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Joules Group plc   -  JOUL   

Annual Results - 52 weeks ended 26 May 2019

Released 07:00 23-Jul-2019

RNS Number : 3399G
Joules Group plc
23 July 2019
 

 

Joules Group plc

('Joules' or 'the Group')

 

Annual Results for the 52 weeks ended 26 May 2019 (the 'Period')

 

Continued growth across channels and product categories, both in the UK and internationally

 

 

Highlights:

 

52 weeks ended

 

26 May

2019

27 May

2018

 

Change

Group revenue

 

£218.0m

£185.9m

+17.2%

 

 

 

 

 

Underlying profit before tax1

 

£15.5m

£13.0m

+19.4%

Underlying pro forma basic EPS2

 

14.1p

11.8p

+19.4%

 

·    Group revenue increased by 17.2% to £218.0 million (up 16.8% in constant currency3)

·    Comparable revenue growth4 of approximately 13% - excluding impact of transition of wholesale accounts to retail concession model in the Period

·    International revenue increased by 43.5% (40.1% constant currency) - now represents 16.1% of Group revenue

·    Underlying profit before tax1 increased by 19.4% to £15.5 million

·    Statutory profit before tax increased by 14.9% to £12.9 million

·    Group gross margin declined 90 bps to 54.8%, in line with expectations

·    Underlying pro forma basic EPS2 increased by 19.4% to 14.1 pence, with statutory basic EPS up by 17.3% to 11.6 pence

·    Active customers5 increased by 8% to 1.5 million

·    Net cash of £5.8 million, an improvement of £5.8 million on the prior year

·    Final dividend of 1.35 pence per share proposed; FY19 total 2.1 pence per share (FY18: 2.0 pence per share)

 

Colin Porter, Chief Executive Officer, commented:

"Joules has delivered another strong performance this year with growth across channels and product categories, both in the UK and internationally. These results in a challenging retail sector reflect the strength and appeal of the Joules brand, the flexibility of our 'Total Retail' model, and the success of our carefully managed product extension strategy.

 

I would like to take this opportunity to extend my thanks to all members of the Joules team for their hard work during the Period. Their passion, expertise and commitment to delivering great products and experiences for our customers continues to drive Joules' growth and success.

 

We are pleased with the Group's performance to date in the early stages of our new financial year, with trading in line with our expectations.  Looking ahead, whilst the consumer retail environment is anticipated to remain challenging, particularly in the UK, the Board and I believe that Joules remains well-positioned for continued success both in the UK and our target international markets."

 

 

1.     Underlying PBT is a non-GAAP measure that, to facilitate meaningful comparison across periods, excludes the expense of share-based compensation plans.  A reconciliation to statutory PBT is shown below and further information is provided in the Financial Review.

2.     Underlying pro forma basic earnings per share ('EPS') excludes expense of share-based compensation plans and reflects a consistent tax rate across periods.  Further information is provided in the Financial Review.

3.     Constant currency comparatives apply a consistent exchange rate to the translation of financial results of overseas subsidiaries.

4.     Comparable revenue growth is a non-GAAP measure, to facilitate meaningful comparison across periods, given the conversion of two large UK wholesale accounts to the Retail concession model during the Period. The growth is based on the prior period being restated as if the retail concession model had been operated consistently across both periods.  Note, the restatement is unaudited and approximate.

5.     Customer registered on our database who has transacted in the last 12 months.

 

Reconciliation to statutory profit before tax:         

£MILLION

FY19

FY18

Underlying profit before tax

15.5

13.0

Share-based compensation

(2.6)

(1.8)

Statutory profit before tax

12.9

11.2

 

 

 

 

Enquiries:

 

Joules Group plc

Tel: +44 (0) 1858 435 255

Colin Porter, CEO

Marc Dench, CFO

 

Hudson Sandler (Financial PR)

Tel: +44 (0) 20 7796 4133

Alex Brennan

Lucy Wollam

 

Peel Hunt LLP, Nominated Advisor and Joint Broker

Tel: +44 (0) 20 7418 8900

Dan Webster

George Sellar

Guy Pengelley

 

Liberum Capital Limited, Joint Broker

Tel: +44 (0) 20 3100 2000

John Fishley

Edward Thomas

 

 

 

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

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

The Joules story began in 1989, when Tom Joule started selling clothing on a stand at a country show in Leicestershire. Today, it is a true multi-channel lifestyle brand; its products are available through its e-commerce websites, retail stores, at rural shows and events and wholesale channels both in the UK and internationally. 

Joules carefully designs and sells clothing, footwear and accessories for women, men and children, as well as ever-growing homeware, eyewear and licensed product collections. 

The brand's values of quality, Britishness, family and humour, coupled with its unique use of colour and print set Joules apart. This approach, along with an unwavering attention to detail and drive to surprise and delight its customers with unexpected details, has been central to the brand's success and remains at the heart of everything Joules creates. 

During 2019 the brand is celebrating its 30th birthday, marking three decades of Joules delivering fun, quality clothing for families and friends to make lasting memories together. The brand has some very exciting celebrations planned throughout the year, built around the special moments shared with its customers since the Joules story began back in 1989. 

www.joules.com  |  www.joulesgroup.com  

Joules Fast Facts 

·      Joules is an international brand, available in the UK, USA, Germany, France and other European markets

·      Joules has a significant online business, operates across 125* stores in the UK and ROI across a range of location types, and has a well-established wholesale business with over 2,000 stockists worldwide, including John Lewis and Nordstrom

·      Joules' talented in-house print design team lovingly hand-draw all the prints and unexpected  unique details you see within its collections each season 

·      Joules is proud of its British heritage and still has strong roots in Market Harborough, the site of its first shop and head office - since day one 

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

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

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

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

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

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

   

*As at 26 May 2019, excluding concessions (34 concessions)

 

 

 

 

CHAIRMAN'S STATEMENT

 

INTRODUCTION

It gives me great pleasure to provide my first Chairman's Statement since joining the Group at the beginning of August 2018.  I have thoroughly enjoyed working with the Joules team over the last 12 months and I share the Board's excitement about the significant future growth opportunities for the Joules brand.

The FY19 financial period has been another year of strong growth and strategic progress for Joules.  The Group has continued to expand the brand across distribution channels and product categories, with particularly good progress made in our international markets and digital sales.

 

STRATEGIC PROGRESS

Since the Group's admission to AIM in May 2016, the retail sector, particularly in the UK, has been incredibly dynamic.  The continued growth of online shopping, in combination with a prolonged period of consumer uncertainty, has driven significant challenges and changes across the sector.  Against this backdrop, the Group has delivered impressive growth and demonstrated outstanding progress against its ambitious strategy by becoming an increasingly international lifestyle brand operating seamlessly across sales channels with a significantly larger customer base.  The Group's achievements, despite the challenges in the retail sector over recent years, speak volumes about the strength of our much-loved brand, the flexibility and adaptability of our business model, and the talent, skill and passion of our people.

 

The Group has a consistent strategy for the continued growth of the Joules brand which is expanded upon in the Chief Executive's review of this Annual Report.  This strategy is built on four key pillars: increasing customer value; expanding brand sales in the UK market through appropriate channels; developing the brand in targeted international markets; and expanding the product range into new areas that are appropriate for Joules.  I am pleased to report that the Group has made good progress in each of these areas during the Period.

 

FINANCIAL RESULTS & DIVIDEND

Group revenue for the 52 weeks to 26 May 2019 (the 'Period') increased by 17.2% to £218.0m (FY18: £185.9m), reflecting growth across all product categories with a strong performance in the core Womenswear category and positive further development of our Accessories and Footwear categories.

 

The Group continued to expand in its target international markets, primarily the US and Germany, with sales from outside the UK growing by 43.5% to represent 16.1% of Group revenue (FY18: 13.1%).

 

The Group continued to benefit from its flexible and integrated 'Total Retail' model as well as a steadfast focus on delivering a seamless and enjoyable experience to customers, irrespective of how, when and where they choose to shop the Joules brand.  E-commerce again performed particularly well, growing by 58% to represent approximately half of the Group's retail revenue. 

 

Underlying profit before tax increased by 19.4% to £15.5m, and basic underlying EPS was 14.1 pence per share (FY18: 11.8 pence).  Statutory profit before tax increased by 14.9% and Statutory EPS was 11.6 pence per share (FY18: 9.9 pence).

 

The Board has proposed a final dividend of 1.35 pence per share which, if approved at the shareholders' AGM, will take the dividend for the full year to 2.1 pence per share (FY18: 2.0 pence).

 

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

 

BOARD CHANGES

In April 2019, Colin Porter informed the Board of his intention to retire following eight years in the business, the past five of which have been as Chief Executive Officer.  Colin has been an outstanding leader at Joules since joining the business in 2010.  During his tenure, Joules has achieved significant growth both in the UK and internationally and developed into a true lifestyle brand with appeal across channels and product categories.

 

At the same time, the Board was delighted to announce the appointment of Nick Jones as the Group's next Chief Executive Officer.  Nick will be joining the Group from Asda where he has been a member of the Executive Board.  The Board was extremely impressed by Nick's extensive retail, brand and strategy credentials which, in combination with his clear alignment to the Joules values, made him the outstanding candidate for the role.  Nick will be joining the Board on 2 September 2019 and, following a handover period to ensure a smooth transition, Colin will then step down.

 

OUR TEAM

When I joined the Joules team, I was immediately struck by the skill, energy, creativity and passion of our people across the Group.  Joules' teams around the world remain key to the Group's ability to grow and prosper in this dynamic retail environment.  I would like to take this opportunity to thank all colleagues across the world for their fantastic efforts throughout the year. 

 

OUTLOOK

We are pleased with the Group's performance to date in the early stages of our new financial year, with trading in line with our expectations.  A major focus for the Group in the year ahead will be on continuing to expand the brand in our targeted international markets, through our wholesale and digital sales channels.  In addition, we have an exciting pipeline of new products, partnerships and initiatives to expand the brand into new categories.

 

The Joules brand is highly distinctive and offers a unique product proposition that is truly aligned to our customers' lifestyles.  The development of our entire brand proposition - from our products and marketing to the customer experience across channels - will remain critical to ensuring that Joules continues to exceed the expectations of our growing and loyal customer base however they choose to engage with our brand.

 

The challenges facing the wider UK retail sector are well documented and we anticipate that they will persist, as macroeconomic uncertainty, due in part to the ongoing possible exit of the UK from the EU, continues to weigh on consumer confidence, resulting in a highly promotional and competitive environment.  Our contingency plans for the eventuality of a 'hard Brexit' are in place and have progressed over the year.  Joules remains well positioned to continue to deliver against its strategic growth objectives, with a distinctive brand loved by our customers, great products, our flexible and integrated 'Total Retail' model accessing multiple routes to market, all supported by a well invested infrastructure and outstanding team.

 

 

 

CHIEF EXECUTIVE'S STRATEGIC REPORT

 

INTRODUCTION

I am pleased to report that during FY19 Joules has continued to make very good progress against its strategic objectives.  The Group has delivered growth across channels and product categories, both in the UK and internationally.  This performance, achieved against a backdrop of particularly challenging external trading conditions in the UK market, reflects the appeal of the Joules brand, the flexibility of our 'Total Retail' model, and the success of our continued international expansion.

 

THE JOULES BRAND

The Joules story began in 1989, when Tom Joule started selling clothing on a stand at a country show in Leicestershire.  Today, it is a true multi-channel lifestyle brand with products available online, through our own retail stores, at country shows and events, and through wholesale partners both in the UK and internationally.  In 2019, Joules is celebrating its 30th birthday, marking three decades of Joules delivering fun, quality clothing for families and friends to make lasting memories together.  The brand is enjoying some exciting celebrations throughout the year, built around special moments shared with our customers since the Joules story began.

