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RNS
Appreciate Group PLC   -  APP   

Half-year Report

Released 07:00 27-Nov-2019

RNS Number : 7644U
Appreciate Group PLC
27 November 2019
 

27 November 2019 

 

 

APPRECIATE GROUP PLC

("Appreciate", "Appreciate Group" or "the Group")

 

Half Year Results

for the six months ended 30 September 2019

 

Continued strategic progress, with a resilient performance in line with the Board's expectations

 

Summary

 

Appreciate Group plc (AIM: APP), the UK's leading multi-retailer, multi-channel gift voucher and prepaid gift card provider, is pleased to announce its half year results for the six months ended 30 September 2019. Appreciate's business is highly seasonal; the first half of the year sees an expected loss with the majority of annual revenues and profit generated in the second half of the year.

 

Financial Highlights

 

·      Billings increased by 10.3% to £120.2m (H1 2018: £109.0m)

·      Revenue increased by 21.3% to £33.2m (H1 2018: £27.4m)

·      Seasonal operating losses reduced to £2.0m (H1 2018: £2.3m)

·      Pre-tax losses reduced to £1.3m (H1 2018: £1.5m loss)

·      Proposed interim dividend of 1.05p (H1 2018: 1.05p)

·      Cash balances, including cash held in trust, at 30 September 2019 of £211.8m (H1 2018: £212.4m)

 

Operational Highlights

 

·      Corporate:

-     Strong growth in billings of 9.3% to £80.1m (H1 2018: £73.3m)

-     Revenues up 23.8% to £24.3m (H1 2018: £19.6m) benefiting from increased demand and the addition of new clients

 

·      Consumer:

-     Billings grew by 12.5% to £40.1m benefiting from significantly increased customer numbers through highstreetvouchers.com.  Revenues increased by 14.9% to £8.9m (H1 2018: £7.8m).

-     Christmas Savings benefited from earlier despatches than in the prior year

 

·      Added new redemption partners (high street and online retailers, hospitality and leisure  providers), focusing on brands that are more relevant to our current customer base and future target audience with greater online presence

 

 Implementation of the strategic business plan during the half year

 

·      Relocated our head office to Liverpool city centre

·      Changed the company name to Appreciate Group plc, which more accurately describes our product range and helps to position the Group to take advantage of its growth aspirations

·      Developed a Mastercard gifting product with digital fulfilment and mobile wallet capability that is being tested through the highstreetvouchers.com channel

·      Began trialling a new consumer digital gifting product, Giftli, which appeals to a new millennial audience, ahead of a planned soft launch before Christmas 2019

·      Invested in our technology, including initiating the first phase of Microsoft Dynamics 365 as our core ERP system

·      Implemented Blue Venn as our new integrated digital marketing platform

 

Current trading:

 

·      Outlook for trading for the second half and the year as a whole is unchanged

·      Current year cost estimate of implementation of strategic business plan unchanged at £2.0m

·      Good momentum in terms of implementing the remaining milestones of the strategic business plan

 

Ian O'Doherty, Chief Executive Officer, commented:

 

"Appreciate Group performed well in the first half, consistent with our expectations for the year as a whole, with strong operational performances in both consumer and corporate divisions.  This was an extremely busy period for the Group as we continued to implement our strategic business plan whilst optimising the performance of the business.

 

"We continue to be encouraged by the significant progress we have made on delivery of our strategic business plan, including the development of new consumer products, and are optimistic about the benefits this will realise in a growing market."

 

 

Appreciate will host a presentation for analysts at MHP Communications' offices (6 Agar Street, London, WC2N 4HN) at 9.30am this morning.

 

If you would like to attend, please contact MHP on 020 3128 8193 or AppreciateGroup@mhpc.com.

 

 

For further information please visit  https://www.appreciategroup.co.uk or contact:

 

Appreciate Group plc

Liberum

(NOMAD and broker)

MHP Communications

Ian O'Doherty, CEO

Tim Clancy, CFO

Richard Crawley

Jamie Richards

Reg Hoare

Katie Hunt

Patrick Hanrahan

Charles Hirst

 

Tel: 0151 653 1700

 

Tel: 020 3100 2222

 

Tel: 020 3128 8193

 

The information contained within this announcement is deemed by Appreciate Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

 

Notes to editors:

 

The Company changed its name to Appreciate Group plc (from Park Group plc) on 6 November 2019. The new name more accurately describes its product range and helps to position the Group to take advantage of the growth opportunities available in an expanding market. 

