Findel plc
Findel plc ANNUAL REPORT & ACCOUNTS
2014 A N N U A L R E P O RT & A C C O U N T S 2 014 www.findel.co.uk
Findel plc Registered Office: 2 Gregory Street, Hyde, Cheshire SK14 4TH
www.findel.co.uk
Focus on continued growth and performance improvement The Findel Group contains market leading businesses in the UK home shopping and education supplies markets
Contents 1.
Strategic Report
2.
1.
Financial highlights
20. Directors, Officers and Statutory information
2.
Chairman’s Statement
21. Corporate Governance Report
4.
Chief Executive’s Report
25. Corporate Social Responsibility Report
6.
Our businesses and strategic objectives
28. Directors’ Remuneration Report
8.
Express Gifts
46. Audit & Risk Committee Report
Governance
10. Findel Education (Education Supplies)
50. Directors’ Report
12. Kitbag
53. Statement of Directors’ Responsibilities
14. Kleeneze
54. Independent Auditor’s Report
16. Finance Director’s Report 18. Principal risks and uncertainties 19. Our people, our products, community and the environment
3.
Financial Statements
58. Consolidated Income Statement 60. Consolidated Statement of Comprehensive Income 61. Consolidated Balance Sheet 62. Consolidated Cash Flow Statement 63. Consolidated Statement of Changes in Equity 64. Notes to the Consolidated Financial Statements 104. Company Balance Sheet 105. Notes to the Company Financial Statements
Findel plc Annual report and accounts 2014
Strategic Report
Financial Highlights 2013 Restated†
Change
£514.7m
£491.2m
+4.8%
Operating profit*
£31.9m
£22.3m
+43.0%
Operating profit
£13.6m
£11.3m
+21.0%
6.2%
4.5%
+170bps
Profit before tax*
£22.0m
£11.8m
+87.0%
Profit before tax
£3.3m
£0.5m
+575.0%
£97.2m
£120.2m
-19.0%
£207.0m
£225.2m
-8.1%
Revenue
Operating profit margin*
Core bank debt** Overall net debt Before exceptional items
CONSOLIDATED FINANCIAL STATEMENTS 58—103
*
** Overall net debt excluding the securitisation facility †
GOVERNANCE 20—57
2014
STRATEGIC REPORT 1—19
Group
Restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’
‡ Restated for the effect of the 20:1 share consolidation on 9 April 2013 § Continuing operations, following disposal of Healthcare division completed on 19 April 2013
COMPANY FINANCIAL STATEMENTS 104—109
www.findel.co.uk
1
Strategic Report
Chairman’s Statement I am delighted to report upon another successful year for Findel. The momentum built up in the previous years has continued through the last year with a substantial improvement in profits and a further reduction in debt.
David Sugden
Since our refinancing in March 2011, profit before tax* has more than trebled, with core net debt∆ falling by over £37m. Express Gifts has once again provided the majority of our growth in FY14 but it is pleasing to see that our second largest business, Findel Education (Education Supplies), has also seen a significant recovery in revenue and profits. Kleeneze and Kitbag, which together account for less than a quarter of total group revenue, continue to disappoint, although there are signs of improvement in recent times from Kitbag and Kleeneze remains profitable. Overall group revenue from continuing operations grew by 4.8% to £514.7m in FY14 and group operating profit* was 43% higher at £31.9m. Profit before tax* for the year was markedly higher, through this improved operating profit and reduced interest charges, growing by 87% to £22.0m. Core net debt∆ at the year-end fell to £97.2m, a reduction of £23m, in part resulting from the sale of the Healthcare division in April 2013. It is clear that recovery for both Kleeneze and Kitbag will take longer than originally envisaged, as discussed in the Strategic Report. This has resulted in an accounting adjustment to reduce the carrying values of those businesses by some £10.0m in aggregate. In addition, a provision of £2.8m has been taken to cover the exit costs (cash and non-cash) of a significantly unprofitable kitbag contract. The group incurred other exceptional restructuring and finance costs of £5.9m. After taking account of these exceptional costs the continuing operations reported a profit before tax of £3.3m (FY13: £0.5m).
2
Findel plc Annual report and accounts 2014
The recovery in the group’s financial position is perhaps best illustrated through the recent improvements made to our debt facilities. We announced an increase to the securitisation facility supporting Express Gifts’ receivables in January 2014 and are now able to report that our lenders have agreed significant amendments to our core debt facilities that relax a number of the onerous restrictions that were placed upon the group in 2011. Included within this is, from 2016, the removal of the prohibition on the payment of dividends although your board currently intends to continue to use the cash generated by the group to reduce debt further rather than to reinstate dividend payments. Reporting This year we have made a number of changes in the Annual Report intended to improve the transparency of our reporting, taking into account changes to the Corporate Governance Code, UK reporting regulations and general best practice. We have introduced a Strategic Report with further details of our strategy, objectives and the business model for each of our businesses. We have also introduced a revised Directors’ Remuneration Report and a revised Audit Committee Report.
Strategic Report
STRATEGIC REPORT 1—19 GOVERNANCE 20—57
Board changes We were pleased to welcome Francois Coumau to the board in August 2013. His international retail, wider consumer and digital experience is proving to be invaluable to the group, complementing the existing skills on the board. As previously reported, Mike Hawker retired from the board in July 2013.
On behalf of the board and the shareholders I would like to thank all of our employees for their remarkable achievement over the last three years and for their continuing efforts to further build the company.
David Sugden Chairman
COMPANY FINANCIAL STATEMENTS 104—109
Employees The return of the group to financial stability and the substantial returns that have resulted for investors in our 2011 refinancing have been achieved through a considerable team effort involving all of our employees. In this context it is particularly pleasing that the performance share plan awards granted to 35 of our key employees in 2011 with very demanding performance targets (requiring at least a doubling of the rights issue share price) are expected to vest as to 38% of the 1.5m shares awarded. A well-earned reward for the considerable effort that these individuals have put in.
Outlook Considerable progress has been made during FY14 and the first phase of our turnaround plan has now been completed generating a substantial recovery in shareholder value and underlying profitability since FY11. The strength of our two largest businesses give us confidence that further growth in profitability and reductions in legacy core net debt can be achieved.
3 June 2014
*
before exceptional items
** before exceptional items and discontinued operations ∆
overall net debt excluding the securitisation facility
www.findel.co.uk
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Laurel Powers-Freeling has indicated to us that due to personal commitments she intends to step down from the Findel Board at our AGM on 18 July 2014. We would like to thank Laurel for her significant contributions to the board and the group. A search for a replacement non-executive director is underway.
Current trading The early weeks of the financial year are relatively quiet trading periods for most of our businesses, with the change in timing of the Easter holiday period distorting comparisons with prior years, in particular for Findel Education, whose new catalogues were launched at the end of April. Overall group performance remains in line with our expectations. A fuller update on trading will be given at our AGM when a more significant portion of the trading year will have passed.
3
Strategic Report
Chief Executive’s Report It has been another successful year, with a substantial improvement in financial performance. The group is now moving from a turnaround phase to one of continued growth and performance improvement. As such, our focus is on maintaining the strong trajectory of the group to deliver further value for our stakeholders. Roger Siddle
Substantial improvement in financial performance The group entered the year with strong momentum, and we have built on that to deliver a substantial improvement in financial performance. Operating profit* has grown by 43% (FY13: £22.3m, FY14: £31.9m), operating margin* has grown from 4.5% to 6.2% and profit before tax* has grown by 87% (FY13 £11.8m, FY14: £22.0m). At the same time total net debt has fallen by 8.1% (FY13: £225.2m, FY14: £207.0m) and ‘Core’ net debt, that is debt other than the securitisation facility supporting Express Gifts receivables book, has fallen 19.1% (FY13: £120.2m, FY14: £97.2m). This financial improvement has been driven by our two largest businesses, Express Gifts and Findel Education. Express Gifts has again shown a year of strong top- and bottom-line growth. Findel Education, after a number of years of decline, has now turned the corner and delivered a much-improved sales and profit performance. Kitbag has experienced a difficult year and the financial performance has deteriorated. Management actions continue to address this unsatisfactory situation. Kleeneze has also had difficulties and we are engaging more closely with senior distributor leaders to address this. During the year we were able to reach agreement with our lenders to increase our securitisation facility from £105m to £130m, and have recently reached agreement on amending a number of the more constraining conditions placed on our lending facilities at the time of the refinancing in March 2011. These movements are a pleasing mark of confidence in our performance and provide an overall improvement in our balance sheet structure.
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Findel plc Annual report and accounts 2014
Express Gifts, the largest business in the group, has again performed strongly. The business’s continued focus on ensuring strong product value for the customer has again delivered growth in sales, profits and customer numbers. Sales for the year grew by 9.6%, operating profit* by 41%, and customer numbers were up 8.3% for the calendar year. Bad debt charges were once again lower, at 10.2% of sales versus 11.4% for March 2013. Trading since the start of the financial year remains encouraging. The business has seen the benefit of the work it has done, together with our Far East sourcing operation, on improved buying, ranging and sourcing with an increase during the year in product gross margins. With the FCA taking over responsibility for regulating the provision of consumer credit from 1 April 2014, significant work was also undertaken on a comprehensive review of our financial services activities which has led to changes in both structure and processes in order to improve effectiveness whilst ensuring regulatory compliance with guidelines published by the FCA. Overall we continue to see significant potential within Express Gifts and a key priority for the future will be to deliver that potential. Our Education Supplies Division (Findel Education) has now turned a corner after a number of years of decline, with sales growth of 6.5% (FY13: £103.2m, FY14: £109.9m) and strong operating profit* growth of £3.3m (FY13: £0.8m, FY14: £4.1m). This improvement has been delivered across the business, with UK brands growing at 3.6%, our international export business recovering with growth of 17%, and our support for the Sainsbury’s Active Kids’ programme returning to a more typical scale after last year’s reduction to accommodate the Paralympic
Strategic Report
Core net debt
6.2%
£97m
6.5%
£140m
6.0%
£120m
5.5%
£100m
5.0%
£80m
4.5%
£60m
4.0%
£40m
3.5%
£20m FY12
FY13
FY14
£0m
FY12
FY13
How it is measured? Operating profit before exceptional items as a % of revenue.
How it is measured? Total net debt less borrowings under the securitisation facility.
Why is it used? To show the level of profitability of the group.
Why is it used? To show the underlying leverage of the group.
FY14
Roger Siddle Chief Executive 3 June 2014
*
before exceptional items
www.findel.co.uk
5
COMPANY FINANCIAL STATEMENTS 104—109
Kitbag suffered from a significant fall in traffic for a number of partners whose sporting performance, particularly during the first half of the financial year failed to match prior seasons. This, coupled with operational issues linked with the introduction of a new payments system, led to a significant increase in first half losses* of £2.2m and a total first half loss* of £2.9m. Although the trading and financial performance improved during the second half the overall result is a significant deterioration in losses* versus the prior year. (FY13: (£1.7m): FY14 (£4.1m)). Work continues on the turnaround plan. During the year new contracts were won with Borussia Dortmund, the National Hockey League and the Ryder Cup (for on-course retail at this year’s event at Gleneagles) together with a major new motorsport contract and significant renewals achieved with Real Madrid and The Open Golf Championship, although the scale of
Summary Over the past three years we have turned the group around from its extremely difficult position through a clear focus on a series of ‘self-help’ plans. As we move into the next phase of the group’s development, we aim to enter our 7–9% medium term operating margin target range in the current financial year and to continue to drive the group forward over the coming year and beyond. To do this, most importantly we will focus on ensuring that Express Gifts continues to grow and further improve profitability. Findel Education has made good progress in moving towards peer-comparable returns, but there is further to go. Kleeneze needs to be stabilised and the turnaround of Kitbag needs to be delivered. In summary, the year has been another one of considerable progress but there remains significant potential for additional performance improvement to deliver further value for our stakeholders.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Games sponsorship. Further evidence of Education’s competitive strength is highlighted by the business winning further contracts in new local authority areas and the receipt of a number of prestigious customer service awards. Trading conditions towards the latter half of the year proved more challenging, with a number of uncertainties affecting school budgets. Those conditions continue, although the timing of the Easter holiday means that early comparisons with prior years are also distorted, with a shift in trading patterns and a delay in the launch of our new catalogues until schools had returned after the break. The business is maintaining its focus on performance with a number of ongoing projects aimed at improving service whilst reducing costs with the aim of achieving peer-comparable returns.
Kleeneze’s performance has again deteriorated, with sales declining 5.5% and operating profits* reducing by around a third. Actions taken by management have slowed the rate of decline as a whole versus the prior year, and the sales productivity of distributors has increased, but the number of active distributors has fallen by 27% during the year. The business has achieved some success with initiatives designed to improve the attractiveness of the proposition to customers, although unexpected high levels of demand for certain new or promoted product lines has led to recent stock availability issues and a subsequent reduction of service levels leading to significant further performance deterioration. Plans to address service and recruitment issues have been developed with senior distributor leaders and have been launched in earnest over the last month to coincide with a new catalogue. Nonetheless Kleeneze remains profitable* with attractive cash characteristics.
GOVERNANCE 20—57
3.0%
the FC Barcelona contract was reduced significantly. Progress has been made on the restructuring of unattractive contracts. During and after the financial year-end, agreement was reached on the renegotiation or termination of three major unprofitable contracts, resolving the majority of the business’s difficult contracts. This will give rise to benefits in the current and future years, although an exceptional provision of £2.8m has been taken to cover exit arrangements, of which around half represents cash to be paid out in future periods. Overall these actions, together with the advent of non-annual events such as the World Cup and the Ryder Cup in 2014 give grounds for anticipated reduction in operating losses* in the current year. Current trading is within our range of expectations during a typically volatile period.
STRATEGIC REPORT 1—19
Operating profit margin
Strategic Report
Our businesses and strategic objectives Entity Findel PLC
Summary Description
Principal Strategic Objectives
Central holding company
– Maximise value for shareholders
– Capital and resource allocation
– Set overall vision and strategy of the group
– Leadership and oversight – Shared service provision as appropriate
– Oversee the control environment and risk management throughout the group – Determine and implement appropriate balance sheet structure/control net debt
Express Gifts
General merchandise, mail order catalogue/online retailer. Key proposition elements:
Maintain and build upon position as leading discount multi-channel retailer
– Value
– Enhance proposition
– Personalisation
– Improve profitability
– Sustain growth
– Integrated credit
Findel Education
One of the leading suppliers of resources/equipment to schools in the UK and overseas
Re-establish “Best in Class” position – Build clearly differentiated service position – Capitalise on anticipated pupil growth – Achieve peer-comparable returns
Kitbag
Leading European provider of outsourced retail services to major sports organisations
Turn business around and achieve profitability
Also via Kitbag.com online specialist sports retailer
– Improve trading performance
– Eliminate loss-making contracts – Continue to add new scale contracts
Kleeneze
6
A leading network marketing company in the UK & Ireland
Findel plc Annual report and accounts 2014
Stabilise and return to growth whilst maintaining profitability and cash generative features
Strategic Report
Progress in year
– Determine appropriate portfolio balance for optimal shareholder return
– Completed Healthcare disposal
– Maintain appropriate capital resources to support the businesses
– Agreed pension contributions for next 3 years
– Ensure rigorous review of strategic direction and performance management of each group business
– Reduced core net debt (19%)
– Ensure that experienced management teams are deployed in the businesses to execute the turnaround strategy
– Increased securitisation facilities
– Growth of 162% in market capitalisation – Increase in operating profit* margin from 4.6% to 5.2%
– Assess and as necessary upgrade financial services processes, capabilities and offering
– Complete renewal of banking facilities • Structure • Tenure – Continually evaluate overall corporate strategy and group shape – Monitor individual business progress and adjust plans/take corrective action accordingly
– 86% of growth from existing customers, increased customer retention
Maintain trajectory:
– Increased direct purchases via FASL (now 12%)
– Tight control of buying and operating costs
– New FS management team and structure
– Delivery of new systems benefits
GOVERNANCE 20—57
– Improve buying/merchandising processes, including increased direct sourcing from Far East via Findel Asia Sourcing Ltd (FASL)
Future plans
– Enter target range of 7–9% operating profit margin during FY15
– Ensure that the group remains on track to achieve its medium-term profit margin targets
– Increase share of customer wallet
STRATEGIC REPORT 1—19
Key Strategic Priorities
– Continued focus on enhanced customer proposition
– Systems programme broadly on track
– Realise benefits from systems implementation
– Won 3 major customer service awards
Maintain progress:
– Improve buying and merchandising processes
– Net promoter score increased
– Targeting peer-comparable returns in near/medium term
– Increase geographic reach
– Sales increase in Scotland [contract won FY13]
– Continue efficiency drive
– Gross margins increased
CONSOLIDATED FINANCIAL STATEMENTS 58—103
– Enhance customer contact processes
– Further local authority wins – Significant improvement in profitability
– One major contract re-negotiated with favourable FY15 impact
– Win new scale contracts on attractive terms and ideally diversify away from purely football partners
– Two further contracts’ negotiations concluded
– Deliver operational turnaround plan
– Won four new contracts and renewed a further two
Deliver turnaround plan: – Successfully implement newly won contracts
COMPANY FINANCIAL STATEMENTS 104—109
– Renegotiate or resolve unattractive contracts
– Maximise trading opportunities – Continue negotiations on remaining unattractive contracts
– Improved trading performance in H2, although disappointing H1
– Increase distributor recruitment and retention
– Sales per ordering distributor up 11%
Stabilise the business:
– But distributor numbers down to 7,250
– Revamp product and catalogue offering
– Tight cost controls implemented through shared infrastructure with Express Gifts
– Capitalise upon Express Gifts infrastructure and buying capabilities
– Recent issues with stock availability being addressed with new catalogue
– Improve training and retention for distributors to stabilise the network – Rebuild service levels
www.findel.co.uk
7
Strategic Report
Express Gifts Our largest business has again continued its very strong performance over the last 12 months
Summary income statement £000
2014
2013
% change
Revenue Cost of sales
288,214 (136,520)
262,965 (126,226)
9.6% -8.2%
Gross profit Trading costs
151,694 (121,015)
136,739 (114,916)
10.9% -5.3%
Operating profit*
30,679
21,823
40.6%
Gross margin Operating margin*
52.6% 10.6%
52.0% 8.3%
KPIs – measuring our progress Customer base
Retention levels
Online ordering
Bad debt as % revenue
1.4m
60.5%
51.9%
10.2%
1.40m
61%
52%
13%
1.35m
60%
51%
1.30m
59%
1.25m
58%
12%
50% 49%
11%
48% 1.20m
57%
1.15m
56%
1.10m
55%
1.05m
FY12
FY13
FY14
How it is measured? Active customer accounts at the end of each calendar year. Why is it used? To show the base from which future sales can be made.
54%
46%
9%
45% FY12
FY13
FY14
44%
FY12
FY13
FY14
8%
FY12
FY13
FY14
How it is measured? Proportion of the prior year’s customer base remaining active in the current calendar year.
How it is measured? Proportion of the year’s product sales placed using an online route.
How it is measured? Bad debt charge for the year as a % of revenue for the year.
Why is it used? To show customer loyalty levels and sustainability of future sales.
Why is it used? To show the changing nature of customer ordering patterns.
Why is it used? To show trends in the quality of the credit portfolio.
Business model and key trends Express Gifts, our core credit-based home shopping business, is one of the largest direct mail order businesses in the UK offering online and via catalogue, a broad range of home and leisure items, clothing, toys and gifts. As well as offering a number of exclusive products, including a variety of own-brand ranges, its comprehensive in-house personalisation facilities and focus on value supported by a flexible credit offer distinguish Express Gifts from other UK retailers. Using the brands of Studio and Ace, Express Gifts has 1.4m active home shopping customers, predominantly women aged between 30 and 60 shopping for themselves or for their families. The customer base is spread across the UK, with a bias towards the lower socio-demographic groups. About half of our customer base will use our credit facilities to make their purchases, and those who do will typically have an average
8
10%
47%
Findel plc Annual report and accounts 2014
balance of around £240 that is repaid over a nine month period. The account operates in a similar fashion to a credit card, with the customer required to pay a minimum balance each month but beyond that able to pay the amount they choose including making full payment. Marketing to customers is predominantly paper based through catalogues, statements, direct mail and newspaper inserts with some TV and digital activity. Over 50% of orders, however, are placed via the internet with 36% of these orders in FY14 placed via a mobile or tablet device. Average basket sizes for internet shoppers are typically larger, taking advantage of items only available on our website. We anticipate continued migration to the web for orders and therefore carefully monitor the effectiveness of all our marketing channels. The business has c.600 suppliers. Goods are either shipped from suppliers to our own warehouses and then on to
STRATEGIC REPORT 1—19
Other trading costs remained under tight control, increasing by much less than the growth in sales despite above-inflationary increases in postage and utility costs and additional headcount in the year. Overall, the operating margin* for the largest business in the group increased from 8.3% to 10.6%. The year has started well and by continuing to focus closely on the needs of our customer base whilst maintaining tight operational control, we see significant continued scope for further improvements in performance going forwards.
www.findel.co.uk
9
COMPANY FINANCIAL STATEMENTS 104—109
2014 Performance and Progress Express Gifts has continued its strong performance in FY14 through maintaining focus on improving range and value – giving the customers more of what they want. As a result, customer retention has grown to 61% (FY13: 59%), and customer numbers have grown by 8.3%. Sales rose 9.6% (FY14: £288.2m, FY13: £263.0m) with 86% of that additional growth coming from existing customers i.e. customers who had shopped with the business the prior year. A continued focus on buying and merchandising processes, supplier rationalisation and negotiation (recognising the success suppliers have experienced as the result of Express Gifts growth) and the work outlined above with our own Far Eastern sourcing operation, has meant that this growth has been delivered with improved product margins.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Over recent years the consumer environment has generally been recognised as challenging, with a noted shift towards customers being increasingly value-conscious. In 2011, we put in place a clear strategy to regain Express Gifts’ value position, and re-set price accordingly. This strategy has been and continues to be, highly successful. At the same time in 2011, the business embarked on a multi-year investment programme to overhaul its infrastructure and systems, some of which was more than 20 years old. Over the next financial year the programme will allow Express Gifts increased flexibility in competing in an increasingly dynamic retail marketplace.