 

Our in-house creative team take inspiration from nature and the changing British seasons to design clothing and accessories that enable our customers' lifestyles, come rain or shine.  We stand out with our unique use of colour and print, with all our distinctive designs hand drawn by our in-house team.  This approach, along with a relentless attention to detail and drive to surprise and delight customers with unexpected details, has been central to the brand's success and remains at the heart of everything Joules creates.  The essence of the Joules brand is all about connecting with life's happy feelings and embracing quality time by doing the things we love with the people who matter.  This approach and these values continue to enable Joules to develop into new product categories through our own collections and carefully selected licensing partnerships.

 

Nurturing and expanding a strong brand that has real connection with customers remains critical in a challenging, competitive and dynamic retail sector.  We continue to invest in our marketing and brand, with a particular focus on our digital channels, to continue to strengthen awareness of what Joules stands for and ensure consistency of brand experience across all customer touch points.

 

We were delighted that the brand's continued success was recognised at the 2018 Drapers Awards, where the business won the Fashion Retail Business of the Year (between £101m-£500m turnover) for a second time.  The business also won two further accolades at the Brand & Lifestyle Licensing Awards, where Joules took home the Best Licensed Fashion or Talent Brand award, and our Joules gifting range was recognised by winning the Best Licensed Gifting Product Award.  For a second year running, Joules also received a Mark of Excellence within The Best Fashion Retailer category at the Retail Week Awards.

 

OUR BUSINESS MODEL - A TRULY MULTI-CHANNEL BRAND

Joules has been developed as a truly multi-channel business, with our carefully nurtured brand at the heart of everything we do.  We distribute our products to customers seamlessly across multiple channels, enabling customers to engage with and shop the brand wherever, whenever and however they choose.

 

At the core of our multi-channel model is our 'Total Retail' platform, which provides a fully Joules-branded customer experience across our fast-growing e-commerce platform; our portfolio of stores and concessions; country shows and events; and, more recently, a range of selected online marketplaces.  In addition, and to further support our goal of ensuring the brand is present wherever our customers spend their time, we have a large network of wholesale customers in the UK and internationally.   The Joules brand is also increasingly available through the online, store and wholesale channels of our brand licence partners.  This flexible and integrated approach balances the Group's exposure to any single route to market, with e-commerce sales now representing approximately 50% of retail sales.

 

As the retail market continues to evolve, the lines between physical and digital commerce are becoming increasingly blurred.  The Joules e-commerce and in-store propositions are converging and the development of these channels as part of an integrated, consistent and customer focused proposition is central to our growth strategy and continues to be reflected in our infrastructure investments.  In what is set to remain a highly dynamic, competitive and increasingly digital-led retail environment, we believe the flexibility of our 'Total Retail' approach will remain critical to Joules' future growth and success. 

 

OUR GROWTH STRATEGY

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

1.      INCREASING CUSTOMER VALUE

Increasing customer value means two things for Joules: firstly, growing our active customer base and, secondly, increasing those customers' frequency of interaction and spend with the brand.  Our goal is to increase awareness of the Joules brand amongst potential customers and for customers who are aware of our brand to allocate more of their clothing, footwear, accessories, home and gifting spend to our unique Joules-branded products.   We do this by providing fantastic quality products and enjoyable experiences across all distribution channels, as well as relevant, authentic and targeted customer communications. 

2.      DRIVE TOTAL UK BRAND SALES

We aim to grow sales of Joules products in the UK by increasing availability and accessibility across existing and emerging distribution channels.  Our goal is to make it easy for our customers to discover, be inspired by, purchase, receive and, if necessary, exchange or return, our products.  We achieve this by being available to our customers however they wish to engage with our brand, including being located where our customers choose to spend their time.  Our priorities are:

 

'TOTAL RETAIL'

Our Joules branded retail proposition spans e-commerce, stores, country shows and events and online marketplaces.  Our 'Total Retail' proposition is delivered through both owned and third-party platforms including concessions and marketplaces.

 

E-commerce - is a fast-growing and evolving channel for Joules.  We expect to continue to increase the mix of e-commerce sales as a proportion of our total retail sales through ongoing enhancements to the customer journey, proposition and engagement, delivered through our e-commerce platform and enhanced Customer Data Platform.

Stores - Joules operates a portfolio of stores across the UK that enables our customers to shop and interact with the brand.  As well as being important sales channels, our increasingly digitally enabled stores offer valuable touch points to showcase the brand to both existing and potential customers.  We believe that this integrated 'Total Retail' approach is critical in the evolving and competitive UK retail market.

Country shows and events - Joules has a strong brand presence at a wide range of country shows and events across the UK.  The channel continues to be an important part of the Joules heritage and provides real customer connectivity.

Marketplaces and concessions - we continue to leverage our wholesale capabilities and relationships to support emerging new retail channels such as online marketplaces and 'fulfilled by' models that offer new routes to reach our target customer base in the UK and internationally, as well as supporting the more traditional concession model.

WHOLESALE
We continue to broaden the reach of the Joules brand through selected wholesale partners that are closely aligned with our brand values and product categories - including specialist independents, department stores, destination lifestyle retailers, subscription services and online retailers.  Wholesale is an important capability that facilitates our international growth strategy.

3.      INTERNATIONAL EXPANSION

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

Our international wholesale model provides us with multiple routes to attract and engage with potential and existing customers, through online retailers, independent stockists, department stores and subscription models, supported by our capability to manage the newer marketplace and 'drop ship' models.  We continue to evaluate new markets to expand the brand through the most appropriate channels.

4.      PRODUCT EXTENSION

The strength of the Joules brand and our understanding of, and connection with, our customers mean that Joules-branded products can extend into new areas to meet many of their lifestyle needs.  Joules has successfully extended the product offer within existing and into new product categories.  We are focused on continuing to expand carefully into new product categories that are appropriate for the development of the Joules brand both organically and by working with selected licence partners, with particular focus on home and gifting categories and products that are complementary to our clothing ranges.

Product extension through licensing also drives brand awareness and new customer growth by presenting our brand where our current and potential customers like to spend their time, leveraging the attractive distribution provided by our selected licence partners.

  

STRATEGIC PRIORITIES AND DEVELOPMENTS IN FY19

See below for assessment of key challenges in executing strategy

Increasing customer value

·    Launched new Customer Data Platform at the end of the Period, which will enable targeted relevant communication to improve customer engagement and retention

·    Investment into digital and social media capabilities

·    1.5 million active customers at the end of the year with c.700,000 new customers acquired during the year

·    Increased frequency of purchase and higher average customer spend

·    Increasing proportion of multi-channel customers and customers buying multiple categories

·    Over 530,000 Facebook followers and over 240,000 Instagram followers with high levels of daily engagement

·    30th Birthday campaigns, centred on customer generated content, have delivered strong response and engagement

Key challenges in executing strategy (see next section): 3, 5 and 6

 

Drive total UK brand sales - 'Total Retail'

·    Continued investment in the e-commerce platform and customer proposition

·    E-commerce now approximately 50% of retail sales

·    John Lewis womenswear and Next Label successfully converted from wholesale to retail concession model

·    Six net new store openings in desirable locations

·    Approximately 20% of store transactions now directly support a digital sale (e.g. click & collect, order in store)

·    Increased mix of online and lifestyle wholesale partners

Key challenges in executing strategy (see next section): 1, 2, 3, 5 and 6

 

International expansion

·    International now represents 16.1% of total Group revenue (FY18: 13.1%)

·    Further expansion in US and Germany through wholesale and e-commerce

·    US wholesale growth with existing partners such as Dillard's, Neiman Marcus and Bloomingdales and addition of online and subscription partners such as Stitch Fix

·    Germany wholesale continues to grow through independent accounts and online partners

·    International e-commerce platform (rest-of-world) enhanced with localised payment and fulfilment options driving improved conversion

·    Middle East franchise agreement - first store in Dubai (Autumn 2019)

Key challenges in executing strategy (see next section): 2, 4, 5, and 6

 

Product extension

·    Licensing revenue up 147% to £1.8m, with brand retail sales value of over £25m

·    Joules toiletries and gifting range successfully further developed and extended in the Period

·    Continued strong performance of the Joules sofa range - new and extended ranges

·    New categories launched, including dog pet products, gifting and men's formalwear

Key challenges in executing strategy (see next section): 1, 5 and 6

 

Key challenges

The Board's assessment of the main challenges in the successful continued delivery of our strategic priorities is summarised below.   A comprehensive summary of the key risks facing the Group is provided in the Principal Risks & Uncertainties section of this Annual Report.

1.    UK macroeconomic uncertainty, due in part to the ongoing potential exit of the UK from the EU, may adversely impact consumer confidence and spending on discretionary items thereby impacting the Group's ability to drive increased brand sales in the UK.

We manage macro-economic challenges by delivering distinctive and high-quality products that represent outstanding value for money and evolving our distribution channels to continue to reach new and retain existing customers.

2.    Structural changes are impacting the retail and clothing sector, resulting in a very competitive and promotional environment and an increasing shift away from physical retail.

We navigate the structural changes and competitive environment through our product focus (described above) and our flexible 'Total Retail' model that allows Joules to adjust to changing shopping behaviours and enables customers to engage with the brand however they choose to shop.

3.    Emergence of new competitors and moves by existing competitors who may seek to replicate our success by targeting our segment of the market or imitate our model.

We closely monitor the competitive landscape; our primary focus is on maintaining our close and engaging connection with our customers and continuing to evolve the Joules offering with new, distinctive products and collections.

4.    International markets each have their own distinctive dynamics, competitive and regulatory landscapes and consumer preferences.  Global trading and product flow are increasingly volatile with uncertainty on tariff structures, import restrictions and currency volatility.

The flexibility of the Joules model enables the Group to develop new markets with a low risk, low investment approach.   We seek to manage global trading risks by closely monitoring for potential changes and planning our pricing, sourcing and logistics strategy appropriately.  Foreign currency transaction risks are hedged in line with the Group's policy.

5.    Extending the Joules brand into new areas and with new partners presents a potential risk of brand dilution or reputational damage.

We only take the brand into new areas, and work with new partners, that are appropriate and additive for Joules and our customers.  We select partners who share our values, vision and integrity to ensure that all products meet the quality and design standards associated with and expected of our brand. 

6.    Increased understanding and awareness of the direct and indirect environmental impacts of the fashion industry is driving a significant shift in consumer expectations for increased transparency and commitments to sustainable supply chains from the brands with which they engage.

The Joules brand is rooted in the British countryside and our 'Responsibly Joules' approach is central to how we work across our business.  Our commitment, focus and achievements are set out on www.joulesgroup.com.

 

Key Performance Indicators (KPIs)

The Group's KPIs have been selected based on their link to the successful delivery of our strategy.  They are monitored by the Board on a regular basis.

Strategic KPIs

FY19 KPIs

 

 

Online % of Retail

FY15: 30.6%

FY16: 32.1%

FY17: 34.8%

FY18: 38.4%

FY19: 49.5%

Number of stores1

FY15: 86

FY16: 92

FY17: 105

FY18: 119

FY19: 125

Total selling space ('000 Sq. ft.)

FY15: 96

FY16: 107

FY17: 132

FY18: 159

FY19: 175

International as % of total revenue

FY15:  9.1%

FY16: 10.1%

FY17: 11.5%

FY18: 13.1%

FY19: 16.1%

Active customer numbers ('000)2

FY15: N/a

FY16: 889

FY17: 1,037

FY18: 1,352

FY19: 1,456

 

 

1 Excludes concessions and franchise stores; 34 concessions operated at May 2019 (5 at May 2018 and in all previous years) and 3 franchises.