 

Business review for the six months ended 30 September 2019

Introduction

Appreciate Group performed well in the first half, consistent with our expectations for the year as a whole.  This was an extremely busy period for the Group as we continued to implement our strategic business plan whilst optimising the performance of the business. We are pleased with progress to date on the multiple initiatives being undertaken, many of which are now completed or are close to completion. We are confident that the changes we are making, combined with the underlying strength of the business, will deliver enhanced growth rates and financial performance in the future. 

The business relocated its head office and main operations to central Liverpool in September in line with our strategy to become more efficient and effective. This involved approximately 250 employees moving into our fit-for-future offices and we are pleased to report this occurred seamlessly without any business interruption; we are already seeing the benefits of the move that we expected of enhancing both our culture and our efficiency.

At our AGM, also in September, shareholders voted to change the name of the company to Appreciate Group plc, a name that more accurately describes our product range and helps to position the Group to take advantage of the growth opportunities available in an expanding market.

In the strategy section below, we set out progress we have made on the important projects that are intended to enhance Appreciate Group's operating and financial performance in future years.

Results for the half year

As we are a seasonal business, we typically report approximately a quarter of our revenue in the first half, and three quarters of revenue in the second half (commencing 1 October) and we have, as expected, reported a loss for the half year, albeit a reduced loss compared to prior year. 

Billings increased 10.3% in the six months to 30 September 2019 to £120.2m (H1 2018: £109.0m) and Group revenue was ahead by 21.3% at £33.2m (H1 2018: £27.4m).  As planned, we incurred £1.0m of strategy implementation costs relating to relocation, investment in technology and development of a new consumer product in the first half (H1 2018: £nil). Despite this investment, reported losses reduced with a loss before tax of £1.3m compared with a loss of £1.5m in the prior year, demonstrating strong underlying trading has been maintained during a transformative period. Total cash balances, including cash held in trust at 30 September 2019, were £211.8m (H1 2018: £212.4m).

Interim dividend

The Board has declared an interim dividend of 1.05p per share, in line with last year (H1 2018: 1.05p).  The dividend will be paid on 6 April 2020 to shareholders on the register on 28 February 2020. Appreciate Group's dividend policy is linked to the cash we generate and business performance.  Maintaining the dividend in a period of transformation reflects the Board's confidence in the strategic plan and the future financial benefits that it is expected to realise.

Strategy and business plan

In December 2018, we set out our new strategic business plan; it aims to build on the high regard in which the Group is held by existing customers to capture more of the available market in the future. We intend to deliver this through improving the customer experience, simplifying our offering, making our products and services available to a wider customer base, and developing our digital platforms to meet the needs of our customers both now and in the future.

The four principal pillars of the new strategic business plan are set out below, alongside the progress we made in delivering the plan during the first half year period:

 

1.   Productivity: we will be more efficient and effective

 

Progress during the period:

·      We relocated our head office to Liverpool city centre. We are already experiencing the collaboration benefits of working in a modern, fit for future and better-equipped environment. Furthermore, we are starting to attract new talent into the organisation as a consequence of our new location.

 

·      We have invested in our technology including the first phase of Microsoft Dynamics 365 as our core ERP system and further design and planning for subsequent phases in 2020. Alongside this, we have completely re-designed our data and infrastructure architecture ready for progressive deployment to Cloud and managed service provision to take advantage of the scalability, efficiency and resiliency benefits these offer.

 

 

2.   Appeal: we will broaden our customer appeal

 

Progress during the period:

·      We have put a new consumer digital gifting product, Giftli, which appeals to a new millennial audience, into trial with consumers ahead of a planned soft launch before Christmas 2019. Giftli is the only gift card product with the ability to create a personal story to share with the recipient, reimagining gifting for the digital audience. This has followed an extensive research and development project with an external digital product agency. Initial reaction from consumers has been very positive with the features and design proving attractive to the target audience using social media in their everyday lives.

 

·      Significant core infrastructure improvements to support a 24/7 digital platform, including a new digital engine giving full Application Programme Interfaces (API) integration with our redemption partners which has transformed our e-commerce speed, capability and breadth of offering.