During the year the business has also undertaken a comprehensive assessment of its financial services operations, led by a new management team. This has resulted in a new organisation structure and a number of revised processes aimed at improving effectiveness and responding to the guidance issued by the Financial Conduct Authority in advance of its taking over responsibility for consumer credit legislation on 1 April 2014. Exceptional restructuring costs totalling some £0.8m were incurred in relation to this. There have also been a number of adjustments to customers’ charges, minimum payments and fees. Overall, the reduced credit risk implied by increasing sales from existing customers, sustained tight credit standards and improved processes, together with the benefits from our now fully operational behavioural scoring system, has ensured that the bad debt charge has continued to fall – from 11.4% of sales in March 2013 to 10.2% in March 2014. As noted at the half year, in response to a thematic review for medium sized businesses published by the Financial Conduct Authority, the business incurred exceptional costs in FY14 totalling £2m in respect of potential redress for historic PPI sales which is anticipated to be sufficient to resolve this issue.
GOVERNANCE 20—57
customers, or shipped directly from suppliers. Our primary warehouse is a highly automated facility in Accrington. Over the last two years an increased focus has been placed on sourcing product directly from low-cost sources, and our own Far East sourcing office (Findel Asia Sourcing Ltd) has been re-focused on buying for group companies, especially Express Gifts, rather than external customers. As a result, the proportion of Express Gifts purchases sourced through FASL has risen to 12% this year from 8% last year.
Strategic Report
Findel Education (Education Supplies) After many years of decline our second largest business has turned a corner and is on an upwards trajectory
Summary income statement £000
2014
2013
% change
Revenue Cost of sales
109,917 (71,719)
103,225 (68,376)
6.5% -4.9%
Gross profit Trading costs
38,198 (34,106)
34,849 (34,055)
9.6% -0.1%
4,092
794
415%
34.8% 3.7%
33.8% 0.8%
Operating profit* Gross margin Operating margin*
KPIs – measuring our progress UK Brands revenue growth
% of schools covered
Net promoter score
3.6%
100%
84%
100%
90%
95%
85%
90%
80%
85%
75%
80%
70%
75%
65%
70%
60%
5.0%
0.0% FY12
FY13
FY14
-5.0%
-10.0%
65%
55% FY12
FY13
FY14
-15.0%
60%
How it is measured? Annual revenue growth from UK Brands (i.e. excluding retail partners and international sales).
How it is measured? Proportion of registered primary and secondary schools receiving a catalogue.
Why is it used? To show the underlying level of growth in the business.
Why is it used? To show the coverage levels for future sales.
Business model and key trends Our Education Supplies division is one of the largest independent suppliers of resources (excluding IT, utilities and publishing) to schools and other educational establishments in the UK, with an estimated 8% share of the UK educational supplies market (Source: BESA 2012). The division’s international unit exports to over 120 countries worldwide. It operates through a range of brands, marketed both via printed catalogues and through a variety of e-procurement/internet solutions. These brands are either primarily focused upon servicing the operational requirements of the school with products such as stationery and janitorial materials, or with a range of general and specialist products to support the institution’s curricular needs – particularly for primary and early years. In addition, there are a range of specialist brands aimed at sports, science and students with learning disabilities. It continues to be a partner of Sainsbury’s by fulfilling orders for its successful Active Kids Scheme.
10
Findel plc Annual report and accounts 2014
50%
FY12
FY13
FY14
How it is measured? Proportion of surveyed respondents that would recommend Findel Education net of those that would not. Why is it used? To show trends in the business's reputation with its customers and indicate customer loyalty.
The business sources products from around 800 suppliers, and has two warehouses – one in Nottingham and one in North London. Although both warehouses carry similar ranges, our Nottingham operation is more focused on curricular and international sales, whilst London is more focused on school operational needs. A proportion of product is supplied directly to customers by suppliers. Sales channels include a salesforce focused on the South-east (where the business is strongest), telephone, web, post and fax – many schools still using authorisation systems and methods where paper output is generated. In the short term the education sector is undergoing a period of change which has led to some disruptions and changes to school spending patterns, as evidenced by the final quarter’s trading. The material scale of schools switching to become academies has led to new approaches to purchasing in those schools, to changes in their financial budgeting and discipline
STRATEGIC REPORT 1—19 GOVERNANCE 20—57
and, for new academies, uncertainties in the scale and timing of budget release from local authorities. New policies, such as the change in the primary school national curriculum in 2014 and the provision of free school meals, have also caused disruption as schools re-allocate their budgets given funding uncertainties. Over the longer term the market is anticipated to grow steadily, with projections for rising pupil numbers offset by restrictions on available government funding. This pupil growth will be particularly pronounced in London and the South-east, where we are well placed to capitalise on this trend.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
2014 Performance and Progress As a result of a comprehensive re-engineering and turnaround exercise, performance in FY14 was substantially improved over the prior year. Overall the business grew by 6.5%, with UK brands growing by 3.6%, our international business recovering to grow at 17% and a return to more normal scale for our support for the Sainsbury’s Active Kids’ programme after its reduction last year due to the Paralympics. Operating profit grew 415% to £4.1m.
COMPANY FINANCIAL STATEMENTS 104—109
In addition, the business demonstrated its growing competitive strength by winning or renewing further local authority contracts, after the success in late FY13 in winning the Scotland Excel contract. A significant renewal was achieved in Northern Ireland, together with winning two new contracts in the South and West – Hampshire County Council and City of Bristol. The business also gained recognition of its improved customer service with the winning of three prestigious awards – European Call Centre and Customer Service Award for Best Improvement Strategy, UK Customer Experience Award for Business Change and Transformation, and Call Centre North West Award for Best Customer Experience Programme. Uncertain market trends have continued into this financial year, in which early comparisons with prior years are also distorted by Easter being later, meaning a shift in trading patterns and a delay in the launch of our new catalogues until schools had returned after the break. Recent trading reflects these uncertain trends though the peak sales periods are yet to come. Our second largest business has turned the corner – but still has more to do. The business is focused on continuing to improve efficiency and customer service, with a number of projects underway, and is now well placed for continued progress and growth to benchmark levels of profitability.
www.findel.co.uk
11
Strategic Report
Kitbag Setbacks in the first half particularly have delayed the turnaround programme, but second half recovery and upcoming events give grounds for confidence in an improving trend
Summary income statement £000
2014
2013
% change
Revenue Cost of sales
66,698 (38,665)
70,376 (39,949)
-5.2% 3.2%
Gross profit Trading costs
28,033 (32,139)
30,427 (32,120)
-7.9% — -143%
Operating profit*
(4,106)
(1,693)
Gross margin Operating margin*
42.0% -6.2%
43.2% -2.4%
KPIs – measuring our progress Effective royalty rate
Kitbag.com conversion rates
Football as % of revenue
International as % of revenue
16.4%
1.8%
70.2%
38%
18.5%
1.8%
72.0%
38.5%
71.5%
38.0%
71.0%
37.5%
70.5%
37.0%
70.0%
36.5%
69.5%
36.0%
18.0% 1.7% 17.5% 17.0%
1.6%
16.5%
1.5%
16.0% 1.4% 15.5% 15.0%
FY12
FY13
FY14
How it is measured? Royalty charges for the year as a % of revenue. Why is it used? To show the trend in key features of problematic contracts.
1.3%
FY12
FY13
FY14
FY12
FY13
FY14
35.5%
FY12
FY13
FY14
How it is measured? Volume of sales completed on kitbag.com as a % of visits to the site.
How it is measured? Proportion of total revenue derived from football platforms.
How it is measured? Proportion of total revenue derived from outside the UK platform.
Why is it used? To show the effectiveness of the online sales platforms.
Why is it used? To show the trend in diversification of sporting partners.
Why is it used? To show the trend in globalisation of sporting partners.
Business model and key trends Kitbag is a specialist sports retailer selling club-branded replica kits, leisurewear and souvenirs as well as sports-branded playing and training wear. It operates through its own online platform Kitbag.com, and also manages officially-licensed club or organisation retail outlets including online, mail order and physical stores on a white-label basis. Its partners are a wide range of leading names in sports, including Manchester United, Chelsea, Manchester City and Real Madrid in football in addition to organisations such as the Wimbledon Championship, the Tour de France, Ryder Cup, NBA, and the NFL. Typically these partnerships are structured so that the club receives a royalty from Kitbag, usually with a fixed
12
69.0%
Findel plc Annual report and accounts 2014
minimum payment, and Kitbag then operate retailing and potentially licensing operations. The business therefore operates a range of websites serving customers all over the world, and has over 70 language variations of its online stores. Deliveries to all customers are managed from a central warehouse near Manchester. The business has c.375 suppliers, although the largest by far – unsurprisingly given their position in the sports world – are Nike and Adidas. Kitbag’s capability to manage both online and multi-channel partner needs (where Kitbag can operate all official retail operations including on-line, mail order, event retail, stadium stores and in-town stores and concessions as well as managing product licensing) is a key factor in its ability to maintain and secure new contracts with leading football clubs and other major sports organisations.
STRATEGIC REPORT 1—19 CONSOLIDATED FINANCIAL STATEMENTS 58—103 COMPANY FINANCIAL STATEMENTS 104—109
2014 Performance and progress The first half of FY14 saw a serious deterioration in Kitbag’s performance, with a significant sales shortfall and fixed royalty payments resulting in a fall in profitability. Demand from fans of a number of our major partners was significantly down – manifested by falls in traffic from the club’s own website to our shops – as a result of combinations of poor sporting performance, absence of football transfer activity, managerial changes or general disaffection. This was compounded by initial difficulties with the launch of a new payments mechanism aimed at increasing international payment options, resulting in deterioration of customer conversion for a period. Although these issues were corrected in time for a much improved December and beyond, the performance for the year showed a significant deterioration on the prior year, with sales falling by 5.2%. As a result, we have re-assessed the timetable for Kitbag’s return to profitability and have reduced the accounting carrying value for Kitbag arising from the group’s acquisition of the business in October 2006 by £6.2m by way of an exceptional impairment charge.
Nonetheless, much positive progress has been made during the year. Contracts have been won or renewed with Borussia Dortmund, the National Hockey League, the Ryder Cup, Real Madrid, The Open Golf Championship and a major motorsport team, although the scale of the contract with Barcelona has reduced significantly. Progress has been made on the restructuring of unattractive contracts. During and after the financial year-end, agreement was reached on the renegotiation or termination of three major unprofitable contracts resolving the majority of the business’s difficult contracts. This will give rise to benefits in the current and future years, although a charge of £2.8m has been taken to cover transitional and exit arrangements, of which around half represents cash to be paid out in future periods. Recent trading is within the range of our expectations given the typical volatility of the period (partner success and varied timing of kit launches in particular potentially affecting sales) and upcoming sports events in 2014, including the Ryder Cup (where Kitbag will also operate onsite retail) and the World Cup will give a boost to sales. There are therefore reasons to expect significant improvements in Kitbag performance in the coming year.
GOVERNANCE 20—57
The structure of a number of legacy contracts has however failed to balance risk/reward appropriately, with in some instances sales failing to offset minimum fixed payments resulting in losses. The priority for the business has therefore been to renegotiate or exit these underperforming contracts whilst improving trading and buying/merchandising performance to control stock and improve margins.
www.findel.co.uk
13
Strategic Report
Kleeneze Although remaining profitable, Kleeneze performance has deteriorated further during the year with an improvement in sales per ordering distributor more than offset by an ongoing decline in distributor numbers
Summary income statement £000
2014
2013
% change
Revenue Cost of sales
46,504 (15,417)
49,193 (15,149)
-5.5% -1.8%
Gross profit Trading costs
31,087 (29,781)
34,044 (32,054)
-8.7% 7.1%
1,306
1,990
-34.4%
66.8% 2.8%
69.2% 4.0%
Operating profit* Gross margin Operating margin*
KPIs – measuring our progress Number of active distributors
Spend per active distributor
7,250
£4,680
12,000
£4,800
11,000
£4,600
10,000
£4,400
9,000
£4,200
8,000
£4,000
7,000
£3,800
6,000
FY12
FY13
FY14
How it is measured? Number of distributors who have placed an order within the last 3 months. Why is it used? To show the size of the active sales force.
£3,600
FY12
FY13
FY14
How it is measured? Total product sales divided by the average number of active distributors during the year. Why is it used? To show the productivity of the sales force.
NB. Includes distributors introduced via the Break Free scheme that ceased during FY14.
Business model and key trends Kleeneze is a leading network marketing company, specialising in supplying a wide range of household and health & beauty products to customers through a network of independent distributors across the UK and the Republic of Ireland. The business sells through its self-employed distributors via catalogues, who in turn develop their own end customer bases. Orders are generated from, and delivered to, the end customers by the distributors who also collect payment at the time of delivery. The range of goods on offer is largely general household material, especially kitchen, bathroom and garden, together with some electrical items. The business deals with around
14
Findel plc Annual report and accounts 2014
100 suppliers, although buying is closely coordinated with Express Gifts due a significant commonality of supply base. The business also shares a distribution facility with Express Gifts. The main cost element within the business is distributor commissions. A distributor receives commission on their own direct sales, but – subject to detailed conditions around their own performance – can also receive further compensation based on the performance of other distributors they have brought into the network. Distributor commissions therefore are linked to sales, which provides the business with some profit protection when sales are falling.
STRATEGIC REPORT 1—19 GOVERNANCE 20—57
2014 Performance Review Revenue for the year fell by 5.5% to £46.5m, with the gross profit margin falling from 69.2% to 66.8% in part due to promotional activity around product and catalogue sales. Trading costs reduced by 7.1% to £29.8m. The operating profit* reduced by £0.7m to £1.3m. The continuing decline within Kleeneze has also led us to reduce its carrying value, arising from the group’s acquisition of the business in October 2006, by £3.8m through an exceptional impairment charge.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Work undertaken during the year to improve the proposition had a good effect, with a marked increase in sales per ordering distributor. However, in recent months high levels of unexpected demand for newly introduced or promoted product has led to stock availability issues with a knock-on impact on service levels, restraining sales and recruitment and leading to a significant further deterioration. A significant fall in the absolute number of active distributors during the year was due to the withdrawal of the Break Free recruitment channel (where distributors could join for free with a small number of catalogues). It has also become clear that the mix of recruits between those who are seeking a very short-term earnings increase and those who are looking for a significant longer-term opportunity, coupled with insufficient activity within the network on new distributor training, has led to a continued strong decline in overall distributor numbers. However, the business has seen an increased level of productivity arising amongst its motivated, longer-term network of distributors. New incentives for distributors were brought in as a pilot in March 2014 together with an improved order management process to address stock availability issues. These measures have been launched in earnest over the last month in conjunction with a new catalogue and we are closely monitoring results. The business remains profitable* with attractive cash generation characteristics.
COMPANY FINANCIAL STATEMENTS 104—109
www.findel.co.uk
15
Strategic Report
Finance Director’s Review Group profit before tax Group profit before tax* was £22.0m in FY14, up £10.2m on FY13, as summarised below. 2014 £000
Tim Kowalski
2013 Restated £000
Change £000
Operating profit*: Express Gifts Kleeneze Kitbag Education Supplies Overseas sourcing Unallocated central costs
30,679 1,306 (4,106) 4,092 (93) —
21,823 1,990 (1,693) 794 42 (637)**
8,856 (684) (2,413) 3,298 (135) 637
Total group operating profit* Net finance costs*
31,878 (9,876)
22,319 (10,523)
9,559 647
Profit before tax* Exceptional costs
22,002 (18,747)
11,796 (11,314)
10,206 (7,433)
Profit before tax
3,255
482
2,773
*
from continuing operations before exceptional items
** element of ongoing central group management costs of FY13 relating to the former Healthcare division. These costs have been reabsorbed within the other business units in FY14
The operating profit* of the continuing operations of the group increased by £9.6m to £31.9m, with an excellent performance from Express Gifts and substantial growth from the Education Supplies division, offset by a disappointing performance from Kitbag and lower profits from Kleeneze. The favourable impact of lower average net debt following the sale of the Healthcare division in April 2013 resulted in net finance costs* reducing by £0.6m to £9.9m as restated for the effects of IAS19 “Employee Benefits (revised 2011)”. Consequently, the group’s profit before tax increased by £10.2m to £22.0m. Exceptional items Total exceptional costs (excluding items in discontinued operations) of £18.7m (FY13: £11.3m) were incurred as set out in note 6. The recovery periods for both Kleeneze and Kitbag will be longer than originally envisaged, which has resulted in an accounting non-cash adjustment to reduce the carrying values of those businesses by some £10.0m in aggregate. An onerous contract provision of £2.8m was created within Kitbag in relation to a loss-making contract that is to be terminated with effect from June 2015. Other exceptional costs principally relate to the additional costs and provision for PPI redress of £2.0m, onerous property costs of £0.8m, and restructuring costs relating to changes to senior management and systems improvements totalling £2.7m.
16
Findel plc Annual report and accounts 2014
Pensions The group has continued to make additional voluntary contributions to its defined benefit schemes totalling £3.2m in the current financial period (FY13: £3.2m) to improve the funding levels of these closed schemes. Following the results of the triennial actuarial valuation of the schemes as at April 2013, the company has agreed a revised schedule of contributions for the next 10 years, within which £4.1m will be paid in during FY15 and £2.5m in each of FY16 and FY17. The net deficit at the end of FY14 measured in accordance with IAS19 reduced to £8.6m (FY13: £19.7m) as a result of actuarial gains in the year, reflecting an increase in corporate bond yields used to value the schemes’ liabilities. Taxation The group posted a charge of £2.6m in the year in respect of taxation (FY13: credit of £1.1m). The effective pre-exceptional tax rate for the year was 24.6%. Earnings per share and dividends The adjusted earnings per share for the year increased from 12.13p in FY13 to 19.56p in FY14. The basic earnings per share from continuing operations was 0.78p per consolidated share (FY13: 1.87p). No dividend will be paid in respect of FY14 (FY13: nil). The prohibition contained within the banking facilities on the payment of dividends will be relaxed from April 2016 onwards, although your board currently intends to continue to use the cash generated by the group to reduce debt further rather than to reinstate dividend payments.
Strategic Report
2014 £000
2013 £000
Change £000
Fixed assets Net working capital External net debt Other net liabilities
124,981 195,068 (206,953) (1,448)
137,081 198,880 (225,153) (10,337)
(12,100) (3,812) 18,200 (8,889)
Net assets
111,648
100,471
11,177
Consolidated net assets amounted to £111.6m at the period end (FY13: £100.5m), largely reflecting the actuarial gains in respect of the pension liabilities plus other gains in the income statement during the period. These net assets are equivalent to 132p per share (FY13: 118p per share).
The Healthcare division was classified as being a disposal group held for sale at the prior period end. Full details of the results of the Healthcare division and its assets and liabilities are set out in note 7.
As a result of the classification of the Healthcare division as being held for sale at the prior period end, cash and borrowings attributable to that division are shown on the balance sheet within the “assets held for sale” caption, rather than against the normal cash caption. This is summarised as follows: 2014 £000
2013 £000
Held for resale Rest of group
— 24,270
6,058 27,965
External total
24,270
34,023
2014 £000
2013 £000
Change £000
External bank borrowings 121,513 Less total cash (24,270)
154,176 (34,023)
32,663 (9,753)
Core bank debt Securitisation drawings
97,243 109,710
120,153 105,000
22,910 (4,710)
Net debt
206,953
225,153
18,200
Net interest costs* for the year were £9.9m, down from £10.5m in 2013 (restated), reflecting lower average borrowings following the sale of the Healthcare division in April 2013. This charge was covered 3.2 times by operating profit* (FY13: 2.1 times). In addition to this, the group incurred £0.5m of exceptional finance charges. Currency risk management A proportion of the products sold principally through the group’s Express Gifts division are procured through the group’s Far East buying office. The currency of purchase for these goods is principally the US dollar, with a proportion being denominated in Hong Kong dollars. The Kitbag division sells a proportion of its products in international markets with the US dollar being the primary reference currency. This provides an element of natural currency hedge. The group has a policy of hedging its residual foreign currency denominated transactions by entering into forward exchange purchase contracts within the current financial period. At the balance sheet date, the group had no outstanding contracts in place. Borrowing risk The group’s exposure to borrowing and cash investment risk is managed by dealing only with banks and financial institutions with strong credit ratings, within limits set for each organisation. *
before exceptional items
www.findel.co.uk
17
COMPANY FINANCIAL STATEMENTS 104—109
External net debt at the year-end was therefore as follows:
Interest rate risk management The group’s interest rate exposure is managed by the use of derivative arrangements as appropriate, details of which are set out in note 20 to the financial statements. The group has recently purchased interest rate caps covering the two years to May 2016 to protect against the risk of unforeseen increases to LIBOR rates.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Cash flow and borrowings Net cash from operating activities was an inflow of £14.6m (FY13: £14.6m), reflecting the continued improved trading performance and focus upon cash generation during FY14.
Treasury and risk management The group’s central treasury function seeks to reduce or eliminate exposure to foreign exchange, interest rate and other financial risks, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. It does not engage in speculative transactions and transacts only in relation to underlying business requirements.
GOVERNANCE 20—57
Discontinued operations A conditional agreement was reached on 19 March 2013 to sell the Healthcare division to LDC, and was completed on 19 April 2013. The gross consideration payable upon completion was £24.0m, comprised a cash payment of £22.6m to Findel Plc and a payment of £1.3m into an escrow account to satisfy the value of NRS’ debt to the Findel Group Pension Fund.
The securitisation facility supporting Express Gifts’ receivables was increased from a maximum advance of £105m to £130m in January 2014. In May 2014, significant amendments to our core debt facilities were agreed that relax a number of the onerous restrictions that were placed upon the group in 2011. Included within this is, from 2016, the removal of the prohibition on the payment of dividends, although it is the board’s current intention to continue to use the cash generated by the group to reduce debt further rather than to reinstate dividend payments.