2 Customer registered on our database who has transacted in the last 12 months.

 

 

Financial KPIs

Our financial KPIs are:

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

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

·    Underlying EBITDA margin - how effective we are at leveraging our cost base and infrastructure

·    Return on Invested Capital ('ROIC') - how we are managing working capital and growth capital investments

 

Revenue by channel3 £m

Retail - E-commerce

FY15:  £25.8m⁴

FY16:  £30.1m

FY17: £38.9m

FY18: £49.8m

FY19: £78.7m

Retail - Stores

FY15:  £52.4m⁴

FY16:  £58.2m

FY17: £68.3m

FY18: £75.0m

FY19: £74.9m

Wholesale

FY15: £31.6m⁴

FY16: £37.2m

FY17: £44.7m

FY18: £55.5m

FY19: £57.1m

 

Group gross margin

FY15: 53.3%

FY16: 53.5%

FY17: 55.4%

FY18: 55.7%

FY19: 54.8%

Underlying EBITDA5 margin

FY15:   9.0%

FY16: 10.3%

FY17: 10.8%

FY18: 11.3%

FY19: 10.8%

Return on Invested Capital (ROIC)6

FY15: 21.6%

FY16: 29.8%

FY17: 39.4%

FY18: 34.1%

FY19: 30.5%

 

3 Revenue by channel excludes Shows (Retail) and Licensing (Other).  FY19 is impacted by the transition of two large wholesale accounts to the retail concession model.

4 FY15 was a 53-week period.

5 Underlying EBITDA is a non-GAAP measure and excludes the expense of share-based compensation plans which is non-comparable across periods, to facilitate more meaningful comparison.  Further information is provided in the Financial Review.

6 Return on Invested Capital ('ROIC') is calculated as underlying operating profit after tax divided by average invested capital, with capital employed equal to fixed assets plus net working capital. 

 

BUSINESS REVIEW

 

INTRODUCTION

During the year we successfully transitioned our wholesale accounts with John Lewis womenswear and Next Label to the retail concession model that provides us with greater control over brand execution, product assortment and trading flexibility.  For comparative purposes, the summary below provides the approximate segment revenue growth as if the retail concession model was in place in the prior period. 

 

RETAIL: SUCCESSFUL 'TOTAL RETAIL' MODEL

Our 'Total Retail' model enables Joules to meet evolving customer expectations and behaviours.  Our model provides customers with a seamless online/in-store experience including services such as Click & Collect and Order-in-Store fulfilment options, easy in-store returns and exchanges for e-commerce orders and consistent cross-channel communications and promotions.  We have seen an increasing number of in-store transactions directly supporting our customers' digital sales journey, helped by our store colleagues and systems that fully enable a seamless cross channel experience for customers.

 

Retail revenue, which includes e-commerce, stores and shows, increased by 22.7% during the year to £159.1 million (FY18: £129.7m) on a reported basis.  On a comparative basis, excluding the retail concession transition, Retail revenue increased by approximately 10%.  This underlying growth was driven by e-commerce.

 

E-commerce revenue increased by 58.1% to now represent 49.5% of total retail revenue (FY18: 38.4%).  Growth benefitted from the transition of Next Label and John Lewis womenswear to the retail concession model.  Underlying growth from our owned e-commerce sites in the UK and internationally was very strong in the Period, reflecting the impact of our customer acquisition and retention activity, improvements in our e-commerce platform as well as the sector-wide shift from physical retail to digital.  During the Period we continued to invest to enhance the online and 'Total Retail' experience for our customers including new payment options, improved search functionality, product merchandising, logistics and cloud hosting.  We also improved the platform for our international customers, outside of the core US and German markets, with the introduction of local payment and fulfilment options.  These enhancements, combined with ongoing developments to targeted and personalised customer communications and marketing, have helped us to drive increased website traffic and improve conversion rates.  Mobile continues to be the most important e-commerce channel for our customers, with traffic from a mobile device (including tablets) representing over three quarters of total traffic.   

 

During the year we opened six net new stores to close the year with 125 stores across the UK and ROI (FY18: 119 stores).  We converted our John Lewis womenswear account to the retail concession model in the first half of the year.  We now operate 34 concessions (FY18: 5).  Our stores continue to play an important role in our 'Total Retail' model, driving awareness of and showcasing the Joules brand, providing great service to support the way a customer chooses to shop our brand - be it online or in-store, as well as being important sales channels in their own right.

 

The average payback on new stores, opened for more than one year, continues to be well within our appraisal threshold of 24 months, with 95% of our stores delivering a positive profit contribution based on store sales alone, and all stores delivering a greater contribution when the value of digital transactions and customer acquisition is taken into account.

 

We evaluate the shape, locations and size of our stores and concessions portfolios as part of our 'Total Retail' model given the increasing customer shift towards e-commerce.  Going forward, we will continue to carefully appraise new openings in attractive locations that are appropriate for our brand and product range, as well as selected relocations of existing stores to new sites.  We continue to actively manage our store portfolio, taking opportunities to relocate and renegotiate terms; we also have a short and decreasing store lease length, now at an average c3.5 years to lease break, enabling flexibility in our portfolio.

 

WHOLESALE: GROWTH DRIVEN BY FURTHER INTERNATIONAL EXPANSION

Underlying wholesale growth, adjusting for the transition of John Lewis womenswear and Next Label to the retail concession model, was approximately 22%.  On a reported basis, including the impact of this transition, wholesale revenue increased 2.8% to £57.1m (FY18: £55.5m)

UK wholesale performed to our expectations, with the addition of several new accounts that have further evolved the mix of our UK wholesale business away from traditional department stores towards online multi-brand and lifestyle destination retailers, subscription models and stockists located where our customers choose to spend their time.

 

Our primary international markets of the US and Germany saw strong growth, reflecting the strength and growing appeal of the Joules brand. 

 

INTERNATIONAL

International revenue increased by 43.5% to £35.1 million (FY18: £24.4m), now representing 16.1% of Group revenue (FY18: 13.1%).  This growth is testament to our focused strategy to establish and grow the Joules brand in selected international markets, primarily the US and Germany, through wholesale partnerships and e-commerce channels.

 

Continued wholesale growth with an increasing number of international partners was supported by strong e-commerce performance in the Period reflecting effective, increasingly localised digital marketing activities as well as growing awareness of the Joules brand.

 

In the US, we doubled the size of our trade showroom in New York due to the increased interest in the Joules brand and product ranges and further strengthened the local team.  Our proven expansion strategy of both deepening category penetration and developing new categories with existing partners as well as extending our brand presence with new wholesale partners continued to be effective during the year.  We benefited from the first full year of trading with Dillard's following the launch of womenswear in the prior Spring/Summer season, piloted a 'drop ship' model with Nordstrom - allowing us to broaden the online range of Joules products listed - and continued to add new accounts including Stitch Fix, the fast-growing clothing subscription service.  Our wholesale partnerships are evolving, reflecting changes in consumer shopping behaviours.

 

In Germany, we continued to perform well in the independent stockist channel, serviced through our highly valued network of local sales agents.  In the year, we focused on developing partnerships with online retailers and marketplaces, including integrating with Zalando's Partner Programme, initially launching with a limited range on their platform.  

 

Whilst the Group will remain firmly focused on developing the Joules brand and achieving our potential in the significant US and German markets, the brand's international success has given the Group additional confidence to explore measured expansion into new international markets. 

 

During the year, we established a franchise agreement for Joules stores in the Middle East region, with the first franchise store due to open in Dubai in the Autumn.  We believe that the Joules brand will resonate well in the Middle East market and have teamed up with an experienced partner with extensive local market expertise to explore the potential opportunity.

 

DEVELOPMENT AS A LIFESTYLE BRAND

Joules continues to expand as a lifestyle brand by driving growth in its core categories and expanding into new product areas.  During the Period, Joules delivered sales growth across all product categories with a particularly good performance in the core Womenswear category with strong customer demand for Joules dresses, tops, outerwear and knitwear.  The Accessories category achieved impressive growth and Joules Footwear continued to be well received by our customers with our famous wellington boot ranges remaining popular, whilst our extended footwear range continued to perform well with positive customer reactions to our expanded casual shoes and boots collections.

 

We extend our product offer into core categories where the brand is relevant to our customer base.  In the year we saw developments within women's knitwear, leather bags and casual footwear, as well as extension within already popular ranges.   We carefully manage the overall size of our global product catalogue, ensuring an appropriate level of new and continuity products, as well as diligently removing options each season.

 

We also develop the brand through entering new product categories that are relevant to our customers' lifestyles by partnering, typically on a licence basis, with carefully selected businesses that align to Joules' values.  We take a very disciplined approach to establishing partnerships that we then develop over several years whilst managing a pipeline of attractive new categories and partners.  Our focus is on home and gifting categories and products which complement our clothing ranges.

 

Our existing partnerships performed well during the year.  The Joules sofa range, launched in partnership with DFS during the prior year, has performed very well and is now available in 60 DFS stores across the UK and online.  The range has developed with new sofa styles, chairs and the successful addition of a Joules bed.  Our toiletries and gifting range developed with Boots performed well amongst both Boots and Joules customers, with continued expansion of both the range and offering.

 

During the year we expanded into new categories including distinctive Joules DAB radios, Joules watches, stationery and gifting and, just before the end of the year, an enhanced range of dog pet products that will be available online, in Joules stores and across a wide range of pet retailers in the UK.

 

Since the year end, we launched a men's formalwear range in partnership with Next, with a collection comprising suits, jackets, shirts, ties, pocket squares and shoes.  Each item in the collection features Joules distinctive designs and attention to detail with classic British tweeds and tailoring, reflecting the heritage of the Joules brand being rooted in the British countryside.

 

CUSTOMER COMMUNITY AND CONNECTIVITY

Joules has a loyal, growing and engaged customer base.  Active customers (those on our database who have transacted in the last 12 months) increased to 1.5 million, up 8% on last year, with this increase being driven by both new customers to the brand and retention of existing customers.

 

New customers discover and engage with the Joules brand through our digital and social media marketing activity which typically drives a customer's first purchase through our website.  Our stores also play an important role, being in great locations for attracting 'new to brand' customers.  The average marketing cost of customer acquisition was maintained at the same level as the prior year.

Customer retention is first and foremost the result of providing customers with distinctive, high quality products and a great experience, however they choose to engage with the brand.  This is supported by effective targeted marketing campaigns.

 

At the end of the Period we went live with a new Customer Data Platform that provides our teams with enhanced customer insight capability that in time will allow even more targeted, relevant and personalised communication with our customers.

 

Our current and future customers are increasingly using social media platforms as their reference for inspiration, to engage with brands and to initiate a purchase.  The Joules brand, with its unique colours and prints, surprising details on products and sense of fun, is well positioned for social media channels.   During the year we increased our investment in this area, across our in-house team and our photography and digital media content creation capability.  This investment, which we anticipate will increase in the coming years, has already delivered promising results with brand followers increasing across the main social media platforms and, importantly, strong growth in engagement with our content.

 

At the end of the year we have over 530,000 Facebook and over 240,000 Instagram followers, with these communities demonstrating high levels of monthly engagement. 

 

Partnerships with brands that have similar values to Joules and that resonate with our customers are an important part of our marketing activity.  During the year we partnered with the Woodland Trust for the 'Let's Explore' partnership, the aim of which was to raise awareness of the importance of creating and protecting the great British woodland.  With the Woodland Trust we created a children's activity booklet which contained fun facts, a checklist and fun recipes for little woodland explorers to keep busy during half term.

 

We also partnered with Holiday Cottages, leveraging our growing range of lifestyle products to furnish twenty staycation properties across the UK with Joules distinctive homeware products - this initiative highlights the strength and scope of Joules as a lifestyle brand.