 

·      In addition, the implementation of Blue Venn as our new integrated digital marketing platform, delivers multi-channel marketing capability and enhanced customer data insights that allows us to develop these channels further.

 

 

3.   Clarity: we will focus on our multi-retailer redemption proposition 

 

Progress during the period:

 

·      We have changed the company name to Appreciate Group plc and are nearing the completion of our full brand architecture review.

 

·      The hamper business is operating separately under a discrete management team (and remains located at Valley Road, Birkenhead).

 

 

4.   Experience: we will be easier to work with for all of our customers

 

Progress in the period:

 

·      We continue to drive product and customer innovation, while all the time anchoring the organisation on digital. We have developed a Mastercard gifting product with digital fulfilment and mobile wallet capability that is being tested through the highstreetvouchers.com channel.

 

·      We have improved productivity and customer experience through extended hours of chat bot support with self-service capability. We are developing AI, Machine Learning and Robotic Process Automation solutions to drive better customer journeys, improve product development and facilitate seamless engagement across the business. 

 

Operational review

All our business lines traded well in the first half.  Analysed by division, Corporate billings of £80.1m (H1 2018: £73.3m) were 9.3% above prior year and Corporate revenue of £24.3m was ahead of last year (H1 2018: £19.6m) by 23.8%. This reflected increased demand and the impact of new clients that contributed £3.2m of billings. Our Consumer business billings of £40.1m were 12.5% above the comparative period reflecting strong growth in our Other Consumer sector with significantly increased customer numbers through highstreetvouchers.com following a customer experience redesign. The Christmas Savers billings numbers reported have benefited from earlier despatches than prior year but we still expect this area to be marginally down by the end of the year. Overall, our Consumer revenue of £8.9m was 14.9% above last year (£7.8m).

We continue to develop our product proposition and in particular move away from paper towards card and digital formats. As part of the latter move, we have stopped purchasing third party paper products and have redesigned our customer journey in order to prioritise promotion of card and digital formats of our own products. The benefits of this change have contributed to a higher gross margin (£8.2m (24.8%) versus £6.3m (23.1%) in the prior year). We have added to our redemption partners and in particular have focussed on brands that are more relevant to our current customer base and future target audience with much more online presence. In the period, new redemption partners added include Banana Republic, Perfume Direct and Zavvi. Overall, we now operate with 246 redemption partners across high street, online, dining and experience providers.

Administration costs increased from £8.0m in the prior year to £9.6m in the first half of this year. Within this, as planned, we incurred £1.0m of strategy implementation costs relating to relocation, investment in technology and development of a new consumer product. Additionally, we incurred costs relating to branding, additional management and increased audit fees.

We have made improvements in our customer experience with focus on an enhanced online and mobile customer journey. We have improved this through faster connectivity and page loading, simplified layout and navigation and optimised digital customer acquisition methods. Our Consumer customer numbers through highstreetvouchers.com increased by 49% compared with the prior year, benefiting from these improvements.

 

Within our Christmas Savers business, we have refreshed the brand and imagery across all assets making it more modern and engaging. We have worked with two new agencies to create the Park Christmas Savings TV advert as well as developing a new media strategy that together target our new customer base more effectively. We are also optimising the Park Christmas Savings website through customer research and a programme of optimisation experimentation. We expect these enhancements to provide benefits to our performance in Christmas 2020.

 

We are pleased that following the relocation of our head office to Liverpool, our production and distribution businesses remaining in Birkenhead have benefited from improved layouts leading to enhanced workflow generating further efficiencies. Focus on further development of our people across all sites will also lead to greater efficiencies and effectiveness in the future enabling our team to support future business growth. Good progress is being made in respect of a potential disposal of the Birkenhead site with lease back arrangements for the space we continue to require.

Board and management

We were pleased to appoint Sally Cabrini as a Non-Executive Director and Chair of the Remuneration Committee with effect from September 2019, to succeed Michael de Kare-Silver.  Sally brings with her a record of relevant experience, as a board member, member of Audit and Risk Committees and Chair of Remuneration Committee of Lookers PLC. Her executive experience includes roles with Interserve Group Limited, United Utilities PLC and Northern Foods PLC.

Additionally, the business has strengthened its management in the areas of Business Development, Marketing and Strategy to support the effective implementation of our new strategic plan and deliver future growth.