STRATEGIC REPORT 1—19
Summary balance sheet
Strategic Report
Finance Director’s Review continued Principal risks and uncertainties There are a number of risks and uncertainties that could impact the performance of the group over and above the treasury risks considered above. There are inherent risks in relation to the group’s employees, customers, suppliers and the legal and regulatory frameworks in which it is conducted. Group and divisional management, through the budgeting, forecasting and monthly review of actual results, review business risks and seek to mitigate these risks as far as possible, as described in the Corporate Governance Report on pages 20 to 57. The risks set out below relate to three key areas of review by the group being those specific to the group’s divisions, economic and regulatory risks, and operational risks. Risks specific to the group’s divisions The business of the Express Gifts division is seasonal, and is more heavily weighted towards the second half of the financial year. In addition the division is reliant on credit scoring techniques in the recruitment of new customers. The Kleeneze business uses its network of independent distributors, who sell its goods and recruit new distributors. Any significant deterioration in the performance of the network could have an adverse effect on Kleeneze’s business. Kitbag has a portfolio of partners to whom it supplies its e-commerce expertise. Whilst no single partner represents more than 15% of Kitbag’s revenue, the loss of a handful of contracts in a short period of time could lead to an adverse impact on the business. In the Education Supplies division, the September and March “Back-to-School” periods account for much of the market’s annual sales and profits. The group is focused on delivering a high quality of service and being well prepared for managing peak demand in all of its businesses. Economic and regulatory risks The group is affected by the impact of the economy on consumer spending or the ability of its customers to service their debts. The impact of the sustained reductions in government spending on education may adversely impact the performance of the Education Supplies division and may in turn have a material adverse effect on the group’s business. Interruptions in the availability or flow of stock from third-party product suppliers, or issues arising from the sale of faulty or defective goods leading to product recalls could have an adverse effect on the group’s business. To mitigate this risk, the group purchases products from a wide variety of domestic and international third party product suppliers and engages in appropriate quality assurance processes. The financial services activities of the Express Gifts division became subject to regulation from the Financial Conduct Authority (FCA) with effect from 1 April 2014. In addition to its existing permission as an insurance intermediary, the business currently has an Interim Permission to undertake consumer credit and credit brokerage activities. The withdrawal or material variation of this permission or a failure to have it converted into
18
Findel plc Annual report and accounts 2014
a Full Permission in due course could have a material adverse effect on the group. In addition, any changes in legislation, regulation or FCA policy (for example restrictions on interest rates or account fees) could have a material adverse effect on the group. The group manages compliance with applicable financial services and consumer credit regulations in conjunction with third party professionals, where appropriate. Deteriorating markets and reputational risks could result in the impairment of goodwill, intangible assets (including brands) and property, plant and equipment, which may adversely affect the group’s financial position. This includes the potential use of social media by third parties to comment upon the group’s businesses. The group focuses on maintaining the highest quality of service to mitigate against any impairment in the value of its businesses. Operational risk The group may fail to keep up with advances in internet technology. Furthermore information technology systems failure or disruption could impact the group’s day-to-day operations. The group relies heavily on its information technology systems to record and process transactions and manage its operations as well as to enable its customers to purchase products online and over the phone. The group has seen significant growth in the proportion of its home shopping sales which are derived from the internet, and these now represent over 50% of the total sales of the Express Gifts division. The group is focused on investing appropriately in its information technology systems and progressively developing its e-commerce capabilities. The group is dependent on third parties for outsourcing functions. The group carries out extensive reviews of any potential outsourcing partner. Loss of, or disruption to, the group’s distribution centres and administrative sites would have a material adverse effect on the group’s business. The group has established disaster recovery procedures designed to minimise the impact of any such disruption. The group also carries insurance cover against the potential loss of key facilities. Financial risk The group is reliant on the continued provision of credit facilities, and the ability to refinance them as they fall due, to support its operations as it seeks to reduce its net borrowings to a more appropriate level. The current facility agreements which mature in March 2016 include various financial covenants which, if not complied with, would enable the lenders to seek immediate repayment of amounts outstanding under the outstanding credit facilities. The group has recently agreed relaxations to the terms of these facilities which mitigates this risk significantly. Tim Kowalski Finance Director 3 June 2014
Strategic Report
Our people, our products, community and the environment
•
examples of initiatives in place within the group’s businesses to support and develop our employees;
•
an outline of the structures in place and examples of activities during the period to manage the health and safety risks inherent in the group’s activities;
•
the group’s approach to product safety and sourcing;
•
the impact of the group’s activities on the environment, measures we take to mitigate those impacts and our environmental performance over the period; and
•
examples of the social and community related activities around the group.
STRATEGIC REPORT 1—19
Our people, our products, community and the environment Our Corporate Social Responsibility Report is set out on pages 25 to 27 and covers the following principal areas:
Gender Diversity We also report for the first time this year on the gender diversity of the board and within the senior management team and the gender balance amongst the group’s UK employee base. The position as at the 28 March 2014 was as follows:
Findel PLC Board Senior Management All UK Employees
7 77 1,000
87% 72% 48%
Female employees Number Percentage
1 30 1,088
13% 28% 52%
Total employees Number Percentage
8 107 2,088
100% 100% 100%
GOVERNANCE 20—57
Male employees Number Percentage
CONSOLIDATED FINANCIAL STATEMENTS 58—103 COMPANY FINANCIAL STATEMENTS 104—109
www.findel.co.uk
19
Governance
Directors, Officers and Statutory Information Board of Directors 1
3
5
7
2
4
6
8
1. Mr D A Sugden, 62(a) Chairman
3. Mr T J Kowalski, 55 Finance Director
5. Mr E F Tracey, 65(a)(b)(c) Senior non-executive director
7. Mr W Grimsey, 62(a)(b)(c) Non-executive director
David Sugden joined the board on 28 August 2009 and became chairman on 6 April 2010. He has been chairman of BPP Holdings plc, chairman of MSB International plc, group chief executive of Geest plc, group finance director of Spear & Jackson International plc and a non-executive director of Greencore Group plc, Mouchel plc and Applied Distribution Limited.
Tim Kowalski joined the board as finance director on 2 August 2010. Prior to this he had many years experience in retail and consumer businesses both public and private including N Brown plc, Steinhoff Ltd, HomeForm Ltd, Greenalls PLC, Grand Metropolitan PLC and Burton Group PLC.
Bill Grimsey joined the board in March 2012. He has held a variety of senior executive and non-executive roles with companies in the retail sector such as Tesco, Kingfisher, Wickes and the Big Food Group. Most recently he was the non-executive chairman of Focus (DIY) Ltd.
2. Mr R W J Siddle, 53(a) Chief Executive
Phil Maudsley joined the group in 1987 as general manager of a manufacturing subsidiary. He became managing director of the Home Shopping Division in 1994 and was appointed to the board on 6 April 2004. He was subsequently appointed group managing director in December 2004, chief operating officer in May 2006 and then chief executive in November 2009. Phil was appointed managing director of the Home Shopping Division in September 2010.
Eric Tracey was appointed to the board on 28 August 2009. He is a non-executive director of The NEC Group and a partner in investment manager, Go Investment Partners LLP. Prior to this Eric was senior independent director and chairman of the audit committee at Chloride Group plc and an independent director and chairman of the audit committee at Burtons Holdings Ltd and group finance director of Amey plc and Wembley plc, having previously been a partner in Deloitte LLP.
Roger Siddle was appointed chief executive on 15 September 2010. Prior to this, he was chief executive of BPP Holdings plc. He is a former managing partner of the UK business of Bain & Company.
Secretary and Registered Office M Ashcroft 2 Gregory Street Hyde Cheshire SK14 4TH
20
4. Mr P B Maudsley, 53 Managing Director, Home Shopping
Company Number 549034 Auditors KPMG LLP St James’ Square Manchester M2 6DS
Findel plc Annual report and accounts 2014
6. Mr F Coumau, 42(a)(b)(c) Non-executive director Francois Coumau was appointed to the board on 12 August 2013. He joined eBay in 2006 and is currently their general manager for Continental Europe, having previously held a series of other senior roles with them, including Director of Search, Europe and Head of Buyer Experience, Search & Loyalty, UK. Prior to this, his career has included senior roles at L'Oreal and Mars.
Registrars Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA
8. Mrs L C Powers-Freeling, 57(a)(b)(c) Non-executive director Laurel Powers-Freeling was appointed to the board on 1 October 2010. She has previously been a group executive director of Marks & Spencer Group Plc; CEO of Marks & Spencer Financial Services Plc and most recently the UK country manager and chairman of the European Insurance Business at American Express Services Europe Ltd. Laurel’s previous roles have included managing director of the Wealth Management Division at Lloyds TSB Group plc, finance and strategy director of their UK Retail Banking Division, and a senior adviser to the Bank of England. She currently holds non-executive director positions at BBA-LIBOR Ltd, the Bank of Ireland (UK) plc and C. Hoare & Co. (a)
Member of the Nomination Committee
(b)
Member of the Audit and Risk Committee
(c)
Member of the Remuneration Committee
Governance
Corporate Governance Report
D A Sugden Chairman
STRATEGIC REPORT 1—19
Chairman’s introduction Effective corporate governance is essential to the success of our business. As chairman, my role is to manage the board, ensuring it operates effectively and contains the right balance of skills and experience to successfully execute the strategy. The board is collectively responsible for the long-term success of the company and for setting and executing the strategy. The board has confirmed its commitment to business integrity and professionalism in all its activities and maintaining the highest standards of corporate governance.
3 June 2014
Application of the principles of the Code This report explains how the company has applied the main principles of the Code to its activities. The section of the Code entitled “Main Principles of the Code” sets out the main and supporting principles of good governance for companies, which are split into the following topics: leadership; effectiveness; accountability and audit; remuneration and relations with shareholders.
GOVERNANCE 20—57
Compliance The board considers that throughout the year under review the company has complied with the relevant provisions of both the 2010 and 2012 issues of the UK Corporate Governance Code (the Code), and with the rules of the UK Listing Authority. A copy of the Code can be located at https://www.frc.org.uk
The Board At 28 March 2014, the board was made up of eight members comprising the chairman, Mr Sugden; the chief executive, Mr Siddle; the finance director, Mr Kowalski; a further executive director, Mr Maudsley and four non-executive directors. The non-executive directors are considered by the board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. Biographical details of each of the directors, which illustrate their range of experience, are set out on page 20.
The senior independent director is Mr Tracey and he is the director whom shareholders may contact if they feel their concerns are not being addressed through the normal channels. The chairman and non-executive directors met during the year without the executive directors present. Directors are subject to election at the annual general meeting immediately following their appointment and to reappointment at least every three years. The board has determined that in the normal course non-executive directors will be asked to serve two terms of three years. The board assesses annually whether each non-executive director is independent against the criteria set out in the Code. The appointment and replacement of directors of the company is governed by the company’s Articles of Association, the Code, the Companies Act 2006 and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of directors are described in the Articles and the Main Board Terms of Reference, copies of which are available on request, and are summarised in the Corporate Governance Report on page 22.
Board Diversity The board has adopted a policy on board diversity which recognises that diversity (including but not restricted to gender) is an important factor in ensuring that the profile of board members provides the necessary range of perspectives and skill sets to ensure effective stewardship. Each of the last three appointments to the board have improved its diversity. Conflicts of Interest The company has a procedure for the disclosure, review, authorisation and management of directors’ conflicts of interest and potential conflicts of interest, in accordance with the provisions of the Companies Act 2006. The procedure is included in the Articles of Association and has been adhered to by the board since its introduction. In deciding whether to authorise a conflict or potential conflict of interest, the directors must have regard to their general duties under the Companies Act 2006. The authorisation of any conflict matter, and the terms of authorisation are reviewed by the board as appropriate and, as a minimum, on an annual basis.
www.findel.co.uk
21
COMPANY FINANCIAL STATEMENTS 104—109
During the period ended 28 March 2014, no director had any material interest in any significant contract to which the company or any subsidiary was a party.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The current chairman, Mr Sugden, became a member of the board in 2009 and was an independent non-executive director of the company prior to his appointment as chairman on 6 April 2010. He has no other significant commitments that the board considers are a constraint on his agreed time commitment to the company.
Governance
Corporate Governance Report
Board Procedures The board met formally in person or by telephone conference call on nine occasions during the period and individual attendance at those and at the meetings of the Audit & Risk Committee, the Remuneration Committee and the Nomination Committee is set out in the table below. The board receives adequate and timely information to enable the directors to discharge their duties. In addition to matters statutorily reserved for a board, there is an agreed schedule of matters reserved for the board for collective decision including:
determining the strategy and control of the group;
amendments to the structure and capital of the group;
approval of financial reporting and internal controls;
approval of capital and revenue expenditure of a significant size;
acquisitions and disposals above a prescribed level; and
corporate governance matters and approval of group policies and risk management strategies.
To enable the board to perform its duties effectively all directors have full access to all relevant information and to the services of the company secretary whose responsibility it is to ensure that board procedures are followed. The appointment and removal of the company secretary is a matter reserved for the board. There is an agreed procedure whereby directors wishing to take independent legal advice in the furtherance of their duties may do so at the company’s expense. Appropriate training is available to all directors on appointment and on an ongoing basis as required. The terms of reference for each of the Board Committees are available on request from the company secretary or on the company’s website (www.findel.co.uk). Attendance at Board and Committee Meetings The following table shows the attendance of directors at meetings of the board and of the Audit & Risk, Remuneration and Nomination Committees of the board during the period to 28 March 2014:
D A Sugden R W J Siddle T J Kowalski P B Maudsley E F Tracey F Coumau† W Grimsey L C Powers-Freeling M L Hawker‡ Number of meetings in the year
Board
Audit Committee
Remuneration Committee
Nomination Committee
9 9 9 8 9 6 9 8 3 9
* * * * 4 3 4 3 1 4
* * * * 7 * 7 4 4 7
3 2 * * 3 2 3 3 — 3
*
Where an asterisk appears in the table the director listed was not a member of the committee during the period.
†
Mr Coumau was appointed to the board and the Audit & Risk Committee and the Nominations Committee in August 2013 and attended all meetings during his tenure.
‡
Mr Hawker retired from the board, and from each of the Audit & Risk Committee, the Remuneration Committee and the Nomination Committee in July 2013. He attended all meetings during his tenure.
On the two occasions noted above when a full complement of the board did not attend a board meeting the chairman subsequently discussed the issues covered with the board member concerned.
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Findel plc Annual report and accounts 2014
Governance
The performance of each director has been assessed by the chairman and by peer review and has been discussed in a one to one meeting between the chairman and the individual director.
STRATEGIC REPORT 1—19
Board Effectiveness The performance of the board as a whole was assessed during the year by a process involving the completion of self and peer review questionnaires by each director, a one to one discussion between each director and the chairman and a discussion by the board as a whole. The effectiveness of the board was judged to have been maintained during the year and additional actions were agreed to further improve performance.
The senior independent director, met during the financial year with each of the non-executive directors to discuss the performance of the chairman. The senior independent director then discussed the results of that assessment with the chairman.
The chairman, chief executive and finance director are primarily responsible for investor relations. Feedback from major shareholders is reported to the board and discussed at its meetings and from time to time the chairman also discusses the views of the company’s major shareholders with the non-executive directors. Formal presentations are made to institutional shareholders following the announcement of the company’s full year and half year results. During the year the senior independent director has been available to meet with institutional shareholders if requested and the chairman of the Remuneration Committee has met with institutional shareholders to discuss specific remuneration issues. The board recognises that the annual general meeting is the principal forum for dialogue with private shareholders. All directors normally attend the annual general meeting and are available to answer any questions that shareholders may wish to raise. The Notice of Meeting is sent to shareholders at least 20 working days before the meeting. Shareholders vote on a show of hands, unless a poll is validly called and after each such vote the number of proxy votes received for and against the resolution is announced.
The board may exercise all the powers of the company to borrow money and to mortgage or charge its undertaking, property, assets and uncalled capital and to issue debentures and other securities whether outright or as collateral security, for any debt, liability or obligation of the company or of any third party. The board must restrict the borrowings of the company and exercise all powers of control exercisable over its subsidiaries (if any) so that the total amount of the Findel Group’s borrowings (exclusive of inter-group borrowings) do not exceed £450,000,000. However, the company may pass an ordinary resolution allowing borrowings to exceed such limit. The board may, subject to the provisions of the Companies Act and shareholder approval where required, exercise its authority to allot shares, grant rights to subscribe for shares or to convert any security into shares. Shares may be issued with such rights or restrictions as may be approved by resolution of the shareholders and shares may be issued on terms that they are, or at the option of the company may be liable to be, redeemed. The board may, prior to allotment, determine the terms, conditions and manner in which shares can be redeemed by the company.
www.findel.co.uk
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COMPANY FINANCIAL STATEMENTS 104—109
Committee Membership The board reviewed the membership of its principal committees at the time of the retirement of Mr Hawker from and the appointment of Mr Coumau to the board. With effect from the close of the annual general meeting on 24 July 2013 Mr Hawker retired from each of the Audit & Risk Committee, the Remuneration Committee and the Nomination Committee. Mr Coumau joined the Audit & Risk Committee and the Nomination Committee on his appointment to the board on 12 August 2013. Mrs PowersFreeling will retire from each of the Audit & Risk Committee, the Remuneration Committee and the Nomination Committee when she steps down from the board at the conclusion of the 2014 annual general meeting. Details of the membership of the committees as at the end of the period under review are included on page 20.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Powers of the Board The directors manage the business of the company subject to the Companies Act 2006 and the Articles of Association of the company and subject to such directions as are prescribed by the company by special resolution.
GOVERNANCE 20—57
Relations with Shareholders The company recognises the importance of communicating with its shareholders, to ensure that its strategy and performance are understood. This is achieved principally through the Interim Report, Interim Management Statements, the Annual Report and the annual general meeting. In addition, a range of corporate information is available to investors on the company’s website (www.findel.co.uk).
Governance
Corporate Governance Report
Audit & Risk Committee The Audit & Risk Committee operates under written terms of reference which are available on the company’s website (www.findel.co.uk) and is comprised of only independent non-executive directors. It is chaired by Mr Tracey. The Committee’s report is set out on pages 46 to 49. Remuneration Committee The Remuneration Committee operates under written terms of reference which are available on the company’s website (www.findel.co.uk). It is comprised of only independent non-executive directors and Mrs Powers-Freeling is the current chairperson. The committee’s report is set out on pages 28 to 45. The Remuneration Committee is assisted when required by New Bridge Street (a trading name of AON plc) who are appointed by the Remuneration Committee, are members of the Remuneration Consultants Group and have signed up to its Code of Conduct. Apart from providing advice in respect of the design, establishment and operation of remuneration arrangements, New Bridge Street provides no other services to the company. Nomination Committee The Nomination Committee operates under written terms of reference which are available on the company’s website (www.findel.co.uk). Its principal duties are to periodically review the composition of the board and to recommend suitable candidates for approval by the board to fill executive and non-executive vacancies. During the year the Nomination Committee comprised the chairman, the chief executive and the independent non-executive directors. The committee chairman is Mr Sugden. The Committee appointed The Zygos Partnership to assist in the selection of a new non-executive director to replace Mr Hawker who retired at the conclusion of the 2013 annual general meeting. A specification for the appointment was agreed and a search carried out by Zygos. The exercise produced a shortlist of candidates who were interviewed by members of the committee and from which the preferred candidate, Mr Coumau, was selected and recommended to the board. As at the date of this report the committee is working with Zygos again to select a replacement non-executive director to replace Mrs Powers-Freeling who intends to step down at the conclusion of the 2014 annual general meeting. During the period the work of the Nomination Committee also included a review of the composition and balance of the board; a more detailed approach to succession planning for the executive directors; an evaluation of the effectiveness of the committee (via a self-assessment questionnaire based process); and consideration of the directors to be proposed for election/re-election at the 2014 annual general meeting. By order of the board
M Ashcroft Secretary 3 June 2014
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Findel plc Annual report and accounts 2014
Governance
Corporate Social Responsibility Report
Our People The group appreciates the fundamental role played by all our employees in our success. The “People Proud” initiative introduced across the group ensures a system is in place for the setting of objectives, monitoring of performance and determination of development needs for all staff. The group-wide approach ensures consistency and allows all employees to understand their contribution to the group objectives. Both Express Gifts and Findel Education have recently undertaken employee engagement surveys and the results from these will be addressed in the coming year.
STRATEGIC REPORT 1—19
The board recognises that continued performance in the area of Corporate Social Responsibility can underpin the continuing success of the Findel group. In addition to compliance with all relevant legislation, Findel remains committed to improvement in all its interactions with employees, customers, suppliers and the wider community and to limit its impact on the environment.
Wherever the needs of the business allow, our divisions offer flexible working solutions which help to maintain a balance between work and commitments outside of the workplace. Kitbag has reduced its weekend working to just peak periods. We also continue to offer tax-efficient childcare vouchers in lieu of salary. As indicated in the Strategic Report, 13% of the group board are female, whilst this figure increases to 28% amongst senior management, and across the entire workforce, 52% are female.
Express Gifts is looking to enhance the training already provided to its employees by offering Warehousing NVQ’s in 2014. Within the Education business it is important that we give our customers the protection of knowing our people are suitable to work within an environment which may contain vulnerable people and as such all of their sales force are CRB checked. Several employee benefit schemes exist which offer retail discounts and vouchers, gym membership schemes and NHS checks for the over 40’s, promoting health and wellbeing. Kitbag have also completed an annual Employee Engagement survey – “View from the Terraces” – and an employee forum to continue this work. Additionally they provide employees with bi-monthly Ask Anything sessions with the directors and senior management.
The focus on health and safety continues to show benefits with a fall in both the number of incidents and the number of lost days of 30% over the last year. The number of RIDDOR incidents (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations) has remained the same but these are significantly less than comparable industry figures published by RoSPA. All areas of the business operate a twelve month rolling risk assessment programme run by a qualified Health and Safety professionals. This approach allows for greater focus on individual areas of health and safety. Each site receives several inspections during the year. A major health and safety improvement which was completed in May 2013 was the complete replacement of the sprinkler system in a significant area of Express Gifts’ main site in Accrington. Additionally an additional new full-time Health and Safety Manager has been recruited into the group focusing primarily on the Express Gifts risks.
Our Hong Kong office has been sourcing product for group companies and third parties for over 30 years and has a Quality Manager dedicated to ensure the ongoing quality of our products. All suppliers within Home Shopping and Education are required to produce accredited certification from a recognised accreditation body which has been awarded within the last 12 months. This accreditation is monitored to ensure that the supplier keeps this up to date. Within our Home Shopping division, various products in our household and children’s furniture ranges are procured from FSC and sustainable sources, whilst within Findel Education all products are assessed for quality including REACH, ROHS, FSC and EU timber regulations compliance. All of Findel Education’s suppliers are required to adhere to the Ethical Trading Initiative Base Code and Findel Education is a proud member of the UN Global Compact. Findel Education also became a member of FIRA in 2013, the leading association for the UK furniture industry. Kleeneze has continued to maintain its low volume of returns at 6.5% in line with FY13.
www.findel.co.uk
25
COMPANY FINANCIAL STATEMENTS 104—109
Our Products and Customers The group sells a range of over 100,000 stock lines across an extensive range of categories. Our suppliers are similarly diverse from individual factories to large multinational companies. Product safety and quality has to be at the forefront when selecting any product for our range. Appropriate safety certification is obtained (backed by independent third party testing where necessary) and each division has a team dedicated to maintaining these standards.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Health and Safety The group has a comprehensive structure to assess, monitor and mitigate health and safety risk within the business. The health and safety policies and procedures are available to all employees via the divisional intranets.
GOVERNANCE 20—57
With the exception of a few members of staff in Asia, the group is a UK based employer. Many of our sites are in multi-cultural areas of the UK and we operate a fair, equal opportunities employment culture which embraces multi-culturalism, equality and diversity. The needs of specific groups are identified and addressed with, for example, prayer facilities and employee information in foreign languages where appropriate.