 

To celebrate our 30th birthday we've partnered with Lunar Caravans to bring our customers an incredible opportunity to win a Joules Campervan, worth over £50,000.  With a high-profile launch of the competition in Joules' heartland, Badminton Horse Trials, we have seen one of the fastest rate of entries ever - further demonstrating our understanding of the Joules customer and the broad appeal of our brand.

 

As Joules entered its 30th year, the business has celebrated each month with social media and in-store campaigns that engage both loyal customers and potential new customers.  Whether it is sharing photos of themselves in some of Joules' earliest products that have stood the test of time or taking part in our #JoulesMakingMemories year-long user-generated content campaign, the response from our highly engaged customers has been fantastic, with over 12,000 image submissions to date. The birthday festivities are set to continue throughout the year, as we celebrate Joules' heritage and bright future and highlight our continuous commitment to getting families outdoors to enjoy the great British countryside.

 

INVESTING IN LONG TERM GROWTH

To support the Group's long-term growth plans, we continue to invest in our e-commerce proposition, stores, infrastructure, systems and people.

 

During the year we migrated our e-commerce platform to a cloud hosted platform to increase site performance and reduce downtime.  We also upgraded our payment service provider solution and implemented several enhancements to the customer proposition that make our websites easier for browsing, searching and transacting.  We continued to invest selectively in our logistics and supply chain function in support of our growing e-commerce business and to meet customer expectations.

 

FY19 was the first full year of operating our new group-wide ERP system, Microsoft Dynamics AX, which was implemented to streamline and simplify business processes and facilitate the international growth of the business across multiple sales channels.  We have seen the early benefits from the migration to the new system and expect these to increase in future years.

 

As part of our 'Total Retail' model we started the development of a new integrated point-of-sale platform, that we expect to be deployed to stores during FY20.  This new platform enables seamless integration between the online and in-store experience as well as providing many operational benefits for our store-based colleagues.

 

We migrated to a new Customer Data Platform just prior to the year end, providing our teams with an increased level of customer insight and ability to plan more targeted, relevant and personalised communications in the future.

 

In January 2019, we commenced the development of our new head office in Market Harborough following the acquisition of the freehold site in FY18.  We anticipate moving in during Summer 2020 and are excited at the opportunities that will flourish for our head office teams from a more flexible, modern working environment that better reflects our brand and our values.

 

PEOPLE

The skill, passion and creativity of the Joules team remain critical to the brand's continued growth and success. I would like to take this opportunity to thank all my colleagues around the world for their dedication and hard work during the year.

 

We remain committed to investing in the skills and development of our people across the business, with the aim of making our customers' experiences with Joules the very best they can be.

 

This is my final report to shareholders in my role as Chief Executive Officer of Joules, prior to my retirement.  Since joining Joules in 2010 the company has grown significantly, and the brand has gone from strength to strength.  Above all else, this progress reflects the talent and commitment of the entire team across the business.  It has been, and continues to be, a tremendous pleasure to work as part of a Joules team that is so passionate about serving our amazing community of customers.

 

In Nick Jones, the Board has found an outstanding candidate to lead Joules through the next exciting stages of its growth and development.  I am looking forward to working closely with Nick to ensure a smooth transition. 

 

Joules has come a long way in the past 30 years since Tom started selling clothing in the fields of Great Britain to develop into an outstanding international, lifestyle brand. Whilst the Joules journey so far has been exceptional, I am extremely confident that the best is still to come.

 

 

 

FINANCIAL REVIEW

 

PROFIT BEFORE TAX - UNDERLYING AND STATUTORY

Underlying profit before tax ('PBT') increased by 19.4% to £15.5 million (FY18: £13.0m).  Statutory profit before tax increased by 14.9% to £12.9 million (FY18: £11.2m).

 

UNDERLYING AND STATUTORY RESULTS

Certain items have been excluded from the underlying results reported in the front section of this Annual Report.  In the Period and prior period, these solely relate to the cost of share-based compensation.  These adjustments are intended to provide the reader with a more meaningful year-on-year comparison.

 

Executive and employee share-based compensation plans were established at the time of the IPO, in May 2016.  In accordance with IFRS 2, the non-cash expense related to awards under the share plans is accounted for within administrative expenses over the period until the shares are exercised, typically assumed as three years.   Awards under these plans were made in FY17, FY18 and FY19.  As the share plan award cycle matures over the first three years, the related expense is anticipated to increase each year.   The associated income statement expense of £2.6 million in the Period (FY18: £1.8m) is treated as 'non-underlying' as it is non-comparable across periods whilst the share plan award cycle is in its initial three years, prior to reaching maturity.  Therefore, from FY20 share-based payments will no longer be treated as 'non-underlying'.

 

Further detail on the share plans is contained within the Consolidated Financial Statements.  A reconciliation between underlying and statutory (IFRS) results is provided below:

 

 

52 WEEKS ENDED 26 MAY 2019

 

52 WEEKS ENDED 27 MAY 2018

£MILLION

Underlying

Share-based compensation

Statutory

 

Underlying

Share-based compensation

Statutory

Revenue

218.0

 

218.0

 

185.9

 

185.9

Gross profit

119.4

 

119.4

 

103.5

 

103.5

Admin expenses

(103.7)

(2.6)

(106.3)

 

(90.2)

(1.8)

(92.0)

Operating profit

15.7

(2.6)

13.1

 

13.3

(1.8)

11.5

Net Finance costs

(0.3)

 

(0.3)

 

(0.3)

 

(0.3)

Profit before tax

15.5

(2.6)

12.9

 

13.0

(1.8)

11.2

 

 

 

 

 

 

 

 

Operating profit

15.7

 

 

 

13.3

 

 

Depreciation & amortisation

7.8

 

 

 

7.8

 

 

EBITDA

23.5

 

 

 

21.1

 

 

 

REVENUE

Group revenue increased by 17.2% to £218.0 million from £185.9 million in FY18 (up 16.8% on a constant currency basis).

 

Retail and Wholesale revenue figures in the Period were impacted by the transition of two large UK wholesale accounts to the retail concession model - a move that provides Joules greater future trading flexibility.  For comparable purposes the approximate revenue growth excluding the impact of this transition is disclosed in the table below:

 

52 WEEKS ENDED 26 MAY 2019

 

Revenue

 

£million

 

Reported growth %

Approx. comparative growth[1] %

Retail

159.1

22.7%

10%

Wholesale

57.1

2.8%

22%

Other (Licensing)

1.8

147.3%

N/a

Group

218.0

17.2%

13%

 

1 Comparative growth percentages show the approximate growth for Retail and Wholesale on the basis of the prior period being restated to reflect the impact of the retail concession model.  Note, the prior period restatement is unaudited and approximate.

 

Retail
Retail revenue increased by 22.7% to £159.1 million, which represents growth of approximately 10% when adjusted for the transition of two large wholesale accounts to the retail concession model in the Period.  Revenue growth benefitted from the Group's flexible and integrated 'Total Retail' model as well as our steadfast focus on delivering a seamless and enjoyable experience to customers, irrespective of how, when and where they choose to shop the Joules brand.

 

E-commerce

E-commerce performed particularly well this year and now represents 49.5% of all retail sales (FY18: 38.4%), benefitting from the transition to a retail concession model in the Period.  The strong performance of our owned e-commerce channels was attributable to a 15% increase in traffic. In addition, ongoing investment in both the customer experience and infrastructure of our digital platforms continue to make them easier to shop and drive improved conversion trends.  This growth was complemented by good performance on our concession partner retailer websites.

 

Stores

During the year we opened seven new stores and closed one store.  At the end of the Period, the Group operated 125 owned stores, in addition to 34 concessions and three franchises.  Our stores are in desirable locations with a reason to visit, operate on relatively short lease terms and continue to play an important role in the expansion of the Joules brand in the UK.  As part of our flexible and integrated 'Total Retail' model our store portfolio plays an increasingly important role in a customer's digital purchase journey, with increased utilisation of our Click & Collect, Order-in-Store and in-store returns services, with digital transactions now representing approximately 20% of store transactions.

 

Wholesale

Wholesale revenue increased by 2.8% to £57.1 million, which represents growth of approximately 22% when adjusted for the transition of two large wholesale accounts to the retail concession model in the Period.  This strong growth reflects continued momentum in the Group's target international markets, the US and Germany, as well as growth in the UK.  Within Wholesale, international now represents approximately half of all sales, reflecting the continued expansion of the Joules brand overseas.

 

Licensing

Revenue from licensing activity increased by 147% to £1.8 million.  This increase is the result of improved performance within existing licensing partnerships, as we increased distribution and grew the product range, and the launch of new brand licence partnerships in new product categories including Joules watches and Joules DAB radios.

 

International revenue

Total international revenue increased by 43.5% and now represents 16.1% of total Group revenue (FY18: 13.1%).  This very strong performance demonstrates the appeal of the Joules brand in our target international markets.  International wholesale grew by 42.3% in constant currency, with growth in existing accounts and the addition of several new accounts.  International e-commerce in the US and Germany continued to perform very well, with strong and encouraging growth albeit from a relatively low base.

 

 

 

 

52 weeks ended

 

 

 

26 May 2019

 

 

 

27 May 2018

 

 

 

Increase

Share of Group revenue

FY19

Share of Group revenue

FY18

UK

£182.9

£161.5

13.3%

83.9%

86.9%

International

£35.1

£24.4

43.5%

16.1%

13.1%

Total

£218.0

£185.9

17.2%

100.0%

100.0%

 

GROSS MARGIN

Gross margin at 54.8% was 90 basis points lower than the prior year.

 

Retail gross margin of 60.6% was 190 bps lower than the prior year, impacted by the increasing mix of e-commerce sales, which have a lower gross margin than store sales, as well as the transition of two large wholesale accounts to the retail concession model, with concession accounts delivering a lower gross margin than owned channels.  We also saw an increased level of customer participation in our core annual promotional events.

 

Wholesale gross margin of 37.1% was 210 bps lower than the prior year, as a result of higher sales growth in the US wholesale channel, which has relatively lower gross margins.  However, the US wholesale channel margin has significantly improved year on year. 

 

ADMINISTRATIVE EXPENSES - UNDERLYING

Underlying administrative expenses increased by 14.9% to £103.7 million from £90.2 million and now represent 47.6% of revenue (FY18: 48.5%). 

 

Excluding the impact of the retail concession transition and the resulting increase in sales commissions, administrative expenses grew by less than 8%, well below comparable revenue growth at 13%, reflecting leverage from previous investments in central capabilities and infrastructure.

 

Sales costs increased by 174.4% in the year to £13.3 million, with the increase being mainly due to the first year of commission payments for transitioned retail concessions.

 

Marketing costs increased by 7.7% in the year to £9.5 million.  During the year we increased marketing investment to support the growth of our US wholesale business.  We also increased investment in customer retention, brand partnerships, social media and digital marketing in the UK and our target international markets, the results of which are reflected in the strong e-commerce channel performance.

 

Store costs grew by 3.8% in the year to £31.6 million.  This reflects the increases in National Living Wage, pension contributions and the impact of the new store openings in the current and prior periods.

Distribution costs increased by 21.2% in the year to £8.4 million, driven by growth in the US wholesale and e-commerce channels.

 

Head office costs increased by 5.1% in the year to £33.1 million.  We continue to invest in support of areas of strategic growth including creative, design, IT, digital and e-commerce.  During the year we saw the benefits from historic investments in head office functions and teams. 