Outlook

Overall, our outlook for underlying trading for the second half and the year as a whole is unchanged. Our Corporate business continues to grow and our Consumer business continues to take advantage of our refreshed marketing plans. The estimate of the cost of the implementation of our strategic business plan for the current financial year remains unchanged at £2.0m.

We have a real sense of momentum in terms of implementing the remaining milestones of the strategic business plan; this includes a planned soft launch before Christmas 2019 of our new consumer digital gifting product, Giftli.

In summary, we continue to be encouraged by the significant progress we have made on delivery of our strategic business plan and are optimistic about the benefits this will realise in a growing market.

 

Laura Carstensen, Chairman

Ian O'Doherty, Chief Executive

 

APPRECIATE GROUP PLC

 

 

APPRECIATE GROUP PLC

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE HALF YEAR TO 30 SEPTEMBER 2019

 

 


 

Notes

 Half Year 

to 30.09.19 

Half Year 

to 30.09.18 

Year to 

31.03.19 



£'000 

£'000 

£'000 






Billings


120,213 

108,964 

426,901 






Revenue





-     Goods - Single retailer redemption products


19,904 

15,086 

55,624 

-     Other goods


67 

70 

7,511 

-     Services - Multi-retailer redemption products


10,083 

9,094 

41,111 

-     Other services


3,106 

3,122 

6,119 

-     Other


70 

23 

29 



33,230 

27,395 

110,394 






Cost of sales


(24,988)

(21,074)

(79,117)






Gross profit


8,242 

6,321 

31,277 

Distribution costs


(709)

(637)

(2,934)

Administrative expenses


(9,577)

(7,988)

(17,401)

Operating (loss)/profit before exceptional item


(2,044)

(2,304)

10,942 






Impairment of property, plant and equipment


(1,210)






Operating (loss)/profit


(2,044)

(2,304)

9,732 






Finance income


789 

778 

1,572 






Finance costs


(25)

(Loss)/profit before taxation


(1,280)

(1,526)

11,304 






Taxation

4

243 

290 

(2,422)






(Loss)/profit for the period attributable to equity holders of the parent


(1,037)

(1,236)

8,882 






(Loss)/earnings per share

5




- basic (p)


(0.56)

(0.67)

4.78 

- diluted (p)


(0.56)

(0.67)

4.77 

 

 

All activities derive from continuing operations.

 

 

APPRECIATE GROUP PLC

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE HALF YEAR TO 30 SEPTEMBER 2019


 Half Year 

Half Year 

Year to 


to 30.09.19 

to 30.09.18 

31.03.19 


£'000 

£'000 

£'000 





(Loss)/profit for the period

(1,037)

(1,236)

8,882 

Other comprehensive (expense)/income




Items that will not be reclassified to profit or loss:

Remeasurement of defined benefit pension schemes

(1,009)

Deferred tax on defined benefit pension schemes

172 


(837)

Items that may be reclassified subsequently to profit or loss:




Foreign exchange translation differences

13 

(3)





Other comprehensive income/(expense) for the period net of tax

13 

(840)





Total comprehensive (expense)/income for the period attributable to equity holders of the parent

(1,024)

(1,236)

8,042 

















APPRECIATE GROUP PLC

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2019


Notes

30.09.19 

30.09.18 

31.03.19 



£'000 

£'000 

£'000 

Assets





Non-current assets





Goodwill


2,168 

2,185 

2,168 

Other intangible assets


2,617 

2,218 

2,295 

Property, plant and equipment


2,105 

7,607 

6,216 

Right of use asset


5,202 

Deferred tax assets


388 

Retirement benefit asset


1,923 

3,047 

1,927 



14,015 

15,445 

12,606 

Current assets

Inventories


20,452 

18,596 

4,574 

Trade and other receivables


10,790 

10,841 

12,582 

Tax receivable


1,269 

221 

Other financial assets


200 

Monies held in trust


205,448 

179,895 

99,251 

Cash and cash equivalents


7,679 

34,544 

36,868 

Assets held for sale

3

4,966 



250,604 

244,097 

153,475 

Total assets


264,619 

259,542 

166,081 

Liabilities





Current liabilities





Trade and other payables


(182,595)

(192,209)

(89,952)

Tax payable


(580)

Provisions


(66,357)

(60,008)

(58,286)



(248,952)

(252,217)

(148,818)

Non-current liabilities





Trade and other payables


(5,266)

Deferred tax liability


(553)