Governance
Corporate Social Responsibility
The Environment As a business predominantly operating within mail order and e-commerce, the group’s environmental impact is predominantly through utility consumption and our use and disposal of paper and packaging, although as a non-manufacturing company, our emissions remain relatively low. The group’s Scope 1 emissions from its vehicle fleet in FY14 were 372 tonnes of CO2. The Scope 2 emissions were 5,957 tonnes of CO2 which were a reduction of 6.1% from 6,346 tonnes on like-for-like buildings in FY13. The high number of relatively low value despatches in our businesses continues to make it economically and environmentally efficient to use third party carriers to transport product to our customers. Prior to appointment and on a regular basis thereafter, we ask our third party carriers to demonstrate their environmental credentials. Each of our businesses continues to supply its customers with the information necessary to make informed environmental choices. This includes the identification in our catalogues of products made from renewable or recycled materials and the energy ratings of our white goods. Our Education division continues to increase its range of eco-friendly products which includes products made from recycled paper, Fairtrade, energy efficiency A rated appliances, environmentally friendly products and lower carbon footprint UK-sourced products. All sites within Findel Education have now achieved ISO14001 accreditation, an internationally recognised standard for environmental management which ensures each location has a fully compliant Environmental Management System. Energy The group’s major use of energy continues to be the heating and lighting of buildings, powered conveying equipment and in our vehicle fleet. The more efficient use of space combined with energy management initiatives have seen a reduction of total energy consumption in our buildings as reported above. We continue to use a green energy product for the majority of supply which is Climate Change Levy exempt which reflects its lower emissions and sustainability. Energy efficiency is always a material consideration when procuring vehicles, equipment or services. Our major sites all benefit from centralised control of heating and ventilation systems and are subject to regular monitoring to ensure they are operating as efficiently as possible. Findel Education have installed energy saving lighting in its two major sites. Kitbag has extended its energy saving lighting at their head office and warehouse site in Chadderton. The group Company Car Policy focuses on low carbon emission vehicles with a maximum CO2 of 160 g/km permitted with an average of 122 g/km. Paper The tonnage of paper used in our catalogues has again reduced year-on-year by 12% from 13,478 tonnes to 11,823 tonnes. All paper used for printing by all of our divisions is now manufactured at mills which have Programme for the Endorsement of Forest Certification (PEFC) chain of custody certification. Packaging The group are constantly seeking innovative ways to minimise the level of packaging used, whilst ensuring that products are received by our customers undamaged. We also actively seek out opportunities with suppliers to reduce packaging. In the current year, we have seen a rise in the overall packaging levels consistent with the increased turnover and reflect the already low levels of packaging achieved by previous initiatives. Waste Since the appointment of Vale Waste Management as Express Gifts’ waste management partner in May 2012, all Express Gifts, Kleeneze and the Kitbag head office/warehouse have been Zero to Landfill sites. In the last 12 months, 2,087 tonnes of waste was collected, 73% was recycled and 27% was recovered via an Energy from Waste (EFW) plant. Findel Education have achieved a Zero to Landfill standard at its two largest sites in Nottingham and Enfield and have reduced the landfill element of its total waste to 3%. They are working towards its objective of Zero to Landfill across all three of its sites by the end of this year.
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Findel plc Annual report and accounts 2014
Governance
Both Express Gifts and Findel Education are partnering local schools in the Business in The Community initiative, providing support and guidance to staff and students. Findel Education are also involved with the Greggs Breakfast Club which helps schools provide a breakfast club for primary school children ensuring a great start to their day and promoting health, well-being and development. They continue to be a Trustee to Sale Grammar School and the Findel Education Managing Director, Tony Hillyer, continues to sit as a trustee on the board of Tameside Sport Trust and is a member of the Tameside Post-16 Advisory Panel which advises on the post-16 learning provisions within Tameside.
STRATEGIC REPORT 1—19
Community Support Once again, the company and its employees continue to support a number of local and national charities, together with local communities and organisations close to our various bases of operation.
Kleeneze have continued to promote the “Shop Local” initiative with distributors encouraging their customers to support their local communities. Andy Anson, the Managing Director of Kitbag, is a patron of Mahdlo, a local youth organisation within Oldham and Kitbag have completed a number of events in support of them including a three day charity bike ride covering 360 miles and raising over £8,000. GOVERNANCE 20—57 CONSOLIDATED FINANCIAL STATEMENTS 58—103 COMPANY FINANCIAL STATEMENTS 104—109
www.findel.co.uk
27
Governance
Board Report on Directors’ Remuneration
Dear Shareholder On behalf of the board, I am pleased to present the Directors’ Remuneration Report for the year ended 28 March 2014, for which we will be seeking approval from our shareholders at our annual general meeting. The Remuneration Committee (the “Committee”) has presented this report in compliance with the new reporting regulations, including a Remuneration Policy Report which sets out the policy on the remuneration of the executive and non-executive directors and an Annual Report on Remuneration which discloses how the current remuneration policy has been implemented in the year ended 28 March 2014. We will be seeking your support for both parts of the report by way of a binding vote for the Remuneration Policy Report and an advisory vote for the Annual Report on Remuneration and my Annual Statement at the forthcoming AGM on 18 July 2014. Performance and Remuneration for 2013/14 As stated in the Strategic Report, FY2013/14 has been another successful year for Findel, with a substantial improvement in profits (PBT* increasing by 85% on the prior year comparative) and a further reduction in net debt (which reduced over the year by £18.2m). As a result of the performance described above, the Committee assessed the annual bonus payout as being 67.9%, 70.9% and 87.8% of salary for the chief executive, finance director and the managing director, Home Shopping respectively. The 2011 Performance Share Plan awards which were granted to the current executive directors, along with the Special Award that was granted to the chief executive, each subject to share price targets and an EPS and general financial underpin that were aligned with delivering the company’s three year 2011 turnaround plan, became eligible to vest in early 2014. Based on delivering a total shareholder return of 72.8% through growing the average three month share price from 169p on 1 April 2011 to 292p on 28 March 2014, and achieving EPS of 19.56p in the year under review, the awards are expected to vest at 38.77% and 35.01% respectively based on partial achievement of the performance targets. These performance targets were considered to be very stretching, particularly as during the three year performance period ending 28 March 2014 economic conditions have remained challenging and the group has successfully managed a number of structural issues that went beyond those initially envisaged in the group’s Full Potential Review. As such, the partial payouts from the 2013/14 annual bonus plan, the anticipated partial vesting of the 2011 Performance Share Plan awards and the anticipated partial vesting of the 2011 Chief Executive’s Special Award are deemed appropriate for a very positive result. Key remuneration issues for 2013/14 During 2013/14 the Committee met seven times. The key matters which were discussed are as follows:
The salary levels of the executive directors;
The bonus out-turn for the 2012/13 annual bonuses;
The terms of the 2013/14 annual bonus plan;
The quantum and performance targets for the 2013/14 Performance Share Plan awards;
The chief executive’s future long-term incentive provision;
Testing of the 2010 Performance Share Plan award’s performance targets;
Review of current remuneration (including outstanding long-term incentive awards);
Approval of 2012/13 Directors‘ Remuneration Report; and
Consideration of developments in best practice.
Summary of current Remuneration Policy/Changes in remuneration policy for 2014/15 The Committee’s policy remains to set remuneration at an appropriate level to retain and motivate executives of the appropriate calibre to deliver the company’s strategy. Supporting the company’s turnaround strategy, remuneration is clearly biased towards performance-related elements that are aligned with continuing to deliver improved levels of profitable growth and thus returns to our shareholders. During the year, the Committee reviewed its current remuneration framework in light of the above policy and concluded that it continues to support the company’s current phase of its turnaround strategy. However, since 2013/14 marked the conclusion of the chief executive’s 2011 Special Award’s performance period, 2014 will mark the return of the chief executive receiving annual awards under the company’s Performance Share Plan. The Committee is comfortable that the current overall structure of remuneration does not inadvertently encourage undue risk-taking through rigorous review of the annual bonus determination and a significant proportion of total remuneration being weighted towards long-term performance. Therefore the Committee is not planning any material changes to policy for 2014/15.
28
Findel plc Annual report and accounts 2014
Governance
Should it be considered appropriate to materially amend the current remuneration policy in future, the Committee would look to engage in an appropriate form of consultation with the company’s major shareholders.
STRATEGIC REPORT 1—19
Shareholders’ Views The Remuneration Committee regularly reviews shareholders’ views and developments in corporate governance “best practice” and, as a matter of good practice, takes periodic soundings from its shareholders in relation to remuneration policy. During the year under review, based on feedback received from shareholders, the performance targets applicable to the 2013 Performance Share Plan Awards were revised from those set for the 2012 awards so that half of the awards would vest based on challenging EPS growth targets with the balance remaining subject to absolute share price growth targets.
On behalf of the board, I would like to thank shareholders for their continued support and look forward to your support of our remuneration policy at the 2014 AGM. Laurel Powers-Freeling Chair of the Remuneration Committee
Remuneration Policy Report Introduction This report has been prepared in accordance with provisions of the Companies Act 2006 and Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The report also meets the relevant requirements of the Listing Rules of the Financial Conduct Authority and describes how the board has applied the principles of good governance relating to directors’ remuneration.
GOVERNANCE 20—57
3 June 2014
The Directors’ Remuneration Report will be put to a binding resolution at the AGM and if approved will be operational from that date (the “Effective Date” for the purposes of the legislation), until the 2017 AGM. The Annual Report on Remuneration, along with the Annual Statement from the Committee Chairman, will be put to an advisory vote at the AGM.
Policy on Remuneration of Executive Directors The key objectives of the remuneration policy for executive directors are:
To provide a competitive remuneration package which will attract and retain the highest calibre of executive; To ensure that individual rewards and incentives are properly aligned with personal performance, the performance of the group, and the interests of shareholders;
To structure remuneration packages so a significant proportion is performance related;
To operate simple, transparent incentive structures with a clear aim to reward for long-term shareholder value creation; and
To set executive pay packages having had due regards to pay and employment conditions in the wider workforce.
Remuneration policy is reviewed regularly and the Committee is satisfied that the current policy does not encourage undue risk taking (e.g. due to the range of performance metrics used in incentive plans and the substantial weighting towards long-term performance) and that it is not in conflict with the company’s policies on internal controls that are used to manage risk more generally. The Committee takes due account of remuneration structures elsewhere in the group when setting pay for the executive directors (for example, consideration is given to the overall salary increase budget).
www.findel.co.uk
29
COMPANY FINANCIAL STATEMENTS 104—109
In line with the Association of British Insurers’ (ABI) Guidelines on Responsible Investment Disclosure, the Remuneration Committee endeavours to structure incentives for executive directors and senior executive management so that they will not raise environmental, social or governance (ESG) risks by inadvertently motivating irresponsible behaviour. More generally, with regard to the overall remuneration structure, there is no restriction on the Committee which prevents it from taking into account corporate governance on ESG matters.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The regulations require the auditors to report to the company’s members on the “auditable parts” of the Directors’ Remuneration Report and to state whether, in their opinion, the parts of the report that have been subject to audit have been properly prepared in accordance with the relevant legislation. The parts of this report which have been audited have been highlighted accordingly.
Governance
Board Report on Directors’ Remuneration
Policy table This policy will come into effect, subject to shareholder approval, on 18 July 2014. Purpose and Link to Strategy
Operation
Maximum
Performance Metrics
Reviewed on an annual basis with increases effective from 1 August.
Salaries as at 29 March 2014 are as follows:
A broad assessment of individual and corporate performance is considered as part of the annual review process.
Base Salary To attract and retain high calibre executives.
Takes into account: • pay levels in companies of comparable size and complexity; • skills, knowledge and experience of the individual; • individual performance and development within the role; • any change in responsibilities; • rates of inflation and market wide wage increases in comparable companies; and • pay and employment conditions elsewhere in the group.
• CEO: £410,000; • FD: £281,000; and • MD, Home Shopping: £350,000. The above salary levels will be eligible for increases during the three year period each year (with effect from 1 August) that the Remuneration Policy operates from the Effective Date. During this time, salaries may be increased each year. The Committee will be guided by the salary increase budget (in percentage of salary terms) set across the workforce generally. Increases beyond those linked to the workforce (in percentage of salary terms) may be awarded in certain circumstances such as where there is a change in responsibility, experience or a significant sustained increase in the scale of the role and/or size, value and/or complexity of the group or where salary levels have become out of line with market rates for fulfilling similar roles in companies of comparable size and complexity.
Pension To provide market competitive long-term retirement benefits and reward mechanism.
Pension benefits are typically provided either through: (i) a contribution to a personal pension arrangement; or (ii) a cash supplement in lieu of pension provision. Only basic salary is pensionable.
The company’s policy, other than in the case of legacy arrangements, is to limit pension contributions to 20% of salary. Pension benefits to the current executive directors are as follows: • CEO – 20% of salary; • FD – 15% of salary; and • MD, Home Shopping – £83,020.
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Findel plc Annual report and accounts 2014
None.
Governance
Operation
Maximum
Performance Metrics
Other benefits include a company car or car allowance, fuel, private medical insurance, home telephone costs and any all-employee share incentive plan adopted by the company.
The value of insured benefits will vary year-on-year against the maximum cost in 2013/14 based on the cost of providing the insured benefit, and is included in the single total figure table.
None.
STRATEGIC REPORT 1—19
Purpose and Link to Strategy Benefits To provide cost effective employee benefits.
GOVERNANCE 20—57
The Committee may elect to offer executive directors other employee benefits on broadly similar terms as other employees.
Any all-employee share incentive will be operated within the limits set by HMRC from time to time.
Performance related bonus A cash bonus is paid based on the achievement of performance conditions set at the beginning of the financial year. Maximum opportunity is set by reference to market practice in companies of a comparable size and complexity. Clawback provisions enable the Committee to reclaim any bonus paid as a result of performance that is later the subject of a restatement of the company’s results (relating to events taking place after 30 March 2012) within a two-year period.
100% of salary.
Annual bonus will be earned based on performance against a subset of the company’s key performance indicators. A majority of annual bonus will be earned against a challenging graduated scale of financial targets (e.g. profit) with the targets set with reference to the company’s planning for the year. A minority of the bonus will be based upon the achievement of a number of key business objectives tailored to the individual executive (e.g. personal targets or business unit objectives).
For achieving the threshold performance targets, no more than 30% of the maximum bonus opportunity is payable. Maximum payment can only be earned as a result of performance above the company’s business plan for the year with a graduated scale operating between threshold and maximum performance levels.
www.findel.co.uk
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COMPANY FINANCIAL STATEMENTS 104—109
No bonus is earned unless a threshold level of financial performance is delivered.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
To incentivise and reward for the achievement of short-term targets linked to the company’s annual KPIs.
Governance
Board Report on Directors’ Remuneration
Purpose and Link to Strategy
Operation
Maximum
Performance Metrics
150% of salary (200% of salary in exceptional circumstances such as recruitment).
Granted subject to a blend of challenging financial (e.g. adjusted EPS) and shareholder return (e.g. total shareholder return, share price) performance conditions tested over three years.
Performance Share Plan (“PSP”) To incentivise and reward for the achievement of long-term targets which support the business strategy. Aligns executives’ interests with those of shareholders.
Approved by shareholders at the 2006 AGM. Annual grant of share-based awards which are subject to performance conditions and normally vest three years from grant.
Participants may be entitled to any dividends payable on vested shares.
20% of awards will vest for threshold performance with full vesting taking place for equalling, or exceeding, the maximum performance targets.
From 2012/13 awards onwards, Clawback provisions enable the Committee to reclaim any amount paid as a result of performance that is later the subject of a restatement of the company’s results (relating to events taking place after 30 March 2012) within a two-year period.
Share ownership Guidelines To provide a continued focus on long-term sustainable value creation and to further align executives’ and shareholders’ interests.
32
At the same time as introducing the PSP the Remuneration Committee introduced share ownership guidelines. Executive directors are expected to retain no fewer than 50% of any shares delivered under the PSP net of taxes until such time as a shareholding equivalent to 100% of their base salary has been achieved.
Findel plc Annual report and accounts 2014
N/A.
N/A.
Governance
Operation
Maximum
Performance Metrics
Fees for 2014/15 are:
None.
STRATEGIC REPORT 1—19
Purpose and Link to Strategy
Non-executive director fees To attract and retain individuals with relevant experience and knowledge to enhance the board.
The Committee is responsible for setting the company chairman’s fee. The board as a whole is responsible for setting the level of remuneration for non-executive directors.
• Non-executive director base fee: £37,500 Additional fees (for non-executive directors include): • Senior independent director fee: £10,000 • Chairmen of the Audit Committee fee: £10,000
• skills, knowledge and experience of the individual;
• Chairman of the Remuneration Committee fee: £10,000
• the expected time commitments, scope and responsibilities of each role; and
The above fee levels will be eligible for increases during the three-year period that the remuneration policy operates to ensure they continue to appropriately recognise the time commitment of the role, increases to fee levels for non-executive directors in general and fee levels in companies of a similar size and complexity.
• market rates at companies of a comparable size and complexity.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
A cash fee is paid, with periodic reviews which take into account:
GOVERNANCE 20—57
Non-executive directors are excluded from any discussions relating to their own fees.
• Chairman: £150,000
Non-executives are not eligible to participate in any incentive arrangements.
COMPANY FINANCIAL STATEMENTS 104—109
www.findel.co.uk
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Governance
Board Report on Directors’ Remuneration
Operation of the Annual Bonus Plan & LTIP Policy The Committee will operate the annual bonus plan and PSP according to their respective rules and in accordance with the Listing Rules and HMRC rules where relevant. The Committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of these plans. For example these include the following (albeit with quantum and performance targets restricted to the descriptions detailed in the policy table above):
Participants of the plans;
The timing of grant of award and/or payment;
The size of an award and/or a payment;
The determination of vesting;
Discretion required when dealing with a change of control (e.g. the timing of testing performance targets) or restructuring of the group; Determination of a good/bad leaver for incentive plan purposes based on the rules of each plan and the appropriate treatment chosen; Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, events and special dividends); and The annual review of performance measures weighting, and targets for the annual bonus plan and Performance Share Plan from year-to-year.
The Committee also retains the ability to adjust the targets (up or down) and/or set different measures and alter weightings for the annual bonus plan and to adjust targets for the PSP if events occur (e.g. material divestment of a group business or events relating to the company’s issued share capital) which cause it to determine that the conditions are no longer appropriate in the circumstances and the amendment is required so that the conditions achieve their original purpose and are not, in the opinion of the Remuneration Committee, materially more or less challenging to satisfy in the circumstances. All historic awards that were granted but remain outstanding (detailed on page 43 of the Annual Report on Remuneration), including the 2011 Special Award to the chief executive, remain eligible to vest based on their original award terms. Choice of performance measures and approach to target setting The performance metrics that are used for annual bonus and long-term incentive plan are a subset of the group’s key performance indicators. Under the annual bonus plan, reflecting the company’s focus on delivering a profitable turnaround in its businesses, the majority of bonus is subject to the achievement of challenging profit targets. Reflecting individual responsibilities, the profit targets applicable to the MD, Home Shopping are primarily weighted towards the profit performance of Express Gifts and Kleeneze. In addition to challenging profit targets, a minority of bonus is set subject to business objectives tailored to each individual’s role and responsibilities (e.g. individual targets are set to provide reward opportunity for delivering specific in-year objectives) the achievement of which will enable the company’s upward trajectory achieved to date in relation to delivering against its turnaround plans to be maintained or improved. Furthermore, to ensure that no bonuses are earned in the event that the group does not achieve acceptable levels of profit performance, a minimum level of profit needs to be achieved before any bonus can be earned based on achievement against business objectives. In terms of long-term performance targets, awards currently vest subject to (i) challenging EPS growth targets that are aligned with the long-term levels of earnings growth targeted by the company and (ii) absolute share price targets which provide clear alignment of interests between shareholders and executives in terms of delivering successful turnaround in the group’s businesses. Targets are set based on graduated scales that take account of internal planning and external market expectations for the company. Only modest rewards are available for delivering threshold performance levels with maximum rewards requiring substantial out-performance of the challenging plans approved at the start of each year over one and up to three year time periods. Further details of the annual bonus metrics to be used for 2014/15 are set out in the Annual Report on Remuneration. The targets relating to the annual bonus for 2014/15 are considered to be commercially sensitive and will not therefore be disclosed in advance in full detail. They will be disclosed in next year’s Annual Report on Remuneration along with disclosure of performance against them and the payments resulting. The performance conditions for awards to be granted under the PSP in 2014/15 are consistent with the policy set out above with the targets set out in summary on page 45 of the Annual Report on Remuneration. How executive directors’ remuneration policy relates to the wider group The remuneration policy described in the policy table provides an overview of the structure that operates for executive directors. Outside the executive director population, different structures and incentive quantum apply that take due account of the company’s overall remuneration policy, the specific objectives of individual’s roles and practice in companies of comparable size.
34
Findel plc Annual report and accounts 2014
Governance
The performance-related bonus scheme operates with targets and quantum that are set by reference to individual role and responsibility. More emphasis on divisional performance and/or personal performance is included at less senior levels. The PSP is offered on a discretionary annual basis to senior executives. Awards are limited to this grade of employees as they are anticipated as having the most potential to influence performance at a group level. These awards are generally subject to the same performance conditions as detailed in the remuneration policy table.
STRATEGIC REPORT 1—19
Base salaries for all employees are set by reference to, industry specific comparator groups. Consideration is given to the overall salary increase budget and general employment conditions, when setting executive director base salaries.
How employee’s views are taken into account The Committee does not directly consult with employees on executive remuneration.
How shareholders views are taken into account As a matter of course, after the AGM, the Committee will consider feedback from shareholders and relevant guidance from shareholder representative bodies. The Committee will also seek feedback from shareholders from time to time (as was the case in the current year under review) as part of a wider shareholder dialogue if considered appropriate. This feedback is then considered as part of the Committee’s ongoing review of remuneration policy.
GOVERNANCE 20—57
However, the group HR director provides feedback on the perceived effectiveness of employee and executive remuneration structures at the company since she is involved in setting and refining group remuneration structures. The Committee is kept up to date, more generally, with pay and employment conditions elsewhere in the company and is informed of the salary increase budget for the group as a whole when setting executive directors pay increases (if any) each year.