 

Depreciation and amortisation remained at £7.8 million (FY18: £7.8m), with increases following the go-live of our new ERP platform in the prior period offset by older stores being fully depreciated and lower levels of capital expenditure compared to the prior period, most notably from fewer store openings.  The new head office development started in the Period is expected to complete and begin depreciating in approximately 18 months.

 

The total rental expense, including service charges, for the Period was £14.8 million (FY18: £13.4m), with the increase due to US wholesale growth and associated supply chain costs and the impact of new stores opened in the Period and prior period.  Business rates expense increased from £4.8 million to £4.9 million in the year, reflecting the annualisation of rates increases and new store openings.

 

NET FINANCE COSTS

Net finance costs of £0.3 million (FY18: £0.3m) related to interest and facility charges on the Group's revolving credit facility with Barclays Bank Plc.

 

TAXATION

The tax charge for the Period was £2.7 million (FY18: £2.6m).  The effective tax rate for the Period was 21.0% (FY18: 22.9%).

 

The effective tax rate was higher than the applicable UK corporation tax rate of 19% for the Period, due to the impact of non-deductible expenses including certain professional fees and expenses incurred in the fit-out and refurbishment of new and relocated stores, offset by the benefit of deferred tax relating to share-based payments.  We anticipate that our effective tax rate will remain broadly consistent in FY20. 

 

EARNINGS PER SHARE

Statutory basic earnings per share for the Period were 11.6 pence per share (FY18: 9.9 pence per share).  Statutory diluted earnings per share for the Period were 11.3 pence per share (FY18: 9.7 pence per share).

 

On an underlying pro forma basis, the FY19 basic earnings per share were 14.1 pence (FY18: 11.8 pence).

 

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

 

Underlying pro forma EPS

FY19

 

FY18

PBT - Underlying £m

15.5

 

13.0

Tax rate

20%

 

20%

Tax - underlying £m

(3.1)

 

(2.6)

Earnings - Underlying £m

12.4

 

10.4

 

 

 

 

Shares (million)

87.8

 

87.8

Underlying Basic EPS - Pence

14.1

 

11.8

 

 

 

 

Shares - diluted (million)

89.1

 

89.1

Underlying diluted EPS - Pence

13.9

 

11.6

 

DIVIDEND

The Board is recommending a final dividend of 1.35 pence per share in respect of FY19 (FY18: 1.30 pence per share).  This brings the total dividend for FY19 to 2.1 pence per share (FY18: 2.0 pence per share).  Following approval by shareholders at the AGM on 25 September 2019, the dividend is expected to be paid on 14 November 2019 to shareholders on the register at 25 October 2019.

 

CASH FLOW AND CAPITAL EXPENDITURE

Free cash flow, excluding expenditure on our new head office development, was £8.7 million in the Period (FY18: £0.1 million).  This improvement reflects a higher EBITDA, lower working capital outflow and a lower level of core capital expenditure, primarily due to fewer store openings, as well as the expenditure on the now live company-wide Microsoft Dynamics AX ERP implementation in the prior period.

 

Core capital expenditure was £10.5 million (FY18: £12.5 million).  Major areas of capital expenditure included investment in our 'Total Retail' platform, being enhancements to online and in-store customer experience capabilities, and new stores.  The development of our new head office incurred spend of £1.0 million in the Period (FY18: £4.7 million, being largely the acquisition of the site).  Having obtained planning permission in November 2018, work has now commenced, and we anticipate further expenditure of around £14 million on the development over the next 18 months.

 

£MILLION

FY19

 

FY18

EBITDA

23.5

 

21.1

Net working capital cash flow

(1.2)

 

(5.9)

Operating cash flow

22.3

 

15.1

Interest - net

(0.3)

 

(0.3)

Tax paid

(2.9)

 

(2.2)

Capital expenditure - core

(10.5)

 

(12.5)

Free cash flow (core capex)

8.7

 

0.1

Capital expenditure - new Head Office

(1.0)

 

(4.7)

Cash flow before financing

7.6

 

(4.6)

Net cash

5.8

 

0.0

 

INVENTORY

Inventory at year end, including inbound goods-in-transit and the right of return asset in line with IFRS15, was £35.9 million (FY18: £33.2m).  The increase in inventory reflects the growth of the business in the US and the impact of the transition of two large wholesale accounts to the retail concession model.

 

NET CASH AND BORROWINGS

Net cash at the end of the Period was £5.8 million (FY18: £0.0 million).

 

Gross cash was £16.0 million at the end of the Period (FY18: £8.6 million) and Group borrowings were £10.2 million (FY18: £8.5 million).

 

The Group has a £25 million revolving credit facility ('RCF') provided by Barclays Bank Plc to fund seasonal working capital requirements.  This facility has been extended in the Period to mature in July 2022.

 

The development of the new head office is being funded, in part, through a new £9.5 million term loan facility ('Term Loan'), arranged with Barclays Bank Plc during the Period.  This new term loan incorporates the previous £3.5 million term loan that was used to part fund the acquisition of the head office site.  The Term Loan will be drawn down over the next 18 months and is repayable by December 2023.

 

At the year end the total Group borrowings comprised of the RCF £6.2 million (FY18: £5.0m); the Term Loan £4.0 million (FY18: £3.2m), and legacy asset finance loans £0.1 million (FY18: £0.3m).

 

IFRS 16 - LEASES

A new lease accounting standard, IFRS16, will be applicable to the Group's financial statements for the period ending 31 May 2020 ('FY20').  The Group intends to adopt the modified retrospective approach, which will result in the restatement of the prior year ('FY19') comparatives.

 

The adoption of IFRS16 results in a change of accounting policy that impacts the Statement of Financial Position, reclassifies certain Income Statement items and changes the timing of profit recognition across periods as follows: 

 

·    Statement of Financial Position:  Operating leases capitalised, at a relevant discount rate, to create a 'right of use asset' and a corresponding 'lease liability'

·    Income Statement:  Administrative expenses reduce as rent costs are removed.  Depreciation increases to reflect the straight-line amortisation of the 'right of use asset' over the life of the lease.  Finance costs increase with an interest charge on the 'lease liability' - this finance cost reduces over the life of the lease as the 'lease liability' balance decreases

·    Profit before tax ('PBT'): Will reduce at the start of a lease and increase at the end of the lease due to the straight-line depreciation of the 'right of use asset' and reducing interest charge on the 'lease liability'

·    Cash / cash flow: No impact

 

For illustrative purposes, the impact of IFRS16 on the Group's FY19 Statement of Financial Position and Income Statement has been assessed and its adoption would result in an increase in 'right of use asset' by £59.9 million with an equal 'lease liability' and nil impact on net assets.  A reduction in PBT of £0.6 million results from the net impact of removing rent expense £12.7 million (reducing administrative expenses), offset by increasing the depreciation charge by £11.8 million and the interest expense by £1.5 million.

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

Set out below are the principal risks and uncertainties that the Directors consider could impact the business. The Board regularly reviews the potential risks facing the Group and the controls in place to mitigate any potential adverse impacts. The Board also recognises that the nature and scope of risks can change and that there may be other risks to which the Group is exposed and so the list is not intended to be exhaustive.

 

The Corporate Governance Report includes an overview of our approach to risk management and internal control systems and processes.

 

EXTERNAL RISKS

External risks reflect those risks where we are unable to influence the likelihood of the risk arising and therefore focus is on minimising the impact should the risk arise.

 

Risk and impact

Mitigating factors

Economy

The majority of the Group's revenue is generated from sales in the UK to UK customers.  A deterioration in the UK economy may adversely impact consumer confidence and spending on discretionary items.  A reduction in consumer expenditure could materially and adversely affect the Group's financial condition, operations and business prospects. Brexit has increased the likelihood and potential impact of this risk.

 

As a premium lifestyle brand with a strong e-commerce channel, a geographically disperse retail store portfolio and long-standing wholesale customer accounts, the Directors consider that the UK business would be less affected by a reduction in consumer expenditure than many other clothing retailers.

In addition, the property portfolio has short lease terms, providing relative flexibility to close or relocate stores should this become necessary.

Competitor actions

New competitors or existing clothing retailers or lifestyle brands may target our segment of the market. Existing competitors may increase their level of discounting or promotions and/or expand their presence in new channels.  These actions could adversely impact our sales and profits.

 

Joules differentiates from competitors through its strong brand and products that are known for their quality, details, colour and prints.  Our large customer database allows the Group to communicate effectively with customers, developing customer engagement and loyalty.

Foreign Exchange

The Group purchases the majority of its product inventory from overseas and is therefore exposed to foreign currency risk, primarily the US Dollar.

Without mitigation, input costs may fluctuate in the short term, creating uncertainty as to profits and cash flows.

Brexit has increased volatility in this area that may be sustained or worsen going forward.

 

The Group's Treasury Policy sets out the parameters and procedures relating to foreign currency hedging. We currently seek to hedge a material proportion of forecasted US Dollar requirement 12-24 months ahead using forward contracts.

 

The Group's US wholesale business generates US Dollar cash flows which provide a degree of natural hedging.

Regulatory and Political

New regulations or compliance requirements may be introduced from time to time. These may have a material impact on the cost base or operational complexity of the business. Non-compliance with the regulation could result in financial penalties.

Recent and on-going US/China trade negotiations with the threat of additional US tariffs on China manufactured products, as well as the continuing uncertainty surrounding Brexit, have increased the risk and uncertainty in this area.

 

The Group has processes in place to monitor and report to the Board on new regulations and compliance requirements that could have an impact on the business.  The impact of any new regulation is evaluated and reflected in the Group's financial forecasts and planning.

The Group is carefully monitoring the development of US/China trade negotiations and plans for alternative sourcing strategies are being reviewed to mitigate against increases in US tariffs on China manufactured products.

 

Brexit

The on-going potential exit of the UK from the EU adds complexity and uncertainty across many areas of the Group's operations that could impact on our ability to get products to customers in a timely manner and on product profit margins.

A so-called "no deal" Brexit, whereby there is no free trade agreement between the UK and the EU, is likely to exacerbate potential impacts on the Group.

 

 

 

Specific risk areas that could be impacted by Brexit are as follows:

-      Political uncertainty:  The level of economic and consumer uncertainty has increased due to the lack of clarity around the UK's exit from the EU. 

 

-      Changes in customs duty and VAT regimes:  It is likely that goods being imported to and exported from the EU will be subject to a different duty and VAT regime, which may result in increased costs to the Group.
Additional paperwork and administration is likely to be required in order to move product in to and out of both the UK and the EU.

 

 

 

 

-      Supply chain delays:  Additional customs procedures may result in delays to both inbound and outbound movements of goods, particularly if the UK withdraws from the EU with no free trade agreement.  This could adversely affect our supply chain and our ability to supply our wholesale customer base.

 


 

 

 

 

-      Employment of EU nationals:  EU nationals living in the UK may no longer have automatic rights to remain working in the UK.  This could restrict the Group's ability to retain and recruit appropriate talent.

 

 

-      Foreign exchange fluctuations:  The Group's exposure to fluctuations in foreign exchange rates, in particular the strength of Sterling relative to the US Dollar, is increased as a result of the impact of Brexit.

 

-      Regulation and compliance:  The regulatory regime applicable to the manufacture and sale of products may increase in complexity if the UK adopts a different framework from the current EU based legislation.

 

-      Contractual and procurement arrangements:  Commercial terms and contractual arrangements may be adversely impacted by Brexit.

 

The continuing lack of clarity on the nature and timing of the post-Brexit arrangements make it challenging to plan mitigation strategies effectively.  A Brexit 'task force' has been established to monitor and evaluate the potential impacts of different scenarios and to implement mitigations.  Contingency planning by the task force has been focussed on preparing for a "no deal" Brexit with input from external advisors as appropriate.