(553)



(5,819)

(553)

Total liabilities


(254,771)

(252,217)

(149,371)

Net assets

9,848 

7,325 

16,710 

Equity attributable to equity holders of the parent





Share capital


3,727 

3,723 

3,727 

Share premium


6,470 

6,373 

6,470 

Retained earnings


(38)

(2,460)

6,824 

Other reserves


(311)

(311)

(311)

Total equity

9,848 

7,325 

16,710 

 

 

APPRECIATE GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


Share capital

Share

 premium

Other 

reserves 

Retained 

earnings 

Total 

equity 


£'000

£'000

£'000 

£'000 

£'000 







Balance at 1 April 2019

3,727

6,470

(311)

6,824 

16,710 







Total comprehensive expense for the period






Loss for the period

-

-

(1,037)

(1,037)







Other comprehensive income






Foreign exchange translation adjustments

-

-

13 

13 

Total other comprehensive income

-

-

13 

13 

Total comprehensive expense for the period

-

-

 

(1,024)

(1,024)







Transactions with owners, recorded directly in equity






Equity settled share-based payment transactions

-

-

125 

125 

Dividends

-

-

(5,963)

(5,963)

Total contributions by and distribution to owners

 

-

-

 

 

(5,838)

 

(5,838)

 

Balance at 30 September 2019

3,727

6,470

 

(311)

(38)

9,848 

 

 

Balance at 1 April 2018

3,711

6,137

 

 

(311)

4,488 

14,025 







Total comprehensive expense for the period






Loss for the period

-

-

(1,236)

(1,236)







Total comprehensive expense for the period

-

-

 

(1,236)

(1,236)







Transactions with owners, recorded directly in equity






Equity settled share-based payment transactions

-

-

(41)

(41)

Exercise of share options

9

236

245 

LTIP shares awarded

3

-

(3)

Dividends

-

-

(5,668)

(5,668)

Total contributions by and distribution to owners

 

12

 

236

 

 

(5,712)

 

(5,464)

Balance at 30 September 2018

3,723

6,373

 

(311)

(2,460)

7,325 

 

 

Balance at 1 April 2018

3,711

6,137

 

 

(311)

4,488 

14,025 







Total comprehensive income for the year






Profit for the year

-

-

8,882 

8,882 







Other comprehensive expense






Remeasurement of defined benefit pension schemes

-

-

 

(1,009)

(1,009)

Tax on defined benefit pension schemes

-

-

172 

172 

Foreign exchange translation adjustments

-

-

(3)

(3)

Total other comprehensive expense

-

-

(840)

(840)

Total comprehensive income for the year

-

-

 

8,042 

8,042 







Transactions with owners, recorded directly in equity






Equity settled share-based payment transactions

-

-

11 

11 

Tax on equity settled share-based payment transactions

-

-

 

(45)

(45)

Exercise of share options

12

333

345 

LTIP shares awarded

4

-

(4)

Dividends

-

-

(5,668)

(5,668)

Total contributions by and distribution to owners

16

333

(5,706)

(5,357)







Balance at 31 March 2019

3,727

6,470

     (311)

6,824 

16,710 

 

 

APPRECIATE GROUP PLC

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR TO 30 SEPTEMBER 2019

 


Notes

Half Year 

to 30.09.19 

Half Year 

to 30.09.18 

Year to 

31.03.19 



£'000 

 £'000 

£'000 

Cash flows from operating activities





Cash (used in)/generated from operations

6

(20,261)

4,053 

6,874 

Interest received


888 

569 

1,497 

Tax paid


(1,606)

(786)

(1,576)

Net cash (used in)/generated from operating activities


(20,979)

3,836 

6,795 






Cash flows from investing activities





Purchase of intangible assets


(720)

(307)

(781)

Purchase of property, plant and equipment


(1,101)

(230)

(371)

Net cash used in investing activities


(1,821)

(537)

(1,152)






Cash flows from financing activities





Property receipt


360 

Payment of lease liabilities


(37)

Proceeds from exercise of share options


245 

345 

Dividends paid to shareholders


(5,769)

(5,307)

(5,668)

Net cash used in financing activities


(5,446)

(5,062)

(5,323)

Net (decrease)/increase in cash and cash equivalents


(28,246)

(1,763)