Illustration of application of policy The company’s policy results in a significant portion of remuneration received by executive directors being dependent on company performance. The graph below illustrates how the total pay opportunities for the executive directors vary under three different performance scenarios: below threshold, on-target and maximum. When reviewing the charts that follow, it should be noted that these have been prepared based on the policy detailed in the table above but ignoring the potential impact of future share price growth. £1,400 Fixed pay
Annual bonus
CONSOLIDATED FINANCIAL STATEMENTS 58—103
£1,328 Long-Term Share Awards
£1,200
£1,156 31%
£1,000
£959
30% £909 £841
26%
£800
31% 31%
30%
21%
£600
26%
£508 £400
£347
21% 31%
£456
22%
100%
53%
38%
100%
52%
38%
100%
54%
40%
Below threshold
Target
Maximum
Below threshold
Target
Maximum
Below threshold
Target
Maximum
£0
Chief executive
Finance director
MD, Home Shopping
Below Threshold = fixed pay only – base salary, benefits and pension; On-target = 50% payable of the 2014 annual bonus and 60% vesting of the 2014 PSP awards; and Maximum = 100% payable of the 2014 annual bonus and 100% vesting of the 2014 PSP awards. Salary levels (on which other elements of the package are calculated) are based on those applying from 29 March 2014. The value of taxable benefits is based on the cost of supplying those benefits (as disclosed on page 40 for the year ending 28 March 2014). Assumes 2014 PSP awards at 100% of salary. Amounts have been rounded to the nearest £1,000. Share price growth on vesting has also been ignored.
www.findel.co.uk
35
COMPANY FINANCIAL STATEMENTS 104—109
£200
25%
£656
Governance
Board Report on Directors’ Remuneration
Recruitment and Promotion Policy For executive director recruitment and promotion situations the Committee will use the following guidelines:
Remuneration Element
Policy
Base salary
Base salary levels will be set by reference to the experience of the individual, taking into account relevant market data and internal relativities. If a new recruit has a below market salary set on appointment, they may experience phased multi-period increases in excess of other executive directors (and the wider workforce)to bring them into line with the market as they develop in the role, subject to continued performance in post.
Benefits
Benefits as provided to current executive directors. Where necessary the Committee may approve the payment of relocation expenses to facilitate recruitment and flexibility is retained for the company to pay for legal fees and other costs incurred by the individual in relation to their appointment.
Pension
A defined contribution or cash supplement limited to 20% of salary.
Annual bonus
The maximum ongoing incentive opportunity under the company’s policy is 100% of salary. The annual bonus will operate as outlined for current executives, with the respective maximum opportunity, albeit pro-rated for the period of employment. Dependent on the timing of the appointment and the nature of the role, it may be necessary to set different performance measures and targets for the first year of operation.
Long-term incentives
PSP awards will be granted in line with the policy outlined for the current executive directors. An award may be made shortly after an appointment (subject to the company not being in a prohibited period). The maximum ongoing annual award level is 150% of salary under the PSP but an award, in exceptional circumstances (as determined by the Committee), may be granted up to 200% of salary under the rules of the PSP. For an internal hire, existing awards would continue over their original vesting period and remain subject to their terms as at the date of grant.
Buy-out awards
To facilitate an external hire, the Committee may be required to offer additional cash and/or share-based elements which includes the use of awards made under 9.4.2 of the Listing Rules. Any such payments would be made to compensate for remuneration forfeit when leaving a former employer or role and would take into account where possible, the type of remuneration forfeit, the time horizon to vesting and the impact of any performance conditions. The Committee will make an announcement to shareholders, detailing the remuneration arrangements, at the time of appointment.
Service Contracts & External Appointments Executive Directors Future Contract Policy It is the Remuneration Committee’s policy that service agreements for executive directors should be terminable on not more than 12 months’ notice which is in line with current market practice. Contracts will not include liquidated damages clauses guaranteeing a specified level of remuneration on termination. Contracts will, at the company’s discretion, enable the company to make a payment in lieu of notice comprising 12 monthly instalments of base salary which would reduce to the extent that alternative employment was taken up. The Remuneration Committee will retain discretion, on appointment of a new executive director, to agree a service contract with a 24 month notice period (e.g. in the event that the company was the subject of takeover speculation) which would reduce on a monthly basis during the first 12 months of appointment to a 12 month notice period. While this provision is not considered part of “normal” policy, it is considered appropriate to retain flexibility should exceptional circumstances arise which would be detailed in the Annual Report on Remuneration at the relevant time. New contracts will not provide enhanced protection in relation to contractual terms on a change of control.
36
Findel plc Annual report and accounts 2014
Governance
STRATEGIC REPORT 1—19
Service contracts of executive directors The service contract of Mr Siddle, dated 25 January 2011, is subject to one year’s rolling notice by either party. In the event of termination of employment, the company may elect to make up to 12 monthly payments to the value of base salary that would cease to the extent that alternative employment is taken up with the agreement of the company. Within the service contract, there are a number of provisions which would result in a lump sum payment being made (of up to 12 months base salary) as opposed to the phased payments detailed above on termination. These include (i) notice being given following a significant change in status of the role being undertaken by the individual following a change of control and (ii) where the company terminates employment for any reason other than performance/gross misconduct or in the event that the individual could be construed as having been constructively dismissed by the company. These provisions are considered legacy issues by the company and will not form part of future contract policy. The service contract of Mr Kowalski, dated 2 October 2010, is subject to one year’s rolling notice by either party. In the event of termination of employment, the company may elect to make up to 12 monthly payments to the value of base salary and benefits that may cease, at the discretion of the company, to the extent that alternative employment is taken up.
General provisions In certain circumstances such as gross misconduct, the company may terminate employment immediately without notice or payment for each of the current or future executive directors. In the event of early termination of a service agreement, the Committee would consider appropriate use of mitigation and phased compensation payments where possible. In addition, any statutory entitlements or payments to settle or compromise claims in connection with a termination of any existing or future executive director would be made as necessary. The Committee also retains the discretion to meet any outplacement costs if deemed necessary.
GOVERNANCE 20—57
The service contract of Mr Maudsley dated 6 October 1997, is subject to one year’s rolling notice. There are no express provisions included in the contract on termination other than the company may require the employee to remain away from work during his notice period during which time he would continue to be remunerated.
Unless the Remuneration Committee determines otherwise, annual bonuses are not normally payable if an executive director has left or is under notice at the payment date. Any annual bonus payments would normally only be made to an executive director who has left or is under notice if the Remuneration Committee determines him a “good leaver” (e.g. death, injury or disability, redundancy, serious long-term illness, transfer or sale of the employing company, retirement with the company’s agreement or other circumstances at the discretion of the Committee), in which case a bonus entitlement would be calculated based on the period up to the date of cessation of employment and performance.
However, in relation to awards granted under the PSP (approved by shareholders at the 2006 AGM), in certain prescribed “good leaver” circumstances (e.g. death, injury or disability, redundancy, serious long-term illness, transfer or sale of the employing company, retirement with the company’s agreement or other circumstances at the discretion of the Committee) awards will remain eligible to vest subject to performance conditions, which will be measured over the original performance period or up to the date of cessation with time pro-rating applied, unless the Committee considers it inappropriate to do so. With regards to the chief executive’s 2011 Special Award (see page 42 of the Annual Report on Remuneration) which is expected to partially meet the performance conditions tested to 28 March 2014, this award will vest early on cessation of employment, based on the extent to which the performance conditions are met.
Non-executive directors Mr Sugden’s contract as chairman, dated 8 June 2012, is subject to 6 months’ notice from either party. Save for any payment of fees in lieu of notice, there is no entitlement to compensation for loss of office in connection with the termination of the services of Mr Sugden. The appointment of non-executive directors is for an initial period of three years, subject to review and re-election in General Meeting. They do not have service agreements. The Letter of Appointment for Mr Tracey is dated 11 November 2009; for Mrs Powers-Freeling 23 September 2010; for Mr Grimsey 30 January 2012 and for Mr F Coumau 2 August 2013. Mr Tracey’s letter of appointment entitles him to 3 months’ notice of termination. The letters of appointment of the other non-executive directors are terminable at will. Save for any payment of fees in lieu of notice to Mr Tracey there is no entitlement to compensation for loss of office in connection with the termination of the services of the non-executive directors. The service contracts for executive directors and letters of appointment for non-executive directors are available for inspection at the AGM.
www.findel.co.uk
37
COMPANY FINANCIAL STATEMENTS 104—109
Outside appointments The company currently allows the Executive Directors to undertake outside interests and appointments, subject to the prior approval of the board, in which instances they are allowed to retain any fees that they receive in respect of such activities. There were no such arrangements in place during the period under review.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The treatment for share-based incentives previously granted to an executive director will be determined based on the relevant plan rules. The default treatment will be for outstanding awards to lapse on cessation of employment.
Governance
Board Report on Directors’ Remuneration
Annual Report on Remuneration Remuneration Committee The remuneration of the executive directors and the chairman is determined by the Remuneration Committee. The members of the Remuneration Committee are all independent non-executive directors, Mr Hawker (Chairman until he stepped down on 24 July 2013), Mr Tracey, Mrs Powers-Freeling (appointed Committee Chairman on 24 July 2013). Mr Grimsey and Mr Coumau (appointed to the Committee on 14 April 2014). No member of the Remuneration Committee has any personal financial interest, other than as a shareholder, in the matters to be decided, nor any potential conflict of interest arising from cross-directorships, nor any day-to-day involvement in running the business throughout the period. The chairman and chief executive of the company normally attend meetings of the Remuneration Committee by invitation except when matters concerning their own remuneration are discussed. The Remuneration Committee is assisted when required by New Bridge Street (a trading name of AON plc) who are appointed by the Remuneration Committee, are members of the Remuneration Consultants Group and have signed up to its Code of Conduct. Apart from providing advice in respect of the design, establishment and operation of remuneration arrangements, New Bridge Street provides no other services to the company and during the year charged fees of £101,062 (excluding VAT). The group HR Director also provided advice to the Committee during the year. The company secretary acts as the secretary to the Remuneration Committee. The Remuneration Committee meets two or more times a year and met seven times in 2013/14. Individual attendance details can be found within the Corporate Governance Report. The Remuneration Committee‘s terms of reference are available on the company’s website (www.findel.co.uk); its responsibilities include:
determining the specific remuneration of each of the executive directors, the chairman and the terms of their service agreements (including in particular, the term and any notice period); advising on and monitoring all performance-related formulae; administering all aspects of the share-based incentive schemes operated by the company from time to time, including the overview of award levels made outside of the executive director population; reviewing on a continuing basis the company’s policy on executive remuneration; having regard, in the performance of the above duties, to the requirements of the Listing Rules, the recommendations set out in the UK Corporate Governance Code and any other published guidelines or recommendations regarding the remuneration of directors of listed companies which the Remuneration Committee considers relevant or appropriate; considering and making recommendations to the board concerning disclosure of details of remuneration packages and structures in addition to those required by law or by the UK Listing Authority or the London Stock Exchange; and considering such other matters as may be requested by the board.
Shareholder Voting at the 2013 AGM At last year’s AGM, the Directors’ Remuneration Report received the following votes from shareholders: Total number of votes
% of votes cast
For Against
65,332,397 525,621
99.2% 0.8%
Total votes cast (for and against)
65,858,018
100%
1,328,128
N/A
67,186,146
N/A
Withheld votes Total votes cast (including withheld votes)
38
Findel plc Annual report and accounts 2014
Governance
The first graph shows the total shareholder return over the five financial years to 28 March 2014 as required by the reporting requirements. However, the Committee considers that the total shareholder return over the three financial years to 28 March 2014 to be a relevant additional disclosure since this timeframe relates to the period during which the current executive team has been executing the board’s turnaround strategy for the group. Furthermore, this period aligns with the performance periods operated for both the 2011 PSP awards and the chief executive’s Special Award, which are expected to partially vest in early June 2014.
STRATEGIC REPORT 1—19
Performance Graph The following graphs contrast the total shareholder return of the company (calculated in accordance with the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations) with the FTSE Small Cap Index and FTSE All Share General Retailers Index. These indices were selected as being, in the opinion of the Remuneration Committee, the most appropriate for comparison because Findel is currently a constituent member of each.
Total shareholder return 300 Findel plc
FTSE Small Cap Index
FTSE All Share General Retailers Index GOVERNANCE 20—57
250
Value (£)
200
150
100
50
2 April 2010
1 April 2011
30 March 2012
29 March 2013
CONSOLIDATED FINANCIAL STATEMENTS 58—103
0 3 April 2009
28 March 2014
This graph looks at the value, by 28 March 2014, of £100 invested in Findel plc on 3 April 2009 compared with that of £100 invested in the FTSE Small Cap Index and £100 invested in the FTSE All Share General Retailers Index on the same date. The other points plotted are the values at intervening financial year-ends. Source: Thomson Reuters
Total shareholder return 300 Findel plc
FTSE Small Cap Index
FTSE All Share General Retailers Index
250
COMPANY FINANCIAL STATEMENTS 104—109
Value (£)
200
150
100
50
0 1 April 2011
30 March 2012
29 March 2013
28 March 2014
This graph looks at the value, by 28 March 2014, of £100 invested in Findel plc on 3 April 2009 compared with that of £100 invested in the FTSE Small Cap Index and £100 invested in the FTSE All Share General Retailers Index on the same date. The other points plotted are the values at intervening financial year-ends. Source: Thomson Reuters
www.findel.co.uk
39
Governance
Board Report on Directors’ Remuneration
The table below sets out the total remuneration figure for the chief executive officer role over the last five years. Year ending P B Maudsley(1) 2010 2011
Total Remuneration (£000)* Annual bonus (as % of maximum) LTIP vesting (as % of maximum) *
£771 0.0% 0.0%
R W J Siddle(2)
£607 14.9% 0.0%
2011
2012
2013
2014
£484 64.9% 0.0%
£496 0.0% 0.0%
£745 62.3% 0.0%
£2,650 67.9% 36.3%
2014 remuneration includes £1,873m in respect of the expected vesting of PSP awards and the Special Award following the expiry of the three year performance period (see page 42 for details).
1. Stepped down as CEO in September 2010 (figures are the total annual remuneration received during each full financial year) 2. Appointed CEO in September 2010 Audited information The information set out in the following section of the report is subject to audit. Emoluments of the directors The emoluments of the directors in the period ended 28 March 2014 are shown below:
£000
Salary and fees 2014 2013
Chairman D A Sugden
150
150
—
Executive directors R W J Siddle T J Kowalski P B Maudsley
407 279 350
400 272 350
Non-executive directors E F Tracey F Coumau W Grimsey L C Powers-Freeling
57 22 38 42
Previous directors M L Hawker Total
Taxable benefits(2) 2014 2013
Pensions(3)
Annual bonus(4) 2014 2013
Long-term incentives(5) 2014 2013
Compensation for loss of office 2014 2013
2014
2013
—
—
—
—
—
—
—
—
17 16 21
16 24 23
81 42 83
80 41 83
272 194 307
249 176 218
1,873 367 557
— — —
57 — 38 38
— — — —
— — — —
— — — —
— — — —
— — — —
— — — —
— — — —
16
48
—
—
—
—
—
—
1,361
1,353
54
63
206
204
773
643
Total 2014
2013
—
150
150
— — —
— — —
2,650 898 1,318
745 513 674
— — — —
— — — —
— — — —
57 22 38 42
57 — 38 38
—
—
—
—
16
48
2,797
—
—
—
5,191
2,263
Notes: 1. The figures above represent emoluments paid to directors during their tenure in the relevant financial period, with the exception of annual bonus payments and long-term incentives, which relate to performance in the period under review but paid/expected to vest after the year-end. 2. Taxable benefits comprise the private use of a motor car (or a cash allowance in its place), fuel, private health insurance and home telephone costs. 3. Pension values include contributions to defined contribution pension plans or cash allowances in lieu of pension contributions. 4. Annual bonus awards are described in detail on page 41 below. 5. PSP vesting is described in more detail on page 42 below.
40
Findel plc Annual report and accounts 2014
Governance
The annual bonus targets were tailored to the key strategic objectives of the business, these being a challenging sliding scale of annual profit targets (which determined a maximum 80% of the bonus potential) and other specific key strategic objectives (which determined a maximum of 20% of the bonus potential). No part of the bonus in relation to delivery of key strategic objectives could be earned unless a threshold level of profit performance was delivered. Maximum payment could only be earned as a result of performance above budgeted levels. The bonus was earned on an incremental basis between the threshold and maximum performance levels.
STRATEGIC REPORT 1—19
2013/14 Annual bonus The annual bonus policy that operated during the period under review was consistent with the group’s policy described previously.
In respect of the Managing Director, Home Shopping his financial targets have been set relating part to the profit performance of Express Gifts and Kleeneze (62.5% of this part of the bonus) and part relating to group profit performance (37.5% of this part of the bonus). This approach is considered to better reflect the individual’s responsibilities within the group with the targets relating to Home Shopping and Kleeneze having been set to be similarly challenging to the group profit targets and structured on a sliding scale. Performance against the annual profit targets is shown in the table below: Threshold
Max
Actual
Group PBT Express Gifts and Kleeneze operating profit*
£18.6m £29.1m
£23.5m £33.4m
£22.0m £34.6m
Award level (as % of maximum)*
66.1% 100%
* The Express Gifts/Kleeneze annual operating profit figures used in the plan exclude the allocation of central costs
The Committee considered the achievement of the chief executive against the specific strategic objectives set at the start of the year to have been good and awarded 15% out of a potential 20% maximum for this element of the bonus plan. Likewise the Committee considered the achievements of the finance director and the MD, Home Shopping against their respective objectives to have been very good and the Committee awarded them each 18% of the maximum 20% available.
GOVERNANCE 20—57
Profit Performance
The directors do not consider it appropriate to disclose the specific personal targets retrospectively as they consider that this information, which is linked to the company’s strategic priorities and internal budgets, is commercially sensitive and would be of interest and value to the company’s competitors. Overall bonus payments to each executive director are therefore:
Chief executive officer Finance director MD, Home Shopping
Business unit profit (as % of salary)
Strategic objectives (as % of salary)
Total (as % of salary)
Total £000
52.9% 52.9% 19.8%
n/a n/a 50%
15% 18% 18%
67.9% 70.9% 87.8%
272 194 307
The Committee is satisfied that the level of payouts detailed above is appropriate in light of the individual and corporate performance delivered during the year under review. Directors‘ pension entitlements In addition to the pension contributions set out in the table in (i) above, Mr Maudsley is a deferred member of the Findel Group Pension Fund, a defined benefit scheme. He is the only director who has accrued entitlements under the Fund as follows: Transfer value of increase
Accrued pension 28 March 2014
Accrued pension 29 March 2013 £000
Increase in accrued pension including inflation £000
Transfer value of accrued pension 28 March 2014 £000
Transfer value of accrued pension 29 March 2013 £000
Increase in transfer value over the period £000
£000
£000
—
—
132
129
3
1,751
1,509
242
As a deferred member, Mr Maudsley no longer accrues benefits under the defined benefit scheme. However, in line with the preservation requirements his pension is increased in line with inflation. His defined pension benefits have Enhanced Protection. Contributions are made by the group on an ongoing basis in relation to meeting the funding requirements of the benefits accrued on behalf of all pension plan members. The pension entitlements shown above are those which would be paid annually on retirement based on service to the end of the period, but exclude any future statutory entitlement to increases, up to retirement. The transfer values have been calculated on the basis of actuarial advice in accordance with the relevant regulations. Mr Maudsley’s normal retirement age for defined benefit scheme purposes is 65. The transfer values disclosed above do not represent a sum paid or payable to the individual director. Instead they represent a potential liability of the pension scheme. The non-executive directors do not receive pension benefits.
www.findel.co.uk
41
COMPANY FINANCIAL STATEMENTS 104—109
Increase in accrued pension excluding inflation £000
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Executive
Group profit (as % of salary)
Governance
Board Report on Directors’ Remuneration
Directors‘ Share Options and long-term Incentive Plans Awards vesting in relation to FY2013/14 PSP awards granted in August 2010 and March 2011 were subject to share price and financial targets. In summary the absolute share price targets ranged from 270p to 440p, with a financial underpin of (i) adjusted earnings per share for the financial year ending 28 March 2014 of at least 17.4p and (ii) the Committee being satisfied that the three month average share price to 28 March 2014 was reflective of the underlying financial performance of the company. The Special Award granted to the chief executive (March 2011) has similar performance conditions to the PSP awards granted in August 2010 and March 2011, but with a more demanding maximum share price target. This means the absolute share price targets range from 270p to 482p with the same financial underpin as the PSP awards. At the year-end, based on a three month average share price to 28 March 2014 of 292.6p, the PSP awards share price targets were met at 38.77% of the maximum. Group EPS for the year ending 28 March 2014 was 19.56p and so exceeded the underpin target. Following the announcement of these results the Committee will consider whether the underlying financial performance of the company to 28 March 2014 is reflective of the three month average share price of 292.6p. Subject to the outcome of that consideration it is expected that the PSP awards will vest at 38.77% of the maximum. Following a similar process, it is expected that the performance targets applying to the Special Award to the Chief Executive will also be met at 35.01% of the maximum, and that the remaining half of the Special Award eligible to vest based on the performance test undertaken and detailed above will do so on 31 March 2015. Awards Granted
Executive
Chief executive officer – Special Award Chief executive officer – PSP Finance director – PSP MD, Home Shopping – PSP
1,138,380 623,440 323,231 490,959
*
based on the 3 month average share price to 28 March 2014 of 292.6p
†
199,273 shares will vest on 31 March 2015
Awards Vesting
398,547† 241,708 125,316 190,344
Value of awards vested (£)*
1,166,149 707,238 366,675 556,947
PSP Awards in FY2013/14 The PSP awards granted in 2013 were granted at 100% of salary for each executive director other than the chief executive who did not receive a PSP award in lieu of the Special Award he received in 2011. The chief executive becomes eligible to receive further long-term incentive awards from 2014 again. With regards to the performance targets applicable to the awards granted in 2014, they were an equal blend of EPS growth and share price appreciation. The EPS targets were as follows (50% of the award): Adjusted EPS for year ending 31 March 2016
Below 25.8p 25.8p 29.8p 33.8p
Percentage of Shares subject to the EPS performance condition that vests
0% 20% 60% 100%
Straight-line vesting between each performance point The absolute share price targets were as follows: Three month average share price to 31 March 2016
Below 270p 270p 345p 475p or higher
Percentage of Shares subject to the share price performance condition that vests
0% 20% 60% 100%
Straight-line vesting between each performance point The choice of performance metrics reflected the company’s focus on achieving growth in EPS which had also been suggested by a number of institutional investors during engagement with them while absolute share price targets, albeit in a lower proportion of the overall award than awards granted in 2011 and 2012, was considered to remain appropriate for a company continuing to work towards achieving a turnaround in its businesses.
