 | 21,192 |
Cash and cash equivalents at end of year | 21,055 | 18,794 |
Notes to the unaudited consolidated financial statements
1. General information
ScS Group plc (the "Company") is a company incorporated and domiciled in the UK (Company registration number 03263435). The address of the registered office is 45-49 Villiers Street, Sunderland, SR1 1HA. The Company and its subsidiaries' (the "Group") principal activity is the provision of upholstered furniture and flooring, trading under the name ScS. The shares in the Company were admitted to the Official List of the London Stock Exchange ("LSE") on 28th January 2015.
2. Accounting Policies
Basis of preparation
The Board approved the preliminary announcement on 29 September 2015.
The unaudited financial information included in this preliminary announcement does not constitute the Group's statutory accounts for the year ended 25 July 2015 or 26 July 2014.
Statutory accounts for the year ended 26 July 2014 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 25 July 2015 will be delivered to the Registrar of Companies following the Company's annual general meeting.
The auditors have reported on the 2014 accounts; their report was unqualified, did not include any references to any matters by way of emphasis and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
The unaudited financial information included in this preliminary announcement has been prepared in accordance with EU endorsed International Financial Standards ("IFRS"), IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Group's annual report and accounts for the year ended 26 July 2014 were prepared in accordance with UK GAAP. Following admission to the Official List of the London Stock Exchange on 28 January 2015, the group accounts are prepared in accordance with IFRS.
Group restructuring
In connection with the admission to the London Stock Exchange, the Group undertook a reorganisation of its corporate structure which resulted in the Company becoming the ultimate holding company of the Group. Prior to the reorganisation the ultimate holding company was Parlour Product Topco Limited.
The transaction was accounted for as a capital reorganisation since it did not meet the definition of a business combination under IFRS 3. In a capital reorganisation, the consolidated financial statements of the Group reflect the predecessor carrying amounts of Parlour Product Topco Limited for the comparative information presented since no substantive economic changes have occurred.
Going concern
The Group generates strong cash flows, reflecting the negative working capital requirements of the business model. In addition the Group has a committed £12m revolving credit facility in place. The Group's forecasts and projections show that the Group has adequate resources to continue to operational existence for the foreseeable future.
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its preliminary announcement.
New standards, amendments and interpretations
Amendments to and interpretation of standards effective and adopted by the Group will be disclosed in the 2015 annual financial statements.
Critical accounting judgements and estimates
The preparation of the financial statements under IFRS requires the directors' to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Relevant accounting judgement and estimates will be disclosed in the 2015 annual financial statements.
3. Segment information
The directors have determined the operating segments based on the operating reports reviewed by the senior management team (the executive directors and the other directors of the trading subsidiary, A. Share & Sons Limited) that are used to assess both performance and strategic decisions. The directors have identified that the senior management team are the chief operating decision makers in accordance with the requirements of IFRS 8 'Segmental reporting'.
The directors consider the business to be one main type of business generating gross sales and revenue, the retail of upholstered furniture and flooring. All gross sales and revenue, (loss)/profit before taxation, assets and liabilities are attributable to the principal activity of the Group and other related services. All gross sales and revenues are generated in the United Kingdom.
An analysis of Gross sales is as follows: | Year ended 25 July 2015 £'000 |
| Year ended 26 July 2014 £'000 | ||
Sale of goods | 273,491 | 241,593 | |||
Associated sale of warranties | 18,672 | 16,613 | |||
Gross sales | 292,163 | 258,206 |
In the 2014 financial statements included in the prospectus and in accordance with guidance at the time, charges associated with interest free credit were included in cost of sales. In line with current guidance, these charges are now deducted from gross sales in arriving at revenue. Charges for interest free credit in 2015 and 2014 were £15,429k and £14,073k respectively. This change in presentation has no impact on reported profit in either year.
4. Exceptional items
Items that are material either because of their size and nature, or that are non-recurring, are considered as exceptional items and are presented within the line items in the income statement to which they best relate.