320 

Cash and cash equivalents at beginning of period


34,563 

34,243 

34,243 






Cash and cash equivalents at end of period


6,317 

32,480 

34,563 






Cash and cash equivalents comprise:





Cash


7,679 

34,544 

36,868 

Bank overdrafts


(1,362)

(2,064)

(2,305)



6,317 

32,480 

34,563 






 

 

APPRECIATE GROUP PLC

 

 

SEGMENTAL REPORTING

FOR THE HALF YEAR TO 30 SEPTEMBER 2019

 


Half Year 

to 30.09.19 

Restated* 

Half Year 

to 30.09.18 

Year to 

31.03.19 


£'000 

 £'000 

£'000 

Billings

 




Consumer

40,126 

35,682 

232,096 

Corporate

80,087 

73,282 

194,805 





Total billings

120,213 

108,964 

426,901 


 

 

 





Revenue

 




Consumer

8,926 

7,770 

58,886 

Corporate

24,304 

19,625 

51,508 





Total revenue

33,230 

27,395 

110,394 









Operating (loss)/profit

 




Consumer

(3,126)

(3,025)

6,809 

Corporate

2,742 

2,363 

7,789 

All other segments

(1,660)

(1,642)

(4,866)

Operating (loss)/profit

(2,044)

(2,304)

9,732 





*There has been a movement from the corporate segment to the consumer segment in respect of our website highstreetvouchers.com.  This movement amounted to £1,425,000 of billings, £985,000 of revenue and £60,000 of operating profit.

 

 

NOTES TO THE HALF YEAR RESULTS

 

(1) Basis of preparation

The financial information in this interim report has been prepared in accordance with the International Financial Reporting Standards as adopted by the EU and the AIM rules of the London Stock Exchange and on the basis of the accounting policies described in the Group's annual report and accounts for the year ended 31 March 2019, other than those in relation to leases, details of which can be found in note 2, and Assets held for Sale, details of which can be found in note 3.  These accounting policies have been based on the current standards and interpretations expected to be effective at 31 March 2020.  The Group does not expect there to be a significant impact on the results from standards, amendments or interpretations which are available for early adoption but which have not yet been adopted.

 

The financial statements have been prepared under the historical cost convention, as modified by the accounting for financial instruments at fair value.  In addition, this interim financial report does not comply with IAS34 Interim Financial Reporting, which is not currently required to be applied under AIM rules.

 

The Directors are of the opinion that the financial information should be prepared on a going concern basis, in the light of current trading and the forecast positive cash balances for the foreseeable future, taking into account reasonably possible changes in trading performance and customer behaviour.

 

The financial information included in this interim financial report for the six months ended 30 September 2019 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and is unaudited.  A copy of the Group's statutory accounts for the year ended 31 March 2019, on which the auditors gave an unqualified opinion and did not make a statement under section 498 of the Companies Act 2006, has been filed with the registrar of companies.

 

 

(2) New standards adopted by the Group

With effect from 1 April 2019 the Group has adopted IFRS 16, Leases which supercedes IAS 17:  Leases, IFRIC 4: Determining Whether an Arrangement Contains a Lease, SIC 15: Operating Leases - Incentives and SIC 27: Evaluating the Substance of Transactions in the Legal Form of a Lease.  The Group has applied a modified retrospective approach when transitioning to the new standard.  Under this approach, the cumulative effect of initial application of the standard is recognised at the date of adoption, ie 1 April 2019 and no restatements have been made in respect of prior periods. 

 

The Group is a party to lease contracts for, amongst others:

-       Office space; and

-       Plant and machinery.

 

Leases are recognised, measured and presented in line with IFRS16. The Group implemented a single accounting model, requiring the Group to recognise assets and liabilities for all leases, excluding exceptions listed in the standard.

 

Based on the accounting policy applied, the Group recognises a "right-of-use asset" (ROUA) and a Lease Liability (LL) at the commencement date of the contract for all leases conveying the right to control the use of an identified asset for a period of time. The commencement date is the date on which a lessor makes an underlying asset available for use by the Group.

 

The ROUAs are initially measured at cost which comprises:

-       The amount of the initial measurement of the LL;

-       Any lease payments made at or before the commencement date, less any lease incentives;

-       Any initial direct cost incurred by the Group;

-       An estimate of costs to be incurred by the Group in restoring the site on which the assets are located.

 

After the commencement date the ROUAs are measured at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the LL.