Mitigating steps taken:

-      Political uncertainty:   A detailed review of the business has highlighted areas that would most likely be impacted by Brexit. 

 

-      Changes in customs duty and VAT regimes:  An assessment of the Group's operations has been undertaken to identify additional costs. 
An EU based distribution arrangement has been established to mitigate potential adverse duty impacts and service wholesale customers. 
Paperwork (e.g. commercial invoices) has been automated to improve efficiency where possible.
 

-      Supply chain delays:  In the short term, we are seeking to expedite delivery of products into the EU ahead of the UK's withdrawal.

In addition to the EU based distribution arrangement above, the business has achieved Authorised Economic Operator status and is well progressed with plans to implement Customs bonded status for the Group's main UK distribution centre which would further mitigate adverse duty impacts and supply chain delays.

 

-      Employment of EU nationals:  All EU nationals working for the Group have been consulted on the implications of Brexit and support with applying for settled status has been provided.

 

 

-      Foreign exchange fluctuations: As noted above the Group seeks to hedge a material proportion of forecasted US Dollar requirement 12-24 months ahead using forward contracts.

 

-      Regulation and compliance:  On-going legal advice is being taken in this area to ensure continued compliance with relevant UK and EU regulations.

 

-      Contractual and procurement arrangements:  A detailed review of all relevant key contracts and service agreements has been undertaken to ensure the Group's commercial exposure is mitigated.  Where appropriate new contracts are incorporating Brexit clauses.

 

 

INTERNAL RISKS

Internal risks reflect those where we can influence the likelihood of the risk arising and the impact should the risk arise.

 

Risk and Impact

Mitigating factors

Brand and reputation

The strength of our brand and its reputation are very important to the success of the Group.

Failure to protect and manage this could reduce the confidence and trust that customers place in the business, which could have a detrimental impact on sales, profits and business prospects. Our brand may be undermined or damaged by our actions or those of our partners or through infringement of our intellectual property (IP).

 

 

Brand and reputation are monitored closely by senior management and the Board.  The Group's public relations are actively managed and customer feedback, both direct and indirect, is carefully monitored.

We carefully consider each new trade customer with whom we do business and monitor on an ongoing basis.

We actively monitor for potential IP infringements and have a process to determine the appropriate course of action to protect our brand and IP vigorously.

Product sourcing

The Group's products are predominantly manufactured overseas.  Failure to carry out sufficient due diligence and to act in the event of any negative findings, especially in relation to ethical or quality related issues, could adversely impact our brand and reputation.

 

The Group has a policy and process for the selection of new suppliers.  This includes a review of compliance with laws and regulations and that suppliers meet generally accepted standards of good practice.  In addition, suppliers are required to sign up to the Joules code of conduct.

The Group operates a programme of ethical audits across the product supply base supported by a third-party agency.

Design

As with all clothing and lifestyle brands there is a risk that our offer will not satisfy the needs of our customers or that we fail to correctly identify trends that are important to our customer base.  These outcomes may result in lower sales, excess inventories and/or higher markdowns.

 

Joules has a long established in-house creative and design team who have a high level of awareness and understanding of our target customer segment.  A large proportion of our product range is anchored in classic products that are evolved season to season.

Early feedback from our trade customers can allow us to further refine our product range ahead of significant purchase commitments.

Key management

Our business performance is linked to the performance of our people and to the leadership of key individuals.   The loss of a key individual whether at management level or within a specialist skill set could have a detrimental effect on our operations and, in some cases, the creative vision for the brand.

 

The Group's remuneration policy, which includes a long-term incentive scheme and performance-related pay, is designed to attract and retain key management. The Group operates learning and development programmes to increase the opportunities for internal succession.

 

The Board's approach to the recruitment of Nick Jones as Chief Executive Officer and transition in the run up to Colin Porter's retirement illustrates the procedures the Board has in place for ensuring continuity of key personnel.

IT security and systems availability

Non-availability of the Group's IT systems, including the e-commerce websites, for a prolonged period  could result in business disruption, loss of sales and reputational damage.

Malicious attacks, data breaches or viruses could lead to business interruption and reputational damage.

 

A business continuity plan exists to minimise the impact of a loss of key systems and to recover the use of the system and associated data.

A regular assessment of vulnerability to malicious attacks is performed and any weaknesses rectified.  All Group employees are made aware of the Group's IT security policies and we deploy a suite of tools (email filtering, antivirus etc.) to prevent against such events.

 

Supply chain

The disruption to any material element of the Group's supply chain, in particular the UK central distribution centre, could impact sales and impact on our ability to supply our consumers, stores and wholesale customers.

 

The business continuity plan includes an established procedure in the event of the loss of the UK distribution centre.  In addition, the Group maintains insurance cover at an appropriate level to protect against the impact of

such an interruption.

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 

JOULES GROUP PLC

 

 

 

 

 

 

 

52 weeks ended

26 May

2019

£'000

52 weeks ended

27 May

2018

£'000

 

 

 

 

 

 

REVENUE

 

 

 

217,970

185,933

 

 

 

 

 

 

Cost of sales

 

 

 

(98,583)

(82,403)

 

 

 

 

 

 

GROSS PROFIT

 

 

 

119,387

103,530

 

 

 

 

 

 

Administrative expenses

 

 

 

(103,665)

(90,226)

Share-based payments

 

 

 

(2,616)

(1,766)

 

 

 

 

 

 

Total administrative expenses

 

 

 

(106,281)

(91,992)

 

 

 

 

 

 

OPERATING PROFIT

 

 

 

13,106

11,538

 

 

 

 

 

 

 

 

 

 

 

 

Finance costs

 

 

 

(251)

(348)

 

 

 

 

 

 

PROFIT BEFORE TAX

 

 

 

12,855

11,190

 

Income tax expense

 

 

 

 

(2,701)

 

(2,564)

 

 

 

 

 

 

PROFIT FOR THE PERIOD

 

 

 

10,154

8,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

 

 

 

11.57

9.86

 

 

 

 

 

 

Diluted earnings per share (pence)

 

 

 

11.32

9.7

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

JOULES GROUP PLC

 

 

 

 

 

 

 

 

 

 

 

 

52 weeks

ended

26 May

2019

£'000

 

 

52 weeks

ended

27 May

2018

£'000

 

PROFIT FOR THE PERIOD

 

 

10,154

8,626

Items that may be reclassified subsequently to profit or loss:

 

 

 

Net gain/(loss) arising on changes in fair value of hedging instruments entered into for cash flow hedges

 

 

3,378

(308)

Gains arising during the period on deferred tax on cash flow hedges

 

 

(689)

31

 

 

 

 

 

OTHER COMPREHENSIVE INCOME FOR THE PERIOD

 

2,689

(277)

Items that may be reclassified subsequently to profit or loss:

 

 

 

Exchange difference on translation of foreign operations

 

 

157

422

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

13,000

8,771

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

JOULES GROUP PLC

 

 

 

 

26 May 2019

£'000

27 May 2018

Restated

£'000

NON-CURRENT ASSETS

 

 

 

 

Property, plant and equipment

 

 

17,245

18,049

Intangibles

 

 

16,862

12,614

Deferred tax

 

 

958

1,148

Derivative financial instruments

 

 

-

428

 

 

 

 

 

TOTAL NON-CURRENT ASSETS

 

 

35,065

32,239

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

Inventories

 

 

35,311

32,795

Trade and other receivables

 

 

18,053

16,456

Right of return asset

 

 

615

429

Cash and cash equivalents

 

 

16,013

8,571

Derivative financial instruments

 

 

3,320

910

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

73,312

59,161

 

 

 

 

 

TOTAL ASSETS

 

 

108,377

91,400

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Trade and other payables

 

 

42,613

40,008

Current corporation tax payable

 

 

1,612

1,355

Borrowings

 

 

6,769

5,559

Provisions

 

 

247

264

Right of return provision

 

 

1,548

1,196

Derivative financial instruments

 

 

-

1,680

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

 

52,789

50,062

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

Borrowings

 

 

3,447

2,972

 

 

 

 

 

TOTAL NON-CURRENT LIABILITIES

 

 

3,447

2,972

 

 

 

 

 

TOTAL LIABILITIES

 

 

56,236

53,034

 

 

 

 

 

NET ASSETS

 

 

52,141

38,366

 

 

 

 

 

EQUITIES

 

 

 

 

Share capital

 

 

878

875

Hedging reserve

 

 

2,631

(277)

Translation reserve

 

 

518

361

EBT reserve

 

 

(322)

-

Merger reserve

 

 

(125,807)

(125,807)

Retained earnings

 

 

162,833

151,804

Share premium

 

 

11,410

11,410

 

 

 

 

 

TOTAL EQUITY

 

 

52,141

38,366

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

JOULES GROUP PLC

 

 

 

 


Merger reserve

£'000


Hedging reserve

£'000

 

Translation reserve

£'000

 

EBT reserve

£'000

 

Share capital

£'000


Share premium

£'000


Retained earnings

£'000


Total

 equity

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 28 May 2017

(125,807)

(139)

(61)

-

875

11,410

142,956

29,234

     

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

8,626

8,626

Other comprehensive income for the period

-

(277)

422

-

-

-

-

145

Total Comprehensive income for the period

 

-

 

(277)

 

422

 

-

 

-

 

-

 

8,626

 

8,771

 

 

 

 

 

 

 

 

 

Basis adjustment to hedged inventory

-

139

-

-

-

-

-

139

Dividends Issued (note 14)

-

-

-

-

-

-

(1,663)

(1,663)

Shares issued

-

-

-

-

-

-

-

-

Credit to equity for equity-settled share-based payments excl. NI

 

-

 

-

 

-

 

-

 

-

 

-

 

1,595

 

1,595

Gains arising during the period on deferred tax on share-based payments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

290

 

 

290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 27 May 2018

(125,807)

(277)

361

-

875

11,410

151,804

38,366

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

10,154

10,154

Other comprehensive income for the period

-

2,689

157

-

-

-

-

2,846

Total Comprehensive income for the period

 

-

 

2,689

 

157

 

-

 

-

 

-

 

10,154

 

13,000

 

 

 

 

 

 

 

 

 

Basis adjustment to hedged inventory

-

219

-

-

-

-

-

219

EBT share purchases and commitments

-

-

-

(322)

-

-

-

(322)

Shares issued

-

-

-

-

3

-

(3)

-

Dividends Issued (note 14)

-

-

-

-

-

-

(1,800)

(1,800)

Credit to equity for equity-settled share-based payments excl. NI

 

-

 

-

 

-

 

-

 

-

 

-

 

2,678

 

2,678

Gains arising during the period on deferred tax on share-based payments

-

-

-

-

-

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 26 May 2019

(125,807)

2,631

518

(322)

878

11,410

162,833

52,141

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED CASH FLOW STATEMENT

 

JOULES GROUP PLC

 

 

 

 

 

52 weeks ended

26 May

2019

£'000

52 weeks ended

27 May

2018

£'000

Cash generated from operations

 

 

 

Profit for the period

 

10,154

8,626

Adjustments for:

 

 

 

Depreciation

 

5,126

6,360

Amortisation

 

2,672

1,453

Share-based payments

 

2,616

1,766

Finance expense

 

251

348

Tax expense

 

2,701

2,564

 

 

 

 

Operating cash flows before movements in working capital

 

23,520

21,117

 

 

 

 

Increase in inventory and right of return asset

 

(2,702)

(11,601)

Increase in receivables

 

(1,597)

(2,443)

Increase in payables and right of return provision

 

3,125

8,105

 

 

 

 

Cash generated by operations

 

22,346

15,178

 

 

 

 

Interest paid

 

(270)

(308)

Tax paid

 

(2,936)

(2,227)

 

 

 

 

Net cash from operating activities

 

19,140

12,643

 

 

 

 

Cash flow from investing activities

 

 

 

Purchase of property, plant and equipment and intangible assets

 

(11,502)

(17,228)

 

 

 

 

Net cash from investing activities

 

(11,502)

(17,228)

 

 

 

 

Cash flow from financing activities

 

 

 

Purchase of shares in EBT

 

(322)

-

Repayment of borrowings

 

(449)

(596)

Proceeds from borrowings

 

2,134

8,500

Dividend paid

 

(1,800)

(1,663)

 

 

 

 

Net cash from financing activities

 

(437)

6,241

 

 

 

 

Net increase in cash and cash equivalents

 

7,201

1,656

 

 

 

 

Cash and cash equivalents at beginning of period

 

8,571

6,964

Effect of foreign exchange rate changes

 

241

(49)

 

 

 

 

Cash and cash equivalents at end of period

 

16,013

8,571

 

 

 

          

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.1.          BASIS OF PREPARATION OF PRELIMINARY ANNOUNCEMENT

The preliminary consolidated financial information for the 52 weeks ended 26 May 2019 was approved by the Directors on 22 July 2019.