Exceptional costs comprise: | Note | Year ended 25 July 2015 £'000 | Year ended 25 July 2015 £'000 | Year ended 26 July 2014 £'000 |
Administrative expenses | Finance costs | |||
Management fees | 4(a) | 1,100 | - | - |
IPO deal fees | 4(b) | 2,553 | - | - |
Bank facility fees | 4(c) | - | 555 | - |
3,653 | 555 | - |
4 (a) Management fees payable to an affiliate of the parent undertaking, Sun Capital Partners, Inc. in relation to the termination of a management service agreement due to the IPO.
4 (b) Legal and professional fees related to the admission.
4 (c) Banking and legal fees related to the committed £12.0 million revolving credit facility.
5. Finance costs
Year ended 25 July 2015 £'000 | Year ended 26 July 2014 £'000 | ||
| |||
Foreign exchange losses on amounts owed to related parties | 2,829 | - | |
Interest payable on amounts owed to related parties | 955 | 1,778 | |
Bank facility fees | 555 | - | |
Other finance costs | 176 | 189 | |
4,515 | 1,967 |
6. Finance income
| Year ended 25 July 2015 £'000 | Year ended 26 July 2014 £'000 |
| ||
Foreign exchange gains on amounts owed to related parties | - | 2,502 |
Bank interest received | 20 | 13 |
20 | 2,515 |
7. Taxation
The total tax charge for the financial year of £0.5 million (2014: £ 1.2 million) comprises a corporation tax charge of £1.5 million (2014: £1.1 million) and a deferred tax credit of £1.0 million (2014: charge £0.1 million) which includes credits of £0.6 million in respect of prior years (2014: charges £0.5 million). The tax charge based on profit before tax adjusted for IPO costs charged as exceptional operating items is an effective rate of 25.8% (2014: 17.4%) which is higher than if the standard rate of corporation tax had been applied due to charges/(credits) not deductible for tax purposes, principally foreign exchange losses/(gains).
8. Earnings per share
Year ended 25 July 2015 £'000 | Year ended 26 July 2014 £'000 | ||||
(Loss)/profit attributable to owners of the Company | (2,224) | 5,913 | |||
Basic number of shares in issue | 40,000,000 | 40,000,000 | |||
Basic earnings per share (in pence per share) | (5.56) | 14.78 | |||
The basic number of shares in issue is as at IPO as this reflects the underlying number of shares. The 2014 comparatives have been adjusted retrospectively to allow for comparability.
There is no variance between the diluted and basic earnings per share.
9. Trade and Other Payables - Current |
25 July 2015 £'000 |
26 July 2014 £'000 | |
Trade payables | 24,356 | 21,349 | |
Borrowing from related party | - | 22,526 | |
Payments received on account | 7,247 | 7,159 | |
Other taxation and social security payable | 3,449 | 3,129 | |
Accruals | 8,238 | 8,498 | |
43,290 | 62,661 |
The fair value of financial liabilities approximates their carrying value due to short maturities. Financial liabilities are denominated in pounds sterling.
Borrowings from related parties are analysed as follows and include interest capitalised, they are repayable upon demand:
25 July 2015 £'000 |
26 July 2014 £'000
| |
23,987,885 Series 1 - 8% Unsecured payment in kind notes of US$1.00 each | - | 13,987 |
9,233,000 Series 2 - 8% Unsecured payment in kind notes of US$1.00 each | - | 8,539 |
- | 22,526 | |
As part of the Group re-organisation, the borrowings from related parties were capitalised or repaid.
| ||
10. Called up share capital
Number of shares | Ordinary shares | Share premium | Total | ||
Note | Number | £'000 | £'000 | £'000 | |
At 28 July 2014 | 1 | - | - | - | |
Share sub-division | 10(a) | 99,999 | - | - | - |
Shares issued /proceeds | 10(a) | 5,000,000,000 | 50 | 70,000 | 70,050 |
Capital reduction | 10(a) | - | - | (70,000) | (70,000) |
Consolidation of shares | 10(b) | (4,963,079,840) | - | - | - |
Share sub-division | 10(b) | 37,020,160 | - | - | - |
Share re-designation and buyback |
10(b) |
(37,020,160) |
(13) |
- |
(13) |
Shares issued/proceeds | 10(c) | 257,277 | - | - | - |
Shares issued/proceeds | 10(d) | 2,722,563 | - | - | - |
At 25 July 2015 | 40,000,000 | 37 | - | 37 |
10(a) As part of the Group reorganisation on 21st January 2015 the existing £1 share capital which consisted of 1 ordinary share was subdivided into 100,000 (£0.00001) ordinary shares. A further 4,999,900,000 (£0.00001) ordinary shares were issued to the principal shareholder for cash.