 

Depreciation is calculated using the straight line method over the estimated useful lives as follows:

 


Term in Years

-       Land and buildings

2-15

-       Plant and machinery

3 - 4

 

The Group depreciates the ROUA from the commencement date to the earlier of the end of useful life of the ROUA or to the end of the lease term.

 

The LL is initially measured at the present value of the lease payments that are not paid at that date. These include:

 

-       Fixed payments less any lease incentives received; and

-       Variable lease payments that depend on an index or rate, initially measured using the index or rate as at the commencement date; and

-       Amounts expected to be payable by the Group under residual value guarantees.

 

The lease payments exclude variable elements which are dependent on external factors such as periodic rent reviews. Variable lease payments not included in the initial measurement of the LL are recognised directly in the profit and loss.

 

The lease payments are discounted using the Group's incremental borrowing rate (2%) or the rate implicit in the lease contract.

The application of IFRS16 requires the Group to make judgments that affect the valuations of the LL, and the ROUA. These include determining contracts in the scope of IFRS16, determining the contract term and determining the interest rate used for discounting of future cash flows.

 

The lease term determined by the Group comprises:

-       Non-cancellable period of lease contracts; and

-       Periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option; and

-       Periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise that option.

 

After the commencement date the Group measures the LL by:

-       increasing the carrying amount to reflect interest on the LL; and

-       reducing the carrying amount to reflect lease payments made; and

-       Re-measuring the carrying amount to reflect any reassessment or lease modification.

 

The present value of the lease payment is determined using the discount rate representing the rate of interest of entities with a rating similar to the Group's rating, observed in the period when the lease contract commences or is modified.

 

ROUA







Land and buildings

Plant and equipment

 

Total



£'000

£'000

£'000

Cost





As at 1 April 2019


113

8

121

Increases


5,150

70

5,220

At 30 September 2019


5,263

78

5,341

Accumulated depreciation





As at 1 April 2019


-

-

-

Charge in period


133

6

139

At 30 September 2019


133

6

139

Net book amount





At 30 September 2019


5,130

72

5,202

 

The increase in property ROUA's in the period result from the lease of floors 3 and 4, 20 Chapel Street Liverpool. The increase in plant and machinery ROUA's in the period result from the leasing of fork lift trucks for our Valley Road warehouse facilities.

 

The cost relating to variable lease payments that do not depend on an index or a rate amounted to £Nil for the six months ended 30 September 2019. There were no leases with residual value guarantees or leases not yet commenced to which the Group is committed.

 

The expenses relating to leases for which the Group applied the exemption described in paragraph 5a of IFRS16 (leases with the contract term of less than 12 months) amounted to £10,152.  The expenses relating to leases for which the Group applied the exemption described in paragraph 5b of IFRS16 (leases for which the underlying asset is of low value) amounted to £627.

 

Reconciliation of operating lease commitments to leases initially recognised



Land and buildings

Plant and equipment

 

Total


£'000

£'000

£'000

Operating lease commitments at 31 March 2019

127

119

246

Lease payments made pre 31 March relating to post 31 March period

 

(12)

 

-

 

(12)

Value of future interest charges

(2)

-

(2)

Commitments recorded as at 31 March 2019 for which underlying assets were made available to the group subsequent to that date

 

 

-

 

 

(96)

 

 

(96)

Maintenance costs in lease commitments

-

(7)

(7)

Leases terminated post 31 March 2019

-

(8)

(8)

Leases initially recognised at 1 April 2019

113

8

121

 

 

Trade and other payables - lease liabilities








30.09.19



£'000




Short term lease liabilities (less than one year)



  Land and buildings


58

  Plant and machinery


25



83




Long term lease liabilities (more than one year but less than five years)


  Land and buildings


725

  Plant and machinery


47



772




Long term lease liabilities (more than five years)



  Land and buildings


4,494

  Plant and machinery


-



4,494




Net book amount



At 30 September 2019


5,349

 

 

Changes in Financial Liabilities







Land and buildings

Plant and equipment

 

Total



£'000

£'000

£'000






As at 1 April 2019


113

8

121

New leases


5,170

70

5,240

Interest accrued


25

-

25

Lease payments


(31)

(6)

(37)

At 30 September 2019


5,277

72

5,349

 

 

(3) Assets held for sale

On initial classification as held for sale, assets are measured at the lower of their present carrying amount and the fair value less costs to sell, with any adjustments taken to the profit or loss account.  These assets are not depreciated.