This preliminary consolidated financial information has been prepared in accordance with the principles of International Financial Reporting Standards ('IFRS') and has been prepared on a going concern basis. The preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 52 weeks ended 26 May 2019 as defined in section 434 of the Companies Act 2006.

The Annual Report and Group Financial Statements for the 52 weeks ended 26 May 2019 are the fourth for Joules Group plc and were approved by the Board of Directors on 22 July 2019. The report of the auditor on those Group Financial Statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Annual Report and Group Financial Statements for the 52 weeks ended 26 May 2019 will be filed with the Registrar in due course.

Going concern

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

2.          SEGMENT REPORTING

The Group has three reportable segments; Retail, Wholesale and Other. For each of the three segments, the Group's chief operating decision maker (the "Board") reviews internal management reports on a monthly basis. Each segment can be summarised as follows:

·      Retail: Retail includes sales and costs relevant to stores, e-commerce, shows and franchises.

·      Wholesale: Wholesale includes sales and costs relevant to the sale of products to other retail businesses or distributors for onward sale to their customer.

·      Other: Other includes income from licencing, central costs and items that are not distinguishable into the segments above.

Information regarding the results of each reportable segment is included below. Segment results before non-recurring costs, being underlying earnings before interest, taxation, share-based payments, depreciation and amortisation, are used to measure performance as management believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries.

There are no discontinued operations in the period.  

 

 

Segment review and results

52 WEEKS ENDED 26 MAY 2019

Retail

Wholesale

Other

Total

 

£'000

£'000

£'000

£'000

Revenue

159,088

57,088

1,794

217,970

Cost of sales

(62,682)

(35,901)

-

(98,583)

GROSS PROFIT

96,406

21,187

1,794

119,387

Administration expenses

(56,350)

(11,963)

(27,554)

(95,867)

SEGMENT RESULT

40,056

9,224

(25,760)

23,520

Reconciliation of segment result to profit before tax

 

 

 

 

SEGMENT RESULT

40,056

9,224

(25,760)

23,520

Depreciation and amortisation

(4,390)

(663)

(2,745)

(7,798)

Share-based payments (incl. NI)

 

 

 

(2,616)

Finance costs

 

 

 

(251)

 

 

 

 

 

PROFIT BEFORE TAX

 

 

 

12,855

 

 

52 WEEKS ENDED 27 MAY 2018

Retail

Wholesale

Other

Total

 

£'000

£'000

£'000

£'000

Revenue

129,680

55,528

725

185,933

Cost of sales

(48,636)

(33,767)

-

(82,403)

GROSS PROFIT

81,044

21,761

725

103,530

Administration expenses

(46,586)

(10,334)

(25,493)

(82,413)

SEGMENT RESULT

34,458

11,427

(24,768)

21,117

Reconciliation of segment result to profit before tax

 

 

 

 

SEGMENT RESULT

34,458

11,427

(24,768)

21,117

Depreciation and amortisation

(4,656)

(410)

(2,747)

(7,813)

Share-based payments (incl. NI)

 

 

 

(1,766)

Finance costs

 

 

 

(348)

 

 

 

 

 

PROFIT BEFORE TAX

 

 

 

11,190

 

 

GEOGRAPHICAL INFORMATION

The Group's revenue from external customers and non-current assets by geographical location is as detailed below.

 

 

 

UK

£'000

International

£'000

Total

£'000

52 weeks ended 26 May 2019

 

 

 

 

Revenue

 

182,917

35,053

217,970

Non-current assets

 

33,845

1,220

35,065

 

 

 

 

 

52 weeks ended 27 May 2018

 

 

 

 

Revenue

 

161,499

24,434

185,933

Non-current assets

 

31,361

878

32,239

 

 

 

 

3.          PROFIT FOR THE YEAR

Profit before tax is stated after charging/(crediting):

 

 

52 Weeks

52 Weeks

 

 

 

ended

26 May

ended

27 May

 

 

 

2019

2018

 

 

 

£'000

£'000

 

 

 

 

 

Cost of inventories recognised as expense

85,948

69,794

 

Staff costs

40,219

34,937

 

Property rent and service charges

13,998

13,534

 

Transportation, carriage and packaging

10,517

10,110

 

Depreciation of property, plant and equipment

5,126

6,360

 

Amortisation of intangible assets

2,672

1,453

 

Net foreign exchange gains

43

(796)

 

Write down of inventory in the period

57

150

 

Other expenses

46,284

38,853

 

 

 

 

 

 

 

204,864

174,395

 

             

 

             Amortisation of intangible assets is included within administrative expenses in the income statement.

 

Auditors' remuneration

 

 

 

52 weeks ended

26 May

2019

£'000

52 weeks ended

27 May

2018

£'000

 

 

 

 

 

 

 

 

The analysis of auditor's remuneration is as follows:

 

 

 

 

Audit of these financial statements

 

10

8

 

Audit of financial statements of subsidiaries of the Company

 

106

90

 

 

 

 

 

 

        

 

Total audit fees

 

 

 

116

98

 

 

 

 

 

 

         

 

Other services pursuant to legislation:

 

 

 

 

 

 

Tax advice

 

 

 

7

13

Audit related assurance services

 

 

 

4

4

Remuneration and share plan advisory

 

 

 

16

22

Other Services

 

 

 

-

7

 

 

 

 

 

 

Total non-audit fees

 

 

 

27

46

 

 

 

 

             

           

4.             FINANCE COSTS

 

 

 

52 weeks ended

 26 May

2019

£'000

52 weeks ended

 27 May

2018

£'000

 

 

 

 

 

Credit facility interest

 

 

210

254

Term loan interest

 

 

23

56

Finance lease interest

 

 

18

38

 

 

 

 

 

 

 

 

251

348

 

 

 

 

 

5.          INCOME TAX

 

 

a)   Analysis of charge in the period

 

 

52 weeks ended

 26 May

2019

£'000

52 weeks ended

 27 May

2018

£'000

Current tax

 

 

 

 

UK corporation tax based on the profit

for the period

 

 

 

 3,029

 

 3,090

Adjustment in respect of prior periods

 

 

(26)

(39)

Overseas tax

 

 

197

17

 

 

 

 

 

Total current tax charge

 

 

3,200

3,068

 

 

 

 

 

 

 

Deferred taxation

 

 

 

 

Adjustment in respect of prior periods

 

 

56

(148)

Deferred tax on share-based payments

 

 

(543)

(290)

Pension contributions

 

 

(64)

-

Short lease premiums tax deduction

 

 

(8)

-

Movement in fixed asset timing differences

 

 

78

(89)

Movement on disallowable provision

 

 

(18)

23

 

 

 

 

 

Total deferred taxation charge/(credit)

 

 

(499)

(504)

 

 

 

 

 

Tax charge for the period (note 5b)

 

 

2,701

2,564

 

 

 

 

 

 

 

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

 

 

 

 

52 weeks ended

 26 May

2019

£'000

52 weeks ended

 27 May

2018

£'000

Deferred taxation

 

 

Gain/(loss) arising during the period on deferred tax on cash flow hedges

(689)

31

 

 

 

Total income tax gain/(loss) recognised in other comprehensive income

(689)

31

 

          

          

 

 

5.          INCOME TAX (Continued)

 

b)   Factors affecting the tax charge for the period 

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

 

 

52 weeks ended

 26 May

2019

£'000

52 weeks ended

 27 May

2018

£'000

 

 

 

 

Profit before taxation

 

12,855

11,190

 

 

 

 

UK corporation tax at the standard rate

 

19.0%

19.0%

 

 

 

 

Profit multiplied by the standard rate in the UK

 

2,442

2,126

 

 

 

 

Effects of:

 

 

 

Expenses not deductible for tax purposes and other permanent differences

 

170

216

Depreciation and amortisation on non-qualifying assets

 

281

347

Difference in overseas tax rate

 

45

17

Effect of adjustment in deferred tax rate

 

59

45

Adjustment in respect of prior period (current tax)

 

(26)

(39)

Share-based payments

 

(302)

-

R&D expenditure credits

 

(25)

-

Adjustment in respect of prior period (deferred tax)

 

56

(148)

 

 

 

 

Tax expense for the period (note 5a)

 

2,701

2,564

 

 

          

           

 

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

The UK corporation tax at the standard rate for the year is therefore 19.0% (2018: 19.0%).

6.                PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

 

Land & buildings

£'000

 

Leasehold improvements

£'000

 

Fixtures and fittings

£'000

 

Motor vehicles

£'000

 

 

        Total

        £'000

Cost

 

 

 

 

 

At 28 May 2017

-

100

28,195

126

28,421

Additions

4,715

-

8,437

-

13,152

Disposals

-

(100)

(7,233)

(33)

(7,366)

Transfers

-

-

(1,318)

-

(1,318)

 

 

 

 

 

 

At 27 May 2018

4,715

-

28,081

93

32,889

 

 

 

 

 

 

Additions

2,676

-

2,357

-

5,033

Disposals

-

-

-

(34)

(34)

Transfers

-

-

(988)

-

(988)

 

 

 

 

 

 

At 26 May 2019

7,391

-

29,450

59

36,900

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

At 28 May 2017

-

77

16,581

117

16,775

Charge for the period

-

23

6,331

6

6,360

Disposals

-

(100)

(7,233)

(33)

(7,366)

Transfers

 

-

(929)

-

(929)

 

 

 

 

 

 

At 27 May 2018

-

-

14,750

90

14,840

 

 

 

 

 

 

Charge for the period

-

-

5,123

3

5,126

Disposals

-

-

-

(34)

(34)

Transfers

-

-

(277)

-

(277)

 

 

 

 

 

 

At 26 May 2019

-

-

19,596

59

19,655

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

At 28 May 2017

-

23

11,614

9

11,646

 

 

 

 

 

 

At 27 May 2018

4,715

-

13,331

3

18,049

 

 

 

 

 

 

At 26 May 2019

7,391

-

9,854

-

17,245

 

 

 

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment

Disposal of motor vehicles during the period relates to a fully depreciated vehicle that is no longer in use.

Transfers in the current period relate to Trademarks and other intangibles which were previously recorded within Plant, Property and Equipment being reclassified to Intangible Assets.

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

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

 

Land & buildings comprise of land, buildings and capitalised borrowing costs in relation to the ongoing development of the site intended for use as the Group's new head office.