42
Findel plc Annual report and accounts 2014
Governance
Type of award
Finance Director MD, Home Shopping
Basis of award granted
Share price at date of grant allowances
Number of shares awarded
Face value of award
% of face value which vests at threshold
Nil cost option 100% of salary Nil cost option 100% of salary
182.6p 182.6p
150,158 191,676
£274,188 £350,000
20% 20%
STRATEGIC REPORT 1—19
The details of the awards granted, which are measured over performance to 31 March 2016, are included in the table below:
Details of all directors‘ outstanding interests in shares under the Performance Share Plan The table below details the current outstanding share awards under the PSP:
R W J Siddle† T J Kowalski
†
Granted
Exercised
Lapsed
28 March 2014
1,761,821 225,819 97,412 225,819 — 490,960 272,755 —
— — — — 150,158 — — 191,676
— — — — — — — —
— — — — — — — —
1,761,821 225,819 97,412 225,819 150,158 490,960 272,755 191,676
Award date
22 Mar 3 Aug 22 Mar 19 Jun 12 Jul 22 Mar 19 Jun 12 Jul
2011 2010 2011 2012 2013 2011 2012 2013
Vesting date
31 Mar 2014/31 Mar 31 Mar 31 Mar 19 Jun 12 Jul 31 Mar 19 Jun 12 Jul
2015 2014 2014 2015 2016 2014 2015 2016
Mr Siddle’s outstanding interests in shares include the Special Award outside the Performance Share Plan, as described on page 42.
GOVERNANCE 20—57
P B Maudsley
29 March 2013
Summary of awards granted in prior years Awards granted in June 2012 are subject to share price and financial targets. In summary the absolute share price targets ranged from 250p to 440p, with a financial underpin of adjusted earnings per share for the financial year ending 31 March 2015 of at least 18.4p. The Remuneration Committee’s policy in relation to determining vesting of performance share plan awards, is to retain independent consultants to test TSR and share price targets and to consider the company’s audited results in respect of financial targets (with appropriate liaison between the Audit and Remuneration Committees).
2013/14
2012/13
% Change
Chief executive (£000) Salary Benefits Bonus
407 98 272
400 96 249
1.75% 2.08% 9.24%
Total
777
745
4.30%
Average of Comparator Group* Salary Benefits Bonus
154 20 26
150 20 20
2.67% 0.0% 30.0%
Total
200
190
5.26%
The comparator group chosen comprises the most senior managers in the company who participate in a similar annual incentive structure and so this population has been chosen to best provide a consistent like for like comparison.
The Committee believes that this group is the most appropriate comparator as they have a common remuneration structure. The table above shows the movement in the salary, benefits and annual bonus for the chief executive between the current and previous financial year compared to total employee cost for the same elements for the senior management level. The average salary increase awarded across the company during FY2013/14 was 2.5%.
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COMPANY FINANCIAL STATEMENTS 104—109
*
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Percentage increase in the remuneration of the chief executive officer
Governance
Board Report on Directors’ Remuneration
Relative importance of the spend on pay Staff costs (£m) Distributions to shareholders (£m) Adjusted profit* (£m) *
2013/14
2012/13
% Change
58.2 — 22.0
54.0 — 11.9
8% 0% 85%
Profit before tax before exceptional items
Directors’ interests The beneficial interests of the directors, together with non-beneficial interests, in the ordinary shares of the company are shown below (the interests in shares have been stated based on the equivalent post consolidation number at each reporting date).
Beneficially Legally Owned 28.03.14 30.03.13
PSP Awards (including Special Award to CEO) Unvested Vested
Total 28.03.14*
Executive directors R W Siddle T J Kowalski P B Maudsley
354,024 64,915 213,262
354,024 64,915 213,262
1,761,821 699,200 955,391
N/A N/A N/A
2,115,845 764,123 1,168,653
Non-executive directors D A Sugden F Coumau W Grimsey L C Powers-Freeling E F Tracey
104,308 7,648 25,000 14,654 20,473
104,308 — 25,000 14,654 20,473
— — — — —
— — — — —
104,308 7,648 25,000 14,654 20,473
*
Based on current beneficially owned shares and the year-end share price of 309p, Mr Siddle and Mr Maudsley would already satisfy the shareholding requirement. Mr Kowalski would be at 71% of the shareholding requirement.
There have been no changes in the above interests since the end of the financial year. Company Share Price The market price of the ordinary shares at 28 March 2014, being the last day of stock market trading before the period end, was 309p and the range during the period was 108p up to 320p. Implementation of Policy for 2014/15 Base Salary The Committee reviewed base salaries in July 2013 (effective 1 August 2013) taking into account the roles and responsibilities, performance and experience of the individual, the overall employee salary increase budget and wider inflationary indicators. As a result of this review the Committee determined that the chief executive’s and the finance director’s salaries should each be increased by 2.5%. The base salaries as effective 1st August 2013 are therefore: Director
Chief executive Finance director MD, Home Shopping
1 August 2013
1 August 2012
% change
£410,000 £281,000 £350,000
£400,000 £274,188 £350,000
2.5% 2.5% nil
For completeness, the average salary increase awarded across the company was 2.5%. The next review will take place in July 2014.
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Findel plc Annual report and accounts 2014
Governance
Performance related bonus The 2014/15 performance related bonus plan maximum is 100% of salary for each executive director. The bonus has the same basic structure as the previous year’s plan, with 80% of the maximum to be judged against a sliding scale of profit performance (group profit for the chief executive and finance director, and a mixture of group and Express Gifts/Kleeneze profit for the MD, Home Shopping); and the balance by reference to specific strategic objectives set on an individual basis. The directors do not consider it appropriate to disclose the specific profit targets or personal targets as they consider that this information, which is linked to the company’s strategic priorities and internal budgets, is commercially sensitive and would be of interest and value to the company’s competitors.
STRATEGIC REPORT 1—19
Pensions and Benefits Pension contributions and benefits will be as set out in the table on pages 30 and 31.
Performance Share Plan (PSP) The Remuneration Committee currently anticipates granting awards during the current financial year with a face value at grant of 100% of salary for each executive director.
The EPS targets are anticipated to be as follows (50% of the award): Adjusted EPS for year ending 31 March 2017
Below 40p 40p 45p 50p
Percentage of Shares subject to the EPS performance condition that vest
GOVERNANCE 20—57
With regards to the performance condition to apply to these awards, it is currently intended that half of an award will vest subject to challenging absolute share price targets with the remaining half vesting subject to challenging EPS targets.
0% 20% 60% 100%
Straight-line vesting between each performance point The absolute share price targets are anticipated to be as follows (50% of the award):
Below 390p 390p 460p 510p or higher
Percentage of Shares subject to the share price performance condition that vest
0% 20% 60% 100%
Straight-line vesting between each performance point Consistent with the rules of the PSP, the Remuneration Committee will retain discretion to reduce vesting based on the absolute share price target if it does not consider the vesting result to be aligned with the underlying financial performance of the company over the performance period.
Use of a blend of challenging EPS and absolute share price growth targets is considered to continue to remain appropriate at the current stage of the company’s development to provide a dual focus on delivering against the company’s internal financial plans at the same time as aligning executives with shareholder returns. The choice of metrics, which is within the company’s overall policy framework, will be kept under periodic review and form part of the company’s ongoing dialogue with shareholders as appropriate. On behalf of the board Laurel Powers-Freeling Chairman of the Remuneration Committee 3 June 2014
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COMPANY FINANCIAL STATEMENTS 104—109
Furthermore, as set out on page 34, the Remuneration Committee also retains a number of discretions in relation to the above performance condition that allow the Remuneration Committee to amend it if an event or events occur (e.g. a divestment, acquisition or events relating to the company’s issued share capital) which cause it to determine that the condition is no longer appropriate in the circumstances provided that the amended condition is, in the opinion of the Remuneration Committee, materially no more or less challenging to satisfy in the circumstances than when the original condition was imposed.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Three month average share price to 31 March 2017
Governance
Audit & Risk Committee Report
In this report we report to shareholders how the committee works, our focus since the last annual report, including the impact of changes in the UK corporate governance regime, internal controls and on the operation of the internal and external audit functions. How the Committee works The Audit & Risk Committee operates under written terms of reference, which were reviewed during the year and are available on the company’s website (www.findel.co.uk). The main changes reflected the changes in the UK corporate governance regime, including specifying the committee’s role in assisting the board ensure that the annual report presents a fair, balanced and understandable view of the group’s businesses. The committee is comprised of only independent non-executive directors. Brief biographical details of the committee members, including their expertise and experience, are set out on page 20 and the number of meetings and attendance are set out on page 22. The executive directors and the head of internal audit attended each meeting by invitation and the chairman of the board attended three meetings in the year. The external auditors attended all meetings. Divisional executives also attended meetings during the year in relation to some of the specific matters under review listed below. The committee has not used its powers to engage external advisers other than those appointed in conjunction with management in the year under review. The committee met with the external auditors without executives being present and also met with the executive directors without auditors being present. In these meetings the committee probed the efficiency of the internal and external audit, the co-operation received by the auditors, any recommendations for the committee and what could be done to improve the audit processes, and the efficiency with which recommendations for improvement in controls or processes were dealt with. All committee members also spend time with at least one of the different businesses outside of committee meetings, with Mr Coumau, who was appointed during the year, visiting all of the businesses as part of his induction programme. The committee’s agenda is linked to events in the company’s financial calendar and other topics for review by the committee have also been recommended by the board and the remuneration committee in their meetings. An example of this was the board’s request for the committee to review the draft annual report and accounts for compliance with the “fair, balanced and understandable” test. The agenda for each meeting is approved in advance by the chairman after a meeting with the head of internal audit and telephone calls with the group finance director and the company secretary. The committee reviewed its effectiveness, using a questionnaire examining both its processes and individual contributions and was satisfied that the committee is operating effectively in the interests of the company’s shareholders. Our focus since the last annual report – accounting and audit The most significant matters relating to the annual accounts considered were: (a) the items disclosed as exceptional charges and related disclosures; (b) the level of PPI redress provisioning; (c) the valuation of indefinite lived intangibles and goodwill; and (d) stock and debtor provisioning across the group, given the materiality of these balance sheet values. The committee received a paper from the finance director supporting his judgements in each of these areas and another report from the external auditors explaining their rationale for agreeing with those judgements and their subjective assessments of the level of prudence involved in the key judgements. These papers were discussed and both the finance director and auditors challenged as to the robustness of their views and why alternative treatments were not preferable. In all cases, the committee was guided by the overriding mantras of “fair, balanced and understandable” and “true and fair view”. The particular challenges by the committee in relation to the matters listed above were: (a) exceptional items – were the items really exceptional, had all exceptional charges and credits been disclosed, were the disclosures sufficient? The committee concluded that all exceptional items were significant and necessary to be disclosed as such in order to provide a true and fair view of the financial performance for the year. (b) PPI provisioning – did the results of a pilot mailing to customers suggest that the predicted total liability would fall within the amount already provided? The committee was satisfied that it most likely would do so. (c) Intangible asset values – were the assumptions consistent with the board’s business plans and were the discount rates appropriate? Were the resulting carrying values credible in the light of our current appreciation of each business’s prospects? The committee received satisfactory response to these challenges. (d) stock and debtor provisioning – were the outcomes consistent with what the board’s monitoring of monthly results had led us to expect? What were the reasons for changes in the levels of provisioning in particular categories of the stock and debtor balances? The committee was satisfied with the responses to these challenges.
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Findel plc Annual report and accounts 2014
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(e) at the planning stage of the audit, how the auditors defined and used materiality in their audit. The committee was satisfied with the responses and asked the board to agree that it was content with the answers provided; (f)
near the conclusion of the audit, the materiality of adjusted and unadjusted errors as reported by the external auditors to the committee – what caused them? What did they imply for levels of control and how did they impact our view on the annual report as a whole? The committee concluded that no further adjustments or disclosures were required;
(g) the going concern assessment – having monitored going concern against the borrowing facilities in place throughout the year the board’s assessment was considerably eased by the revision of the group’s banking facilities on 30 May 2014 as described in note 19 to the accounts; and
STRATEGIC REPORT 1—19
The committee also considered:
(h) the overall level of prudence in the accounts – how consistent were the judgements and assessments with the equivalent judgements and assessments of the previous year? Were the key judgements and assessments consistent with the various board discussions of the businesses throughout the year and with the conclusions of the board’s annual strategic review? The committee was satisfied on each of these points.
The committee has reviewed the assessments of the most significant risks identified by the management of each business and presented to the committee in the form of a matrix showing degree of assessed likelihood and impact. These assessments are reviewed regularly by the businesses’ management and the committee monitors how well the businesses are prepared for high impact as well as high impact/high likelihood risks. In the year since the last annual report, the committee spent some time monitoring and challenging: (a) how the group’s businesses were dealing with the challenges of the omni-present digitalisation of aspects of their interfaces with suppliers and customers and changes in customer buying behaviour and the adequacy of the businesses’ defences against cyber-attack;
(c) the programme of system improvements at Kitbag to enhance its e-commerce capabilities and internal controls. The committee used the experience and expertise of its members (Mr Coumau in relation to (a) and (c), and Mrs Powers-Freeling in relation to (b)) to meet with management outside of committee meetings to ensure that their experience was available to management. In relation to (a) and (b) the committee also had a series of presentations from both the Express Gifts management team, at which plans were reviewed and challenged. In relation to (c) the committee also received presentations from the Kitbag management team on the progress being made in relation to the agreed plan. The committee also received presentations from both independent consultants and legal advisers on aspects of the then coming FCA regulatory regime, which commenced on 1 April 2014. The committee reviewed the significant changes in organisation and personnel within Express Gifts as key elements of the plan to achieve greater regulatory resilience.
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COMPANY FINANCIAL STATEMENTS 104—109
(b) the preparedness of Express Gifts for the regulatory regime of the FCA with effect from 1 April 2014, as noted within the Strategic Report; and
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Our focus since the last annual report – risk management and internal control The committee has responsibility for the regular review of the group’s system of internal control and its effectiveness and reports its findings to the board. It is the role of management to implement the board’s policies on risk and control through the design and operation of appropriate internal control systems. Operating management is charged with the ongoing responsibility for identifying risks facing each of the operating units and for putting in place procedures to mitigate, manage and monitor risks. The risk and control identification and management process is monitored and periodically reviewed by group executive management and the committee. The system of internal control is designed to manage rather than eliminate the risk of failing to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. Management uses a “three lines of defence” approach, where the first line of defence is in the management of the business units, who are responsible for ensuring that a risk and control environment is established as part of their daily operations. The second line of defence is provided by the oversight functions within the business and at group level, setting policies, procedures, governance frameworks and compliance. The third line of defence is the internal and external auditors who offer independent challenge to the levels of assurance provided by the business operations and oversight functions.
GOVERNANCE 20—57
In reviewing the annual report for the board and making recommendations that were adopted by the board in relation to the overall “fair, balanced and understandable” test, the committee considered the report in the light of the tone and content of papers presented to the board over the year by the chief executive and the finance director, assessed the balance of positive and negative comments on each business in the light of the business’s performance for the year and completed a compliance checklist.
Governance
Audit & Risk Committee Report
The committee also supported the board’s decision to engage external consultants to advise on the company’s options in relation to refinancing its existing bank facilities, which run until 2016 and which resulted, inter alia, in the increase in the securitisation facility and improvements to the commercial terms of its bank facilities described in note 19 to the accounts. The committee has conducted its annual review of the effectiveness of the group’s system of internal control. The outcome of this review is that overall, the system of internal financial controls are functioning satisfactorily, with the exception of Kitbag, whose interim robust compensating manual controls have been implemented, allowing the board to take reasonable assurance that the financial reporting process is materially correct, whilst automated controls within the company’s IT systems are in the final stages of implementation. This review has covered all controls including operational, compliance and risk management procedures, as well as financial. The formal process followed, and reviewed by the board, to assess the effectiveness of the group’s system of internal control accords with the guidance set out in the Turnbull Report “Internal Control: Guidance for directors on the Combined Code” and is part of the ongoing process for identifying, evaluating and managing the significant risks faced by the group. The board adopted the committee’s conclusions after challenges from the chairman had been answered satisfactorily. External auditors The committee reviewed the independence of the external auditor and the safeguards that they have in place, including partner and staff rotation and extent of non-audit services, to avoid such independence and objectivity being compromised. The group’s policy on the use of the auditor to carry out non-audit work is as follows: The group policy on the provision by the external auditor of audit and non-audit services, which is based on the principle that the external auditor should only undertake non-audit services where they are the most appropriate provider unless that was considered by the committee to compromise their independence, categorises such services between:
Auditor permitted services – Those services which are acceptable for the auditors to provide and the provision of which can be engaged without referral to the Audit & Risk Committee (e.g. regulatory and other specialist financial reporting); Auditor excluded services – Those engagements that the committee and the board do not consider appropriate for the auditors to undertake (e.g. provision of outsourced financial or operational management functions); Auditor authorised services – Those services for which it is appropriate to consider the use of the external auditors and for which the specific approval of the Audit & Risk Committee is required before the auditors are permitted to provide the service (e.g. transaction support and advisory work, such as financial due diligence).
The policy defines the types of services falling under each category and sets out the criteria to be met and the internal approvals required prior to the commencement of any assignment, including the approval of the chairman of the Committee where appropriate. The committee reviewed an analysis of all services provided by the external auditors and other accounting firms. The policy is reviewed annually by the Audit & Risk Committee and approved by the board. The detailed disclosure of the fees payable to KPMG LLP for both audit and non-audit services performed during the year is set out in note 10 to the consolidated financial statements and reflects the committee’s recommendation that greater explanation be provided than is required by law. The main pieces of non-audit work awarded to the auditors related to corporate VAT and taxation advice, and advice in relation to the regulatory regime of the FCA with effect from 1 April 2014 (as described in the Strategic Review). Much of this VAT work related to the resolution of the legacy issues at Kitbag and the periodic review of specialist aspects of VAT compliance for retail groups for which KPMG have developed expertise within the niche home shopping sector. The committee also considered the level of non-audit fees paid to KPMG LLP in the context of similar fees paid during the year to other major accounting firms by the group and noted that although KPMG LLP received the greatest individual level of fees, their proportion amounted to around 40% of all such fees. The committee is therefore satisfied with the level of fees, independence, objectivity and effectiveness of KPMG LLP. The committee considered the various proposals for audit tenders coming from the Competition Commission for FTSE 350 companies and the FRC and the recent pronouncements of the European Commission and concluded that the company should tender the audit at least once every ten years and would not expect to retain the same audit firm for a period of longer than 20 years. The committee reviewed the effectiveness of the external audit of the 2012/13 financial statements by discussing the audit separately with the executive directors and senior finance officers, the company secretary and the external auditors and by discussing the FRC’s Audit Quality Review Team (AQRT) report which was delivered to the committee chairman in December 2013. A significant part of the evaluation was the committee’s consideration of the findings of the AQRT report on the audit of the 2012/13 financial statements. Accordingly, in the light of the above, the board accepted the committee’s recommendation that a resolution for the appointment of KPMG LLP, (KPMG Audit Plc were first appointed as auditors for the period ended March 2011), as auditors of the company will be proposed at the forthcoming annual general meeting. A review of the effectiveness of the 2013/14 audit will be carried out following the issue of this annual report.
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Findel plc Annual report and accounts 2014
Governance
A formal review of the effectiveness of internal audit will be undertaken in the current financial year.
E F Tracey Chairman of the Audit Committee
GOVERNANCE 20—57
The committee approved the internal audit programme for the 2014/15 financial year, including the use of independent third parties other than the external auditors for some specialist areas. The programme developed by the head of Internal Audit in conjunction with the chair of the committee and the group finance director was challenged by the committee, especially on the split of resources being applied to the different businesses. All internal audit reports are sent to the chairman of the committee before being issued more widely and summaries of all reports are presented to the committee. At each meeting the committee reviewed management’s progress on implementing previous internal audit recommendations and in some cases asked for faster progress to be made. As well as the regular internal control and risk management reviews presented to the committee, internal audit also updated the committee on the implementation of spreadsheet controls and the anti-fraud policies and controls across the group as well as changes to the group’s whistleblowing policy.
STRATEGIC REPORT 1—19
Internal audit Following the previous year’s review of the scope and role of internal audit, for which the committee received independent advice, and the adoption of a wider remit for the in-house head of Internal Audit together with an appropriate co-sourcing of specialised internal audit services in the areas of financial services and IT, the committee approved the recruitment of a new head of internal audit from elsewhere in the group finance function. The head of internal audit meets at least four times each year with the chairman of the committee and has direct access to him at any time by email or phone.
3 June 2014
CONSOLIDATED FINANCIAL STATEMENTS 58—103 COMPANY FINANCIAL STATEMENTS 104—109
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Governance
Directors’ Report
The directors present their annual report and accounts on the affairs of the group, together with the financial statements and Auditors’ report for the 52 week period ended 28 March 2014. The Corporate Governance Report set out on pages 21 to 24 forms part of this report. Strategic Report Pursuant to sections 414A-D Companies Act 2006, The Business Review has been replaced with a Strategic Report which can be found on pages 1 to 19. This includes a review of the group’s activities; the principal risks and uncertainties facing the group; the main trends and factors likely to affect the future development, performance or position of the group’s business; and the key performance indicators identified by management. The Directors’ Report and the Strategic Report also comprises the management report for the purposes of the FSA Disclosure and Transparency Rules (DTR 4.1.8R). All such information as is required to be contained in this report by s.417 of the Companies Act 2006 is incorporated by reference into this report. Going concern In determining whether the group’s financial statements for the period ended 28 March 2014 can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position, the amended borrowing facilities with much relaxed covenants signed on 30 May 2014 and the risks and uncertainties relating to its business activities in the current challenging economic climate. The financial position of the group, its cash flows, liquidity position and borrowing facilities and the principal risks and uncertainties are set out in further detail on pages 18 and 19. The directors have reviewed the trading and cash flow forecasts as part of their going concern assessment, including reasonable downside sensitivities which take into account the uncertainties in the current operating environment including amongst other matters demand for the group’s products, its available financing facilities, and movements in interest rates. Taking into account the above uncertainties and circumstances, the directors formed a judgement that there is a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the group’s annual consolidated financial statements. Dividends The directors have determined that no interim dividend will be paid (2013: nil) and are not recommending the payment of a final dividend (2013: nil). Financial Risk Management Policies on financial risk management are set out in note 32, on page 47 of the Report of the Audit & Risk Committee and on page 17 of the Strategic Report. Capital Structure Details of the issued share capital, together with details of the movements in the company’s issued share capital during the year are shown in note 24 and such information is incorporated into this report. During the year the company consolidated its share capital by the conversion of every 20 ordinary shares of 5p each into 1 ordinary share of £1. All rights and obligations attaching to the ordinary shares remain unchanged. The company has two classes of share, neither of which carries rights to fixed income. The rights and obligations attaching to both classes of share are contained in the Articles of Association, a copy of which is available for inspection at the registered office of the company. The ordinary shares carry the right to attend and speak at general meetings of the company, to one vote on each resolution at such meetings, to appoint proxies to exercise full voting rights and to participate in any distribution of income or capital. The holders of convertible shares have a right to attend meetings but no voting rights (save in respect of any resolution relating to the rights of the convertible shares). The following rights and restrictions attach to the convertible shares:
50
rights attaching to the convertible shares may only be varied by resolution passed by the holders of 85% or more of the nominal value of the convertible shares then in issue; consent of 85% of the holders of convertible shares is required before the company declares any dividend or distribution in excess of 50% of the group’s net income in respect of any accounting reference period, and the convertible shares have the right to participate in any dividend to the extent that it exceeds 50% of the group’s net income in respect of any accounting reference period; the right to elect to participate in any return of capital on a voluntary winding-up of the company as if the convertible shares had been converted into ordinary shares; the right to convert the convertible shares into ordinary shares between 28 February 2013 and 28 February 2021 (Conversion Period) if the volume weighted average ordinary share price is greater than 23.97p (479.4p following the 1 for 20 share consolidation);
Findel plc Annual report and accounts 2014
Governance
the convertible shares will automatically be converted into ordinary shares in the event of a takeover offer;
on conversion into new ordinary shares the convertible shares will rank pari passu with existing ordinary shares;
STRATEGIC REPORT 1—19
until expiry of the Conversion Period, or earlier conversion, the company is subject to certain restrictions including that it shall not, without the consent of 85% of the holders of convertible shares: –
vary the rights attached to the ordinary shares;
–
create a new class of shares ranking ahead of the ordinary shares;
–
convert the company from a public company to a private company;
–
issue loan stock or debt instruments or enter into any borrowing save on arm’s length terms.