 

Assets are classified as held for sale when they satisfy the following criteria:

·      management is committed to a plan to sell

·      the asset is available for immediate sale

·      an active programme to locate a buyer is initiated

·      the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)

·      the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value

·      actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn


30.09.19


£'000

Property

4,966

 

Subsequent to a valuation of the Valley Road property conducted in early 2019 an assessment was made whether the property asset was an Asset held for sale at 31 March 2019. As the sale of the property was not highly probable within 12 months the property continued to be classified as a Non-current asset but was impaired to the level of the valuation. As at 30 September 2019 a reassessment of this position took place and as all of the above criteria have now been met an assessment has been made to transfer the property as an Assets held for sale.

(4) Taxation

The taxation credit for the six months to 30 September 2019 has been calculated using an overall effective tax rate of 19.0% which has been applied to the taxable income (half year to 30 September 2018 - 19.0%).

 

(5) Earnings per share

Basic earnings per share (EPS) is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

 

For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.

 

 

The calculation of basic and diluted EPS is based on the following figures:

 


Half Year 

to 30.09.19 

Half Year 

to 30.09.18 

Year to 

31.03.19 


£'000 

£'000 

£'000  

Earnings




(Loss)/profit before exceptional item

(1,037)

(1,236)

10,092 

Impairment of property, plant and equipment

(1,210)

Total (loss)/earnings for period

(1,037)

(1,236)

8,882 

 

 

 

 

Half Year 

to 30.09.19 

 

Half Year 

to 30.09.18 

 

Year to 

 31.03.19 

Weighted average number of shares




Basic EPS - weighted average number of shares

186,347,228 

185,709,925 

185,964,433 

Diluting effect of employee share options

112,540 

Diluted EPS - weighted average number of shares

186,347,228 

185,709,925 

186,076,973 





Basic EPS




Weighted average number of ordinary shares in issue

186,347,228 

185,709,925 

185,964,433 

EPS (p)

(0.56)

(0.67)

4.78 

Underlying basic EPS




Weighted average number of ordinary shares in issue

186,347,228 

185,709,925 

185,964,433 

EPS (p)

(0.56)

(0.67)

5.43 





Diluted EPS




Weighted average number of ordinary shares

186,347,228 

185,709,925 

186,076,973 

EPS (p)

(0.56)

(0.67)

4.77 

Diluted EPS




Weighted average number of ordinary shares

186,347,228 

185,709,925 

186,076,973 

EPS (p)

(0.56)

(0.67)

5.42 

 

 

(6) Reconciliation of net (loss)/profit to net cash (outflow)/inflow from operating activities

 


Half Year 

to 30.09.19 

Half Year 

to 30.09.18 

Year 

to 31.03.19 


£'000 

£'000 

£'000 

Net (loss)/profit

(1,037)

(1,236)

8,882 

Adjustments for:




Tax

(243)

(290)

2,422 

Interest income

(789)

(778)

(1,572)

Interest expense

25 

Research and development tax credit

(54)

Depreciation and amortisation

734 

675 

1,394 

Impairment of property, plant and equipment

1,210 

Impairment of goodwill

17 

Decrease in other financial assets

200 

200 

Increase in inventories

(15,878)

(14,788)

(766)

Decrease/(increase) in trade and other receivables

1,333 

284 

(1,589)

Increase/(decrease) in trade and other payables

93,378 

101,260 

(877)

Increase in provisions

8,071 

11,996 

10,274 

Increase in monies held in trust

(106,197)

(92,903)

(12,259)

Decrease/(increase) in retirement benefit asset

(326)

(215)

Translation adjustment

13 

(3)

Taxes paid on share-based payments

(116)

Share-based payments

125 

(41)

126 

Net cash (outflow)/inflow from operating activities

(20,261)

4,053 

6,874 

 

 

(7) Approval

This statement was approved by the board on 25 November 2019.

 

 

(8) Reports

A copy of this announcement will be available on the Group's website from today www.appreciategroup.co.uk and will be mailed to shareholders on or before 18 December 2019.  Copies will also be available for members of the public at the Company's registered office - Valley Road, Birkenhead CH41 7ED and also at the offices of the Company's registrars, Computershare Investor Services PLC, P O Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH.


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