A further 100,000 (£0.00001) ordinary shares were issued to the principal shareholder as consideration for the acquisition of the entire 'A' ordinary shares in issue in Parlour Product Topco Limited. The value attributable to the acquisition was £70,000,000 thereby creating a share premium of £69,999,999. This was subsequently reduced through a capital reduction.
10(b) The shares in issue were consolidated down to 37,020,160 ordinary shares of £0.001351 per share and subdivided into 37,020,160 ordinary shares of £0.001 per share and 37,020,160 ordinary shares of £0.000351 per share.
The ordinary £0.000351 shares were redesignated as deferred shares and bought back out of distributable reserves for total consideration of £0.01 and held as Treasury shares.
10 (c) On 22 January 2015 the company issued 257,277 ordinary (£0.001) shares in exchange for the 750 'C' ordinary shares held by a senior manager in Parlour Product Topco Limited.
10(d) On 28 January 2015 the Company issued a further 2,722,563 ordinary shares of £0.001 each to the ScS Group plc Employee Benefit Trust.
11. Dividends
An interim dividend of 2.8p per ordinary share was declared by the Board of directors on 22 March 2015 and paid on 22 May 2015. It has been recognised in shareholders' equity in the year to 25 July 2015.
A final dividend of 11.2p per ordinary share was proposed by the Board of directors.
At 25 July 2015 the retained earnings of the parent Company amounted to £67.2m.
12. Related parties
Loans from related parties
The Group received the following loans from the principal shareholder:
· Unsecured interest free loan of US$6,125,000 payable on maturity at 12 August 2068
· 23,987,885 Series 1 8% unsecured payment in Kind notes of US$1.00 payable on demand
· 9,233,000 Series 2 8% unsecured payment in Kind notes of US$1.00 payable on demand
· 18,076,284 unsecured payment in kind notes of US$1.00 payable on demand in recognition of interest accrued and capitalised at each balance sheet date
As part of the group reorganisation these amounts were capitalised.
The movement on the amounts outstanding are as follows:
25 July2015 £'000 |
26 July 2014 £'000 |
| |
Opening balance | - | 3,708 |
|
Foreign exchange loss/(gain) | - | (150) |
|
Repaid | - | (3,558) |
|
Closing balance | - | - |
|
Series 1 payment in kind notes | |||
Opening balance | 13,987 | 17,405 | |
Issued | 593 | 1,117 | |
Repaid | (748) | (3,025) | |
Foreign exchange loss/(gain) | 1,756 | (1,510) | |
Capitalised in period | (15,588) | - | |
Closing Balance | - | 13,987 | |
Series 2 payment in kind notes | |||
Opening balance | 8,539 | 8,720 | |
Issued | 362 | 661 | |
Foreign exchange loss/(gain) | 1,073 | (842) | |
Capitalised in period | (9,974) | - | |
Closing Balance | - | 8,539 | |
Purchases of goods and services
Management fees and expenses have been paid to an affiliate of the principal shareholder in relation to Management Services Agreement as follows:
Year ended 25 July 2015 £'000 | Year ended 26 July 2014 £'000 | |
| ||
Management Fees and expenses | 152 | 981 |
Termination fee | 1,100 | - |
1,252 | 981 |
Letter of Credit
At 26 July 2014 the Bank of Montreal had provided Barclays Bank plc, the Group's bankers at those dates, with an irrevocable standby letter of credit for £6.0 million to underwrite merchant services transactions in A Share & Sons Limited, the Group's trading subsidiary. Sun Capital Partners inc, the ultimate parent company of the principal shareholder had provided a guarantee in favour of the Bank of Montreal for any losses suffered in connection with such irrevocable standby letter of credit. This standby letter of credit was cancelled as part of the group reorganisation.