7.          INTANGIBLE ASSETS

 

 

 

Trademarks and other intangibles

£'000

 

 

 

 

IT Systems

£'000

 

 

 

 

 Total

£'000

 

Cost

 

 

 

At 28 May 2017

-

13,037

13,037

Additions

-

4,179

4,179

Disposals

-

(1,111)

(1,111)

Transfers

-

1,318

1,318

 

 

 

 

At 27 May 2018

-

17,423

17,423

 

 

 

 

Additions

179

6,030

6,209

Disposals

-

-

-

Transfers

999

(11)

988

 

 

 

 

At 26 May 2019

1,178

23,442

24,620

 

 

 

 

Accumulated amortisation

 

 

 

At 28 May 2017

-

3,538

3,538

Charge for the period

-

1,453

1,453

Disposals

-

(1,111)

(1,111)

Transfers

-

929

929

 

 

 

 

At 27 May 2018

-

4,809

4,809

 

 

 

 

Charge for the period

120

2,552

   2,672

Disposals

-

-

-

Transfers

277

-

277

 

 

 

 

At 26 May 2019

397

7,361

7,758

 

 

 

 

Net book value

 

 

 

 

 

 

 

At 28 May 2017

-

9,499

9,499

 

 

 

 

At 27 May 2018

-

12,614

12,614

 

 

 

 

At 26 May 2019

781

16,081

16,862

 

 

 

 

 

Intangible assets

Transfers in the current period relate to trademarks which were previously recorded within Plant, Property and Equipment being reclassified to Trademarks and other intangibles.

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

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

 

8.          BORROWINGS

Summary of borrowing arrangements

The Credit facility is a £25 million Revolving Credit Facility in which amounts drawn down are generally repayable within three months. The facility matures in July 2022 following an amendment and extension that was completed in December 2018.

During the period the existing five year term loan facility with Barclays Bank PLC was increased from £3.5 million to £9.5 million to part fund the development of the Group's new head office premises. The term loan facility is secured against the new head office land and buildings asset and £4.0 million of it was drawn down as at the period end (2018: £3.2m).

The Finance leases are secured against the assets to which they relate. The present value of minimum lease payments is equal to the liability. Interest is paid at varying rates above base rate.

The weighted average interest rates paid during the period were as follows:

 

 

 

 

52 weeks ended

26 May

2019

%

52 weeks ended

27 May

2018

%

 

 

 

 

 

 

Credit facility

 

 

 

2.3%

2.0%

Term loan

 

 

 

1.7%

1.8%

Finance leases

 

 

 

9.0%

7.3%

 

 

 

 

 

 

 

 

 

 

 

26 May

2019

£'000

 

27 May

2018

£'000

 

 

 

 

 

 

Credit facility

 

 

 

6,157

5,000

Term loan

 

 

 

3,975

3,237

Finance leases

 

 

 

84

294

 

 

 

 

 

 

 

 

 

 

10,216

      8,531

 

 

 

 

 

 

 

Borrowings are repayable as follows:

 

 

 

 

 

 

 

 

 

 

 

Credit facility

 

 

 

 

 

Within one year

 

 

 

6,157

5,000

 

 

 

 

 

 

 

 

 

 

 

Term loan

 

 

 

 

 

Within one year

 

 

 

528

350

Between one and two years

 

 

 

1,056

350

Between two and five years

 

 

 

2,391

2,537

 

 

 

 

 

 

 

 

 

3,975

3,237

 

 

 

 

 

 

Finance leases

 

 

 

 

 

Within one year

 

 

 

84

209

Between one and two years

 

 

 

-

85

Between two and five years

 

 

 

-

-

 

 

 

 

 

 

 

 

 

84

294

 

 

 

 

 

 

 

 

 

 

 

 

Total borrowings

 

 

 

 

 

Within one year

 

 

 

6,769

5,559

Between one and two years

 

 

 

1,056

435

Between two and five years

 

 

 

2,391

2,537

 

 

 

 

 

 

 

 

 

10,216

8,531

 

 

 

 

 

 

 

9.          FINANCIAL COMMITMENTS

Operating lease commitments

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

Land & Buildings

 

 

 

 

26 May

2019

£'000

27 May

2018

£'000

 

Lease payments:

 

 

 

 

 

 

 

Not later than 1 year

 

 

 

 

12,042

11,107

 

Later than 1 year and not later than 5 years

 

 

 

 

36,969

34,818

 

Later than 5 years

 

 

 

 

15,367

18,929

 

 

 

 

 

 

 

 

 

 

 

 

 

64,378

64,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

26 May

2019

£'000

27 May

2018

£'000

 

Lease payments:

 

 

 

 

 

 

 

Not later than 1 year

 

 

 

 

663

742

 

Later than 1 year and not later than 5 years

 

 

 

 

584

1,114

 

Later than 5 years

 

 

 

 

-

105

 

 

 

 

 

 

 

 

 

 

 

 

 

1,247

1,961

 

 

 

 

 

 

 

 

 

 

10.        ANALYSIS OF NET CASH

 

At 27 May 2018

£'000

Non-cash changes

£'000

Cash changes

£'000

At 26 May 2019

£'000

 

 

 

 

 

Cash at bank and in hand

8,571

241

7,201

16,013

 

 

 

 

 

 

 

 

 

 

Credit facility

(5,000)

-

(1,157)

(6,157)

Term loan

(3,150)

-

(825)

(3,975)

Finance leases

(381)

-

297

(84)

 

 

 

 

 

Total liabilities from financing activities

(8,531)

-

(1,685)

(10,216)

 

 

 

 

 

Total net cash

40

241

5,516

5,797

 

 

 

 

 

 

 

 

 

11.        RELATED PARTY TRANSACTIONS

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation.

The Directors control 29,861,923 shares (2018: 30,112,305 shares) in Joules Group plc, which represents 34.0% (2018: 34.4%) of the issued share capital.

 

12.        EARNINGS PER SHARE

Basic and diluted earnings per share are calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the period.

For the calculation of diluted earnings per share, the weighted average number of shares in issue is further adjusted to assume conversion of all potentially dilutive ordinary shares. The Company has one category of potentially dilutive ordinary shares, being management shares not yet vested.

 

 

 

52 weeks ended

 26 May

2019

52 weeks ended

 27 May

2018

 

 

 

 

 

Basic earnings per share (pence)

 

11.57

9.86

 

 

 

 

 

Diluted earnings per share (pence)

 

11.32

9.74

 

 

 

 

 

 

The calculation of basic and diluted earnings per share is based on the following data:

 

Earnings

 

 

 

 

Earnings for the purpose of basic and diluted earnings per share

 

£'000

10,154

 

£'000

       8,626

 

 

 

 

 

 

Number of shares

 

 

 

Weighted number of ordinary shares for the purpose of basic earnings per share

 

87,745,789

 

87,503,058

Potentially dilutive share awards

1,901,152

1,014,761

 

 

 

 

Weighted number of ordinary shares for the purpose of diluted earnings per share

 

89,646,941

 

89,517,819

 

 

 

 

 

 

13.        SHARE-BASED PAYMENTS

 

Summary of movement in awards

 

 

 

 

 

Number of shares

DBP

ESOP

LTIP

SAYE

TOTAL

 

 

 

 

 

 

Outstanding at 27 May 2018

290,719

582,907

2,253,094

646,444

3,773,164

 

 

 

 

 

 

Granted during the year

174,126

-

865,656

332,560

1,372,342

Lapsed during the year

-

-

(105,287)

(70,266)

(175,553)

Exercised during the year

-

(479,108)

(5,650)

(14,494)

(499,252)

 

 

 

 

 

 

Outstanding at 26 May 2019

464,845

103,799

3,007,813

894,244

4,470,701

Exercisable at 26 May 2019

-

103,799

-

-

103,799

All share options were valued using the Black-Scholes model. Expected volatility was determined by management, using comparator volatility as a basis. The expected life of the options was determined based on management's best estimate. The expected dividend yield was based on the anticipated dividend policy of the Company over the expected life of the options. The risk-free rate of return input into the model was a zero coupon government bond with a life in line with the expected life of the options.

The fair value of the total shares issued during the period, and measured as at issue date is £4,430,956.

The inputs into the model were as follows:

 

 

 

 

 

 

 

DBP

ESOP

LTIP

SAYE

 

 

 

 

 

 

 

Weighted average share price

2.93

2.51

2.84

2.93

 

Weighted average exercise price

0.01

1.68

0.01

2.06

 

No. of employees

1

10

86

249

 

Shares under option

464,845

103,799

3,007,813

894,244

 

Expected volatility

28%

28%

28%

28%

 

Expected life (Years)

3

3-10

3

3

 

Risk-free rate

0.08%

0.08%

0.08%

0.08%

 

Possibility of ceasing employment before vesting

0%

 

0%

 

0%-10%

 

0%

 

Expectations of meeting performance criteria

100%

100%

75% -100%

100%

 

Expected dividend yields

1.9%

1.9%

1.9%

1.9%

 

 

 

 

 

 

 

The Group recognised a net expense of £2,677,000 during the year (2018: £1,595,000) relating to equity settled share-based payments. Including associated employer's National Insurance contributions which in the year was a credit of £61,000 (2018: £171,000 expense), the Group recognised a total expense of £2,616,000 during the year (2018: £1,766,000).

 

Deferred Bonus Plan ("DBP")

The DBP operates in conjunction with the Group's annual bonus plan. The number of ordinary shares subject to a DBP award will be the number of shares that have a market value equal to the value of the annual bonus deferred into a DBP award. DBP awards take the form of nil-cost options, vest on the third anniversary of the date on which the relevant annual bonus was determined and are normally exercisable until the tenth anniversary of the grant date.

Executive Share Option Plan ("ESOP")

The Group operated a share option scheme during the period for certain employees under the Executive Share Option Plan ("ESOP"). The different options vest between two years and three years and have an exercise life between three and ten years from grant date. All option schemes are subject to continued employment over the vesting period.

 

Long Term Incentive Plan ("LTIP")

The Board approved Long Term Incentive Plan 2016 ("LTIP 2016") allows the grant of options to executive directors and senior management of the Group in the form of nil-cost options over ordinary shares in Joules Group plc. The options are exercisable three years after the date of grant subject to achieving certain stretching targets. For the Executive directors and members of the operating board, the target is based on an EPS target in the final year of the relevant performance period, being the financial years ending May 2019, May 2020 and May 2021 for grants made to date. For the financial years ending May 2020 and May 2021 20% of the target is based on achieving specified international revenue targets.   For other senior management awards the target is based on the cumulative PBT over the three years to May 2019, May 2020 and May 2021 for the grants made to date. The calculation includes an assumption that 10% of senior managers on the scheme would cease employment before vesting.

Save As You Earn Scheme ("SAYE")

Under the terms of the SAYE scheme, the Board grants options to purchase ordinary shares in the Company to employees who enter into the HMRC-approved SAYE scheme for a term of three years. Options are granted at up to 20% discount to the market price of the shares on the day proceeding the date of offer and are exercisable for a period of six months after completion of the SAYE contract.

 

14.        DIVIDENDS

 

26 May 2019

27 May 2018

 

 

 

 

Pence per share

 

£000

 

Pence per share

 

£000

 

 

 

 

 

Interim dividend paid in the financial year

0.75

658

0.7

612

 

 

 

 

 

Approved dividend paid after the financial year

 

 

1.3

1,141

 

 

 

 

 

Final dividend proposed, not accrued, payable subject to approval at AGM

1.35

1,185

 

 

 

 

 

 

 

Total

2.1

1,843

2.0

1,753

 

 

 

 

 

 

The Directors are proposing a final dividend of 1.35 pence per share with a total value of £1,185,216 (2018: 1.30 pence per share with a total value of £1,141,117). This dividend has not been accrued in the consolidated statement of financial position and will be put for approval at the AGM on 25 September 2019.

 

 

 

 


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Annual Results - 52 weeks ended 26 May 2019 - RNS