If the convertible shares have not converted into ordinary shares within the Conversion Period they will automatically convert into non-voting deferred shares with no voting or profit or capital participation rights.
Details of employee share schemes are set out in note 23. Shares held by the company’s Employee Benefit Trust rank pari passu with the ordinary shares in issue and have no special rights, but abstain from voting. Other than the holders of convertible shares (see above) no person has any special rights of control over the company’s share capital and all issued shares are fully paid.
GOVERNANCE 20—57
There are no specific restrictions on the size of a holding or on the transfer of ordinary shares or convertible shares and there are no requirements for prior approval of any transfers; all such matters are governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the company’s shares that may result in restrictions on the transfer of securities or on voting rights.
There are a number of agreements that take effect, alter or terminate upon a change of control of the company such as commercial contracts, bank loan agreements, property lease arrangements and employees’ share plans. Any such situation would be carefully managed to ensure that any effect on the business was minimised. Furthermore, the directors are not aware of any agreements between the company and its directors or employees that provide for compensation for loss of office or employment that occurs as a consequence of a takeover bid, other than as disclosed in the Board Report on Directors’ Remuneration.
At the 2014 annual general meeting, Mr Siddle and Mr Tracey will retire by rotation and, being eligible, will offer themselves for reappointment. Mr Coumau, having been appointed during the year will retire in accordance with the Articles of Association and, being eligible, offers himself for appointment at the annual general meeting. Mrs Powers-Freeling has indicated her intention to retire from the board at the conclusion of the 2014 annual general meeting and an announcement regarding her replacement will be made in due course.
Directors’ and Officers’ Insurance and Indemnity The group maintains insurance for directors and officers of the group, indemnifying them against certain liabilities incurred by them when acting on behalf of the group. The directors may also be indemnified in accordance with the company’s Articles of Association and to the maximum extent permitted by law, although no such indemnities are currently in place. The insurance does not, and any indemnities if granted would not, provide cover where the relevant director or officer has acted fraudulently or dishonestly. Employees The company recognises its social and statutory duty to employ disabled persons and pursues a policy of providing, wherever possible, the same employment opportunities to disabled persons as to others, and training for employees who have become disabled during the period when they were employed by the group. Information to employees regarding the company and factors affecting its performance and that of its subsidiaries is provided through normal management channels and regular consultation.
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COMPANY FINANCIAL STATEMENTS 104—109
Following the annual performance evaluation, the board confirms that the performance of the directors subject to appointment or re-appointment has been effective throughout the period, and that they have continued to demonstrate commitment to their roles. The Nominations Committee endorses their proposed reappointment at the forthcoming annual general meeting.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Directors The directors of the company at the date of this report are shown on page 20. Information concerning their interests in the share capital of the company is included in the Board Report on Directors’ Remuneration on page 44. All the directors served throughout the year save that Mr Hawker retired from the board at the conclusion of the 2013 annual general meeting and Mr Coumau was appointed to the board on 12 August 2013. Details regarding the appointment and replacement of directors and the powers of the directors are set out in the Corporate Governance Report on page 23
Governance
Directors’ Report
Environmental matters Information on our greenhouse gas emissions is disclosed in the Corporate Social Responsibility Report on pages 25 to 27. UK Corporate Governance Code The company’s statement on corporate governance can be found in the Corporate Governance Report on pages 21 to 24. The Corporate Governance Report forms part of this Directors’ Report and is incorporated into it by its cross reference. Political contributions No political contributions were made (2013: £nil). Substantial Shareholdings As at 3 June 2014 the company had been notified of the following material interests of 3% or more in its share capital:
Toscafund Asset Management LLP Schroders plc.* Old Mutual PLC Henderson Global Investors Limited Standard Life Investments Ltd *
Number of Shares
Proportion of Share Capital
22,259,120 24,807,374 3,960,721 4,253,193 3,629,708
25.90% 28.53% 4.61% 4.94% 4.22%
Number of voting rights Direct Indirect
— — — — 2,616,853
22,259,120 21,394,420 6,194,542 4,253,193 1,012,855
Proportion of voting rights
25.90% 24.60% 7.21% 4.94% 4.22%
The interests shown above have been calculated by adjusting the details included in the most recent notification from the shareholder concerned to reflect the impact of the 1 for 20 share consolidation completed on 9 April 2013.
There were no material movements in these interests between the year end and 3 June 2014. Auditor KPMG LLP has notified its willingness to continue as auditor to the company and a resolution concerning their re-appointment will be proposed at the annual general meeting together with a resolution to authorise the directors to set the remuneration of the auditor. An analysis of audit and non-audit fees earned by the auditors during the year is set out at note 10 to the accounts. Disclosure of information to the auditor In the case of each of the persons who are directors of the company at the date when this report was approved:
so far as each of the directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the company’s auditor is unaware; and each of the directors has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Annual General Meeting A separate circular comprising the notice of annual general meeting to be held on 18 July 2014 will be issued to shareholders with the annual report and accounts of the company and will include details of the business to be transacted at the meeting and an explanation of all resolutions to be considered at the annual general meeting. By order of the board
M Ashcroft Secretary 3 June 2014
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Findel plc Annual report and accounts 2014
Governance
Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
GOVERNANCE 20—57
for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and
STRATEGIC REPORT 1—19
The directors are responsible for preparing the Annual Report and the group and parent company financial statements in accordance with applicable law and regulations.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ responsibilities statement in respect of the Annual Report
We confirm that to the best of our knowledge:
(ii) the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. The directors of Findel plc are detailed on page 20. By order of the board
D Sugden Chairman
T Kowalski Finance Director
3 June 2014
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COMPANY FINANCIAL STATEMENTS 104—109
(i) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The board considers that the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the group’s performance, business model and strategy.
Governance
Independent Auditor’s Report to the Members of Findel plc only
Opinions and conclusions arising from our audit 1 Our opinion on the financial statements is unmodified We have audited the financial statements of Findel plc for the period ended 28 March 2014 set out on pages 58 to 109. In our opinion:
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 28 March 2014 and of the group’s profit for the period then ended; the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); the parent company financial statements have been properly prepared in accordance with UK Accounting Standards; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.
2 Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on the audit were as follows: Recoverability of goodwill (£36.6m) and other intangibles (£53.7m): Refer to page 46 (Audit & Risk Committee section of the Corporate Governance Report), page 67 note 1 (accounting policy) and note 13 Goodwill and other intangible assets on pages 83 to 85
The risk – Goodwill and other intangibles are tested for impairment annually using a value in use model. The current trading environment remains challenging for certain of the group’s businesses, in particular, Kitbag and Kleeneze and due to the inherent uncertainty involved in forecasting and discounting future cash flows, which are the basis of the assessment of recoverability, the outcome could vary significantly if different assumptions were applied in the model. Therefore, the valuation of goodwill and other intangibles is a key judgemental area that our audit is concentrated on. Our response – In this area our audit procedures included, among others, testing of the group’s budgeting procedures upon which the forecasts are based and the workings and integrity of the group’s discounted cash flow model. We used our own valuation specialist to assist us in evaluating the assumptions and methodologies used by the group, in particular those relating to the forecast revenue growth and discount rates. We compared the group’s assumptions to externally derived data as well as our own assessments in relation to key inputs such as projected economic growth, cost inflation and discount rates, as well as performing break-even analysis on the assumptions. We compared the sum of the discounted cash flows to the value derived from the group’s market capitalisation to assess the reasonableness of the value in use calculations. We also assessed whether the group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of goodwill and other intangibles.
Exceptional items (£19m): Refer to page 46 (Audit & Risk Committee section of the Corporate Governance Report), page 65 note 1 (accounting policy) and page 77 note 6 (financial disclosures)
The risk – The group presents alternative income statement measures before accounting for “exceptional items” within the consolidated income statement and throughout the Annual Report. The directors believe that this information better reflects a fair presentation of the normal trading performance of the group during the year as exceptional items are the effects of transactions that necessitate separate presentation in order for the financial performance of the group to be understood. Exceptional items in the year include impairment provisions against indefinite useful live intangibles, costs of restructuring activities, the impact of onerous contracts and PPI mis-selling. Judgements and estimates are required in arriving at the categorisation and quantity of each of these charges. Alternative performance measures can provide investors with appropriate additional information if properly used and presented. In such cases, measures such as these can assist investors in gaining a better understanding of a company’s financial performance and strategy. However, when not properly used or presented, such measures might mislead investors by hiding the real financial position and results by making the underlying profitability of the group seem more attractive. For this reason, and because of the judgements and estimates involved, this was a main area of audit focus.
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Findel plc Annual report and accounts 2014
Governance
Our response – in this area our audit procedures included amongst others obtaining a detailed analysis of exceptional items from the group and assessing the appropriateness of classification of items as exceptional by considering whether they fulfilled the criteria to require separate disclosure and whether that criteria was consistently applied between periods and between similar transactions. This included detailed discussions with the management of the relevant group businesses to understand the nature of the respective items. Our detailed work on the impairment charge is described above. With regard to the restructuring and onerous contract costs we agreed amounts spent in the year to underlying documentation and supporting information. We assessed whether any future losses provided on onerous contracts were unavoidable. With regard to the provision for mis-selling we considered the incidence of claims received following the group’s mailing to the population of potential claimants to see if there were indications that the initial assessment of the liability was significantly mis-stated. Further we compared the response rates, uphold rates and settlement levels of the claims received to date to others in the industry.
STRATEGIC REPORT 1—19
When provisions were made in the prior period for exceptional items we assessed by examining the spend charged against the provision whether the utilisation of the provision in the current period was appropriate and that any release of the provision is appropriately classified as an exceptional item.
We considered whether the alternative presentation provided was a misleading representation of the group’s financial performance. We also assessed the extent to which prominence given to information on results before exceptional items and the related commentary in the Annual Report could be misleading and whether the exceptional items are described clearly, accurately and consistently.
GOVERNANCE 20—57
We also considered whether there are any transactions included within the results before exceptional items or classified within exceptional items which we consider should have been treated differently that are sufficiently large to be misleading.
Recoverability of trade receivables in Express Gifts Limited (£287.0m, allowance for doubtful debts £105.9m): Refer to page 46 (Audit & Risk Committee section of the Corporate Governance Report), page 68 (accounting policy) and pages 87 to 89 (financial disclosures)
Our response – Our audit procedures included, among others, testing the group’s controls over credit-checking customers and setting/extending credit limits and over the receivables collection processes, including the allocation of receipts to customer accounts; critical assessment of assumptions and estimates used in the model to value the allowance for doubtful debts by comparing the collection rates to others in the industry and to actual rates experienced. We also considered whether the group’s policies had been consistently applied between periods and the adequacy of the group’s disclosures regarding the degree of judgement and estimation involved in arriving at the allowance for doubtful debts.
Carrying amount of inventories (£64.4m): Refer to page 46 (Audit & Risk Committee section of the Corporate Governance Report), page 69 note 1 (accounting policy) and page 87 note 15 (financial disclosures)
Our response – Our audit procedures included, among others, testing the group’s controls designed to identify slow moving and/or obsolete inventories. We compared inventory levels, by product group, to sales data to corroborate whether slow moving and obsolete inventories had been appropriately identified and we challenged the group’s categorisation as obsolete or slow moving. We considered realisations of inventories during the period and after the period end, in particular of clearance categories, and compared these to the group’s expected recoveries for inventory categorised as obsolete and/or slow moving at the period end date to assess whether the provision for obsolete and slow moving stock is appropriate. We also considered whether the group’s policies had been consistently applied and the adequacy of the group’s disclosures in respect of the judgement and estimation made in respect of inventory provisioning.
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COMPANY FINANCIAL STATEMENTS 104—109
The risk – The group has significant levels of inventory and judgments are taken with regard to categorisation of stock as obsolete and/or slow moving and which should therefore be considered for provision; estimates are then involved in arriving at provisions against cost in respect of slow moving and obsolete inventories to arrive at valuation based on lower of cost and net realisable value. Given the level of judgements and estimates involved this is considered to be a key audit risk.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The risk – The group has a significant level of trade receivables which are due to be recovered by instalments as a result of extended credit terms offered to customers by the Express Gifts Limited business. The balance of receivables in the Express Gifts Limited business comprises a significant number of individually small balances. The group uses a provisioning model to determine the appropriate level of provision against balances which may not ultimately be recovered. Small changes in assumptions and estimates used in the provisioning model to value the allowance for doubtful debts would have a significant effect on the results and financial position of the group.
Governance
Independent Auditor’s Report to the Members of Findel plc only
3 Our application of materiality and an overview of the scope of our audit The materiality for the group financial statements as a whole was set at £2.5m. This has been determined with reference to a benchmark of group turnover (of which it represents 0.5%) which we consider to be one of the principal considerations for members of the company in assessing the financial performance of the group given the low level of profitability after exceptional items in recent years. The audits undertaken for group reporting purposes at each of the group’s businesses were performed to materiality levels set individually for each business. For Express Gifts, which accounts for 96% of the group’s operating profit before exceptional items materiality was £1.5m which was 5% of the segments reportable result. For Kitbag, Kleeneze and Findel Education materiality was set as a 0.5% of turnover and therefore materiality ranged from £0.2m to £0.5m. The whole of the exceptional items goodwill and other Intangibles were covered by our audit procedures. We agreed with the Audit Committee to report to it all corrected and uncorrected misstatements we identified through our audit with a value in excess of £150,000, in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds. Audits for group reporting purposes were performed at six key reporting components: four in the UK by the group audit team, a further one in the UK and one in Hong Kong by component auditors. This group reporting covered 100% of total group revenue; 100% of group profit before taxation; and 99% of total group assets. The segment disclosures in note 5 set out the individual significance of these components. The audits undertaken for group reporting purposes at the key reporting components of the group were all performed to materiality levels set by, or agreed with, the group audit team as set out above. Detailed instructions were sent to all the auditors in the above locations. These instructions covered the significant areas that should be covered by the component auditors (which included the relevant risks of material misstatement detailed above) and set out the information required to be reported back to the group audit team. 4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion:
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the financial statements.
5 We have nothing to report in respect of the matters on which we are required to report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In particular, we are required to report to you if:
we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s performance, business model and strategy; or the Audit & Risk Committee section of the Corporate Governance Report does not appropriately address matters communicated by us to the audit committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
the directors’ statement, set out on page 50, in relation to going concern; and the part of the Corporate Governance Statement on pages 21 to 52 relating to the company’s compliance with the nine provisions of the 2010 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
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Findel plc Annual report and accounts 2014
Governance
STRATEGIC REPORT 1—19
Scope of report and responsibilities As explained more fully in the Directors’ Responsibilities Statement, set out on page 53, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
John Costello (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants St James’ Square, Manchester M2 6DS GOVERNANCE 20—57
3 June 2014
CONSOLIDATED FINANCIAL STATEMENTS 58—103 COMPANY FINANCIAL STATEMENTS 104—109
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57
Consolidated Financial Statements
Consolidated Income Statement 52 week period ended 28 March 2014
Notes
Continuing operations Revenue Cost of sales Gross profit Trading costs Analysis of operating profit/(loss): – EBITDA – Depreciation and amortisation – Impairment Operating profit/(loss) Finance costs Profit/(loss) before tax Tax (expense)/income Profit/(loss) for the period Discontinued operation Profit/(loss) from discontinued operation, net of tax Profit/(loss) for the year Earnings per ordinary share from continuing operations Basic Diluted
Before exceptional items £000
Exceptional items £000
Total £000
514,736 (265,468) 249,268 (217,390)
— — — (18,275)
514,736 (265,468) 249,268 (235,665)
9 10
40,720 (8,842) — 31,878 (9,876) 22,002 (5,412) 16,590
(8,195) — (10,080) (18,275) (472) (18,747) 2,817 (15,930)
32,525 (8,842) (10,080) 13,603 (10,348) 3,255 (2,595) 660
6,7 10
45 16,635
(239) (16,169)
(194) 466
4,6
5 6,8
12
0.78p 0.66p
from discontinued operations Basic Diluted
12
(0.23)p (0.19)p
total attributable to ordinary shareholders Basic Diluted
12
0.55p 0.47p
The accompanying notes are an integral part of this consolidated income statement.
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Findel plc Annual report and accounts 2014
Consolidated Financial Statements
Consolidated Income Statement 52 week period ended 29 March 2013*
Discontinued operation Profit/(loss) from discontinued operation, net of tax Profit/(loss) for the year Earnings per ordinary share** from continuing operations Basic Diluted
Total £000
4,6
491,233 (254,481) 236,752 (214,433)
— — — (11,031)
491,233 (254,481) 236,752 (225,464)
5
30,152 (7,833) — 22,319
(10,398) — (633) (11,031)
19,754 (7,833) (633) 11,288
9 10
— (10,523) (10,523) 11,796 (1,513) 10,283
(147) (136) (283) (11,314) 2,616 (8,698)
(147) (10,659) (10,806) 482 1,103 1,585
6,7 10
1,468 11,751
(163) (8,861)
1,305 2,890
6,8
1.87p 1.59p
from discontinued operations Basic Diluted
12
1.54p 1.31p
total attributable to ordinary shareholders Basic Diluted
12
3.41p 2.90p
CONSOLIDATED FINANCIAL STATEMENTS 58—103
12
GOVERNANCE 20—57
Continuing operations Revenue Cost of sales Gross profit Trading costs Analysis of operating profit/(loss): – EBITDA – Depreciation and amortisation – Impairment Operating profit/(loss) Analysis of finance costs: – Movement on fair value of derivatives – Other Finance costs Profit/(loss) before tax Tax (expense)/income Profit/(loss) for the period
Exceptional items £000
STRATEGIC REPORT 1—19
Notes
Before exceptional items £000
COMPANY FINANCIAL STATEMENTS 104—109
The accompanying notes are an integral part of this consolidated income statement. *
Restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
** Earnings per share figures for 2013 have been restated to show the figures as if the twenty for one share consolidation which took place on 9 April 2013 (see note 24) took place at 1 April 2012. The figures have also been restated to reflect the adoption of IAS 19 ‘Employee Benefits (revised 2011)’ (see note 1).
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59
Consolidated Financial Statements
Consolidated Statement of Comprehensive Income 52 week period ended 28 March 2014
2014 £000
Profit for the period Other Comprehensive Income Items that may be reclassified to profit or loss Cash flow hedges (note 27) Currency translation (loss)/gain arising on consolidation (note 26) Items that will not subsequently be reclassified to profit and loss Actuarial gains/(losses) on defined benefit pension scheme (note 31) Tax relating to components of comprehensive income (note 22) Total comprehensive income/(loss) for period *
466
2,890
89 (251) (162)
126 150 276
9,481 (306) 9,175 9,479
(9,213) 534 (8,679) (5,513)
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
The total comprehensive income for the period is attributable to the equity shareholders of the parent company Findel plc.
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Findel plc Annual report and accounts 2014
2013* £000
Consolidated Financial Statements
Consolidated Balance Sheet at 28 March 2014
Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents Current tax assets Assets held for sale
2014 £000
2013* £000
36,591 53,746 34,644 8,066 133,047
36,591 64,301 31,329 8,618 140,839
15 16 17
64,406 213,284 24,270 — — 301,960 435,007
58,896 210,234 27,965 387 29,534 327,016 467,855
75,661 964 6,236 — 82,861
73,717 — 4,905 8,319 86,941
7
Total assets
21 7
Non-current liabilities Bank loans Provisions Retirement benefit obligation
19 21 31
231,223 725 8,550 240,498 323,359 111,648
259,176 1,526 19,741 280,443 367,384 100,471
24 25 25 26 27 28
125,942 403 93,454 505 — (108,656) 111,648
125,942 403 93,454 756 (89) (119,995) 100,471
18
Total liabilities Net assets Equity Share capital Capital redemption reserve Share premium account Translation reserve Hedging reserve Accumulated losses Total equity *
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Approved by the board and authorised for issue on 3 June 2014 R W J Siddle
}
Directors
COMPANY FINANCIAL STATEMENTS 104—109
T J Kowalski
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Current liabilities Trade and other payables Current tax liabilities Provisions Liabilities held for sale
GOVERNANCE 20—57
13 13 14 22
STRATEGIC REPORT 1—19
Notes
The accompanying notes are an integral part of this consolidated balance sheet.
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61
Consolidated Financial Statements
Consolidated Cash Flow Statement 52 week period ended 28 March 2014
2014 £000
Profit for the period Adjustments for: Income tax Finance costs Depreciation of property, plant and equipment Impairment of property, plant and equipment and software and IT development costs Impairment of other intangible assets Amortisation of intangible assets Share-based payment expense Loss/(profit) on disposal of property, plant and equipment Loss on disposal of subsidiary Pension contributions less income statement charge Operating cash flows before movements in working capital Increase in inventories Increase in receivables Increase in payables Increase in provisions Cash generated from operations Income taxes paid Interest paid Exceptional financing costs paid Net cash from operating activities Investing activities Interest received Proceeds on disposal of property, plant and equipment Purchases of property, plant and equipment and software and IT development costs Sale of subsidiaries (net of cash held in subsidiary) Net cash used in investing activities Financing activities Bank loans repaid Securitisation loan drawn Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at the end of the period
2013* £000
466
2,890
2,595 10,348 6,082
41 10,806 6,641
110 9,970 2,848 1,698 142 239 (3,000) 31,498 (5,754) (3,919) 2,727 530 25,082 (998) (9,239) (246) 14,599
633 — 3,678 1,847 (36) — (3,029) 23,471 (1,124) (13,518) 15,354 2,317 26,500 (1,761) (10,117) — 14,622
3 4 (11,831) 15,461 3,637
117 168 (8,259) — (7,974)
(32,663) 4,710 (27,953) (9,717) 34,023 (36) 24,270
(11,928) 6,163 (5,765) 883 33,099 41 34,023
The split of cash between continuing operations and assets held for sale is as follows:
Attributable to continuing operations Classified as held for sale *
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
The accompanying notes are an integral part of this consolidated cash flow statement.
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Findel plc Annual report and accounts 2014
2014 £000
2013 £000
24,270 — 24,270
27,965 6,058 34,023
Consolidated Financial Statements
Consolidated Statement of Changes in Equity 52 week period ended 28 March 2014
Share capital £000
Share premium account £000
Hedging reserve £000
125,942
403
93,454
606
(215)
(116,053)
104,137
— — 125,942
— — 403
— — 93,454
150 — 756
126 — (89)
(5,789) 1,847 (119,995)
(5,513) 1,847 100,471
— — 125,942
— — 403
— — 93,454
(251) — 505
89 — —
9,641 1,698 (108,656)
9,479 1,698 111,648
Translation reserve £000
Total equity £000
STRATEGIC REPORT 1—19
As at 30 March 2012 Total comprehensive loss for the period Share-based payments As at 29 March 2013 Total comprehensive income for the period Share-based payments At 28 March 2014
Retained earnings/ (accumulated losses) £000
Capital redemption reserve £000
The total equity is attributable to the equity shareholders of the parent company Findel plc. GOVERNANCE 20—57
In the 2013 annual report and accounts, the merger reserve, own shares and liability for share-based payments were disclosed separately. These have now been aggregated within accumulated losses.
CONSOLIDATED FINANCIAL STATEMENTS 58—103 COMPANY FINANCIAL STATEMENTS 104—109
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Consolidated Financial Statements
Notes to the Consolidated Financial Statements
1 General information and accounting policies Findel plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 20. The nature of the group’s operations and its principal activities are set out in the Strategic Report on pages 1 to 19. These financial statements are presented in sterling because that is the currency of the primary economic environment in which the group operates. Foreign operations are included in accordance with the accounting policies set out below. Impact of changes to accounting standards There have been several new and amended International Financial Reporting Standards which became effective for accounting periods starting on or after 1 January 2013, the effects of which are noted below: Restatement in respect of IAS19 ‘Employee Benefits (Revised 2011)’ The group adopted IAS19 'Employee Benefits' (revised 2011) on 30 March 2013 consistent with the standard’s effective date. The group has applied the standard retrospectively in accordance with the transition provisions. The impact on the group has been in the following areas: •
The new standard requires post-employment scheme administrative expenses to be recognised either in other comprehensive income, where specific to the management of plan assets, or in operating profit for all other costs. This has resulted in a reclassification of £150,000 of administrative expenses from other comprehensive income to trading costs for the current period (2013: £121,000). As a consequence operating profit for the period ended 28 March 2014 has reduced by £150,000 (2013: £121,000).
•
The new standard requires that the return on plan assets recognised in the income statement is calculated in a manner consistent with the interest charge on the liabilities, i.e. with reference to the discount rate applied to the liabilities. Prior to the revision, the expected return on assets was recognised through the income statement. There is no change to determining the discount rate; this continues to reflect the yield on high-quality corporate bonds. The net impact on the group’s results for the period ended 28 March 2014 is an increased finance expense of £1,288,000 and an associated reduction in the tax charge of £296,000 (2013: increased finance expense of £1,016,000 and an associated reduction in the tax charge of £244,000).
•
The new standard also requires a number of additional disclosures which can be found in note 31 to consolidated financial statements.
The comparative figures for the period ended 29 March 2013 have been restated accordingly. The equivalent credits and associated taxation impacts of the income statement charges noted above have been recognised in other comprehensive income, and consequently there is no overall net balance sheet effect. Since the impact of the restatement for the consolidated balance sheet at the opening date of the comparative period is £nil, a balance sheet at 30 March 2012 has not been presented. There were a number of other standards which came into effect but none of these have had a material impact. Impact of accounting standards not yet effective IFRS 15 ‘Revenue from Contracts with Customers’ – this standard was issued on 28 May 2014 and if endorsed by the European Union, will have an effective date of 1 January 2017. Management is still considering the impact of this new standard. There are a number of accounting standards which become effective for accounting periods beginning on or after 1 January 2014. It is not anticipated that any of these amendments will have a material impact upon the group’s financial statements. These include: •
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
•
Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32
•
Recoverable amount disclosures for non-financial assets – Amendments to IAS 36
•
IFRIC 21 Levies
•
Continuing hedge accounting after derivative novations – Amendments to IAS 39
•
Defined Benefit Plans: Employee Contributions – Amendments to IAS 19
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Findel plc Annual report and accounts 2014
Consolidated Financial Statements
Income statement presentation Exceptional items Exceptional items are items which the directors consider necessary to be presented separately in the income statement in order to fairly present the financial performance of the group. These are described in note 6. Discontinued operations The discontinued operation relates to the group’s healthcare business (Nottingham Rehab Limited) which was disposed of on 19 April 2013. In both the periods ended 28 March 2014 and 29 March 2013, it met the criteria to be accounted for as discontinued operation as defined in IFRS 5, “Non-current assets held for sale and discontinued operations”. Results from discontinued operation have been separated out in the consolidated income statement to enhance the comparability of the ongoing business, and the assets and liabilities were classified as held for sale up to the point of disposal on 19 April 2013. Further details are given in note 7.
The principal accounting policies adopted are set out below and have been applied consistently in the current and prior period. Going concern In determining whether the group’s financial statements for the period ended 28 March 2014 can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities in the current challenging economic climate. The financial position of the group, its cash flows, liquidity position and borrowing facilities and the key risks and uncertainties are set out in further detail above in the Finance Director’s Review on pages 16 to 18.
GOVERNANCE 20—57
Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the going concern basis as set out below. The financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments.
STRATEGIC REPORT 1—19
1 General information and accounting policies – continued
The directors have reviewed the trading and cash flow forecasts as part of their going concern assessment, including reasonable downside sensitivities which take into account the uncertainties in the current operating environment including amongst other matters demand for the group’s products, its available financing facilities, and movements in interest rates.
Accordingly, they continue to adopt the going concern basis in preparing the group’s annual consolidated financial statements. Basis of consolidation Subsidiaries Subsidiaries are consolidated from the date on which control is transferred to the group. They cease to be consolidated from the date that the group no longer has control. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The financial statements of all subsidiaries are prepared to the same reporting date as the parent company.
The CODM assesses profit performance using operating profit measured on a basis consistent with the disclosure in the group financial information. Until the disposal of the Healthcare division on 19 April 2013, the group was organised into six operating segments:
Express Gifts; Kleeneze; Kitbag; Education Supplies; Healthcare; and Overseas sourcing.
Following the disposal of the Healthcare division on 19 April 2013, the group is organised into five operating segments.
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COMPANY FINANCIAL STATEMENTS 104—109
Segmental reporting IFRS 8 requires operating segments to be identified on the internal financial information reported to the Chief Operating Decision Maker (CODM) who is primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. The CODM is the board of the company.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Taking into account the above uncertainties and circumstances, the directors formed a judgement that there is a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
1 General information and accounting policies – continued Revenue recognition Revenue comprises the fair value of the sale of goods and services to external customers, net of value added tax, rebates, discounts and returns. Revenue is recognised as follows: Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, which is considered to be upon delivery and the amount of revenue can be measured reliably. In Kleeneze, the buyer is considered to be the customer who purchases goods from the distributor; paragraph 8 of IAS 18 ‘Revenue’ would regard Kleeneze as the principal and the distributor as the agent. A provision for estimated returns is made based upon past experience and trends, representing the profit on goods sold during the period which will be returned and refunded after the period end. Interest income Interest income on customer credit accounts is recognised on a time-proportion basis, using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate. Rendering of services Revenue is recognised in respect of non-interest related financial income, delivery charges and parcel insurance. Prior to the disposal of the group’s healthcare business, various services were provided under healthcare contracts although this is no longer applicable. In all cases income is recognised when the relevant service has been provided to the customer. Foreign currency translation Functional and presentational currency The consolidated financial statements are presented in sterling, which is the company’s and group’s functional and presentational currency. Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). Transactions and balances Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet date. Translation differences on monetary items are taken to the income statement with the exception of differences on translations that are subject to effective cash flow hedges. Translation differences on non-monetary items are reported as part of the fair value gain or loss and are included in either equity or the income statement as appropriate. Group companies The results and financial position of overseas group entities are translated into sterling as follows:
Assets and liabilities are translated at the closing rate at the date of that balance sheet; Income and expenses are translated at the average exchange rate for the period; All resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to equity. Tax charges and credits attributable to those exchange differences are taken directly to equity. Share-based payments The group operates a number of equity-settled, share-based compensation plans. The group has applied the requirements of IFRS 2 “Share-based payments”. The group principally issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is usually measured by use of the Stochastic Valuation (aka “Monte-Carlo”) model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
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Findel plc Annual report and accounts 2014
Consolidated Financial Statements
STRATEGIC REPORT 1—19
1 General information and accounting policies – continued Property, plant and equipment Property, plant and equipment are held at cost less accumulated depreciation and any impairment in value. Depreciation is charged on a straight-line basis as follows:
Freehold properties are depreciated over 50 years; Leasehold premises with lease terms of 50 years or less are depreciated over the remaining period of the lease; Plant and equipment are depreciated over 3 to 20 years according to the estimated life of the asset; Equipment on hire or lease is depreciated over the period of the lease; Land is not depreciated.
Assets held in the course of construction are not depreciated until they are brought into use.
GOVERNANCE 20—57
Software and IT development costs Expenditure on IT software development is recognised as an internally-generated intangible asset up to the point where the main projects cease to involve external contractors, and only if all of the following conditions are met: an asset is created that can be identified (such as software and new processes); it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis over their useful lives of three to seven years. Where no internally-generated intangible asset can be recognised, expenditure is recognised as an expense in the period in which it is incurred.
Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates and joint ventures is included in the carrying amount of the investment. Goodwill is stated at cost less any impairment. Goodwill is not amortised but is tested annually for impairment. An impairment charge is recognised for any amount by which the carrying value of goodwill exceeds its recoverable value. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold, allocated where necessary on a pro rata basis. Other intangible assets Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill, if those assets are separable and their fair value can be measured reliably.
Brand names Legally protected or otherwise separable trade names acquired as part of a business combination are capitalised at fair value on acquisition. Brand names are assumed to have an indefinite life and are not amortised, but are subject to annual impairment tests. Customer relationships Contractual and non-contractual customer relationships acquired as part of a business combination are capitalised at fair value on acquisition and amortised on a straight-line basis over a period of between 2 and 20 years, representing the directors’ best estimate of their useful economic lives.
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COMPANY FINANCIAL STATEMENTS 104—109
The cost of intangible assets with finite useful economic lives is amortised on a straight-line basis over that period. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Goodwill There have been no acquisitions in the current period which would be accounted for under IFRS 3 Revised. For acquisitions between 1 April 2004 and 2 April 2010, goodwill is the excess of the fair value of the consideration payable for an acquisition over the fair value of the group’s share of identifiable net assets of a subsidiary, associate or joint venture acquired at the date of acquisition. Fair values are attributed to the identifiable assets, liabilities and contingent liabilities that existed at the date of acquisition, reflecting their condition at that date. Adjustments are made where necessary to bring the accounting policies of acquired businesses into alignment with those of the group.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
1 General information and accounting policies – continued Financial instruments Financial assets and financial liabilities are recognised in the group’s balance sheet when the group becomes a party to the contractual provisions of the instrument. Financial assets The group’s financial assets are classified as either derivatives or “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for loans and receivables. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Impairment of financial assets Loans and receivables are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. Objective evidence of impairment could include:
significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial reorganisation.
For trade receivables in Express Gifts, assets that are not individually significant are assessed for impairment on a collective basis. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of common credit risk characteristics such as past-due status and other relevant factors. Specific consumer credit receivables are removed from the portfolio when they suffer a bankruptcy event or when management judges that the debtor is irrecoverable. In the prior period management conducted an annual write-off of old overdue balances on the last day of the financial year, however in the current period management has reconsidered the interpretation of uncollectible debt in light of amounts received in respect of balances previously written-off and, as such, the same magnitude of write-off has not taken place in the current period. Other non-payment events are considered as part of the collective assessment for impairment in line with the characteristics of the portfolio. Other non-payment events are impaired collectively in line with the characteristics of the portfolio. The rest of the group tests for impairment of receivables on an individual basis. Objective evidence of impairment for a portfolio of receivables includes the group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Derecognition of financial assets The group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the group retains substantially all the risks and rewards of ownership of a transferred financial asset, the group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
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Findel plc Annual report and accounts 2014
Consolidated Financial Statements
Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs. Where financial liabilities are extinguished by equity instruments issued the difference between the carrying value of the debt extinguished and the fair value of the equity instrument issued is recorded in the income statement.
STRATEGIC REPORT 1—19
1 General information and accounting policies – continued
Financial liabilities The group’s financial liabilities are classified as either “fair value through profit and loss” or “other financial liabilities”.
The group derecognises financial liabilities when, and only when, the group’s obligations are discharged, cancelled or they expire. Derivative financial instruments On initial designation of the derivative as the hedging instrument, the group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80 – 125%. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss.
GOVERNANCE 20—57
Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
The group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, interest rate caps and swaps and foreign currency options. Further details of derivative financial instruments are disclosed in note 20 to the financial statements.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated on a weighted average cost basis and where applicable includes those costs that have been incurred in bringing the inventories to their present location and condition. Prior to its disposal on 19 April 2013, NRS used a standard cost method to determine the value of its inventories. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
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COMPANY FINANCIAL STATEMENTS 104—109
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. When the hedged item is a non-financial asset, the amount accumulated in equity is included in the carrying amount of the asset when the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified in profit or loss.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
1 General information and accounting policies – continued Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation but are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Taxation The tax currently payable or receivable is based on taxable profit or loss for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxation is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred taxation arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred taxation is calculated using tax rates that are expected to apply when the related deferred taxation asset is realised or the deferred taxation liability is settled. Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Leases Finance leases Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases is depreciated over the shorter of the anticipated useful life of the asset and its lease term. Operating leases Leases in which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Incentives from lessors are recognised as a systematic reduction of the charge over the lease term. Retirement benefit costs The group has both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under which the group pays fixed contributions into an independently administered fund. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The cost of providing these benefits, recognised in the income statement, comprises the amount of contributions payable to the schemes in respect of the year. For defined benefit retirement plans, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date.
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Findel plc Annual report and accounts 2014
Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Critical judgements in applying the group’s accounting policies In the process of applying the group’s accounting policies, which are described in note 1, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimates, which are dealt with below).
STRATEGIC REPORT 1—19
2 Critical accounting judgements and key sources of estimation uncertainty
Classification of exceptional items – judgement is applied in determining whether or not it is considered appropriate to present items separately in the income statement in order to fairly present the financial performance of the group. Revenue recognition – judgement is applied in determining when the risks and rewards of ownership of goods have passed and therefore when the revenue should be recognised.
Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: Valuation of indefinite lived intangibles and goodwill (note 13) The group has significant investments in goodwill and indefinite lived intangible assets at 28 March 2014 as a result of acquisitions of businesses and purchases of such assets. The carrying value of goodwill at 28 March 2014 is £36.6m. Following the recognition of an impairment provision of £10.0m (see note 13), the carrying value of indefinite lived intangible assets is £40.2m. These assets are held at cost less provisions for impairment and tested annually for impairment. Tests for impairment are primarily based on the calculation of a value in use for each cash generating unit. This involves the preparation of discounted cash flow projections, which require an estimate of both future operating cash flows and an appropriate discount rate. Such estimates are inherently subjective and can have a material impact on the result of the impairment test.
Express Gifts’ trade receivables (note 16) Express Gifts’ trade receivables are recognised on the balance sheet at original invoice amount less provision for impairment. At 28 March 2014 trade receivables with a gross value of £287.0m were recorded on the balance sheet less a provision for impairment of £105.9m. Provisions for impairment of receivables within Express Gifts are established when there is objective evidence that the group will not be able to collect all amounts due and are based on estimated roll rates and collection rates at each year-end. These roll rates and collection rates are estimated based on historical and current trends and are inherently subjective. Provisions for PPI redress (note 21) The group makes provisions in respect of redress for mis-sold Payment Protection Insurance (“PPI”). At 28 March 2014 a provision of £2.4m was recorded in the balance sheet. The provision amount is calculated based upon estimated volumes of claims made and claims expected to be upheld, following the results of mailing exercises to potentially affected customers.
COMPANY FINANCIAL STATEMENTS 104—109
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any of the future periods affected.
www.findel.co.uk
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Inventory provisioning (note 15) The group carries significant amounts of inventory against which there are provisions for slow moving and delisted products. At 28 March 2014 a provision of £3.3m is held against a gross inventory value of £67.7m. The provisioning policies require a high degree of judgement and the use of estimates around future sales and demand for products. In addition management make use of estimates regarding the selling price of items in order to ensure that inventories are valued at the lower of cost and net realisable value.
GOVERNANCE 20—57
Treatment of leases – judgement is applied to assess whether the risks and rewards of ownership of the asset have transferred to determine whether a lease is accounted for as a finance lease or an operating lease.
71
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
3 Subsidiaries The principal subsidiary undertakings at 28 March 2014 were as follows: Registered in England and Wales Express Gifts Limited
Retailer
Kitbag Limited
Retailer
Kleeneze Limited
Retailer
Findel Education Limited
Retailer
Registered in Hong Kong Findel Asia Sourcing Limited (formerly Fine Art Developments (Far East) Limited)
Procurement Services
All subsidiary undertakings are wholly owned directly by Findel plc and operate mainly in the country in which they are registered. A full list of subsidiaries can be found in the company’s Annual Return.
4 Trading costs An analysis of the group’s trading costs is as follows: Continuing operations £000
Selling and distribution costs: – Before exceptional items – Exceptional items Administrative expenses: – Before exceptional items – Exceptional items *
72
2014 Discontinued operation £000
Total £000
Continuing operations £000
2013* Discontinued operation £000
Total £000
133,229 —
293 —
133,522 —
132,494 —
4,273 —
136,767 —
84,161 18,275 235,665
538 239 1,070
84,699 18,514 236,735
81,939 11,031 225,464
9,462 163 13,898
91,401 11,194 239,362
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
STRATEGIC REPORT 1—19
5 Segmental analysis Operating segments The board has considered the information that is presented to them on each of the trading divisions. In view of this, information on reporting segments has been amended accordingly. For management purposes, until the disposal of the Healthcare division on 19 April 2013 the group was organised into six operating segments:
Education Supplies – supplier of resources and equipment (excluding information technology and publishing) to schools and educational establishments in the UK; Kitbag – retailer of sports leisurewear and official football kits both through its own online operation, kitbag.com, as well as a number of partnership relationships with football clubs and other sports organisations whereby Kitbag manages a range of retail, online and/or mail order channels; Kleeneze – marketing company, specialising in supplying household and health & beauty products to customers through a network of independent distributors across the UK and the Republic of Ireland; GOVERNANCE 20—57
Express Gifts – direct mail order businesses in the UK, offering online and via catalogue a broad range of home and leisure items, clothing, toys and gifts supported by a flexible credit offer;
Overseas Sourcing – sourcing office based in Hong Kong supplying importing services to various group companies and a small number of external customers; and Healthcare – operator of outsourced Integrated Community Equipment Services (“ICES”) contracts for NHS trusts and local authorities, and supplier of rehabilitation and care equipment to the public and private sectors via catalogue and the internet.
Segment information about these operating segments is presented below. Inter segmental trading and profitability is not included in the information provided to the CODM and consequently is not disclosed below. Revenue for each reportable segment reflects sales to external customers only. Reportable segmental profits are adjusted for inter segment profits and as such are stated using costs to the group. In the current period the information presented to the CODM has been modified so that exceptional items are now shown against the operating segment to which they relate. Consequently the analysis below has been amended to reflect this change for both the current and prior periods.
Continuing operations
Sales of goods Rendering of services Interest Reportable segment revenue
Discontinued operation
Express Gifts £000
Education Supplies £000
Kitbag £000
Kleeneze £000
Overseas Sourcing £000
Total £000
Healthcare £000
Total £000
206,714 20,811 60,689 288,214
109,917 — — 109,917
66,698 — — 66,698
44,680 1,723 101 46,504
3,403 — — 3,403
431,412 22,534 60,790 514,736
5,445 495 — 5,940
436,857 23,029 60,790 520,676
2013 Revenue Continuing operations Express Gifts £000
Education Supplies £000
Kitbag £000
Kleeneze £000
Overseas Sourcing £000
Total £000
Healthcare £000
Total £000
183,554 26,826 52,585 262,965
103,225 — — 103,225
70,376 — — 70,376
47,272 1,815 106 49,193
5,474 — — 5,474
409,901 28,641 52,691 491,233
70,413 18,964 — 89,377
480,314 47,605 52,691 580,610
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COMPANY FINANCIAL STATEMENTS 104—109
Sales of goods Rendering of services Interest Reportable segment revenue
Discontinued operation
CONSOLIDATED FINANCIAL STATEMENTS 58—103
2014 Revenue
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
5 Segmental analysis – continued 2014 Profit after tax Continuing operations
Discontinued operation
Express Gifts £000
Education Supplies £000
Reportable segment results
30,679
4,092
(4,106)
1,306
Exceptional items (note 6) Operating profit/(loss) after exceptional items Finance costs (includes £472,000 exceptional finance costs) Profit before tax Tax Profit after tax
(2,756)
(1,020)
(10,799)
27,923
3,072
(14,905)
Kitbag £000
Kleeneze £000
Overseas Sourcing £000
Total £000
Healthcare £000
Total £000
(93)
31,878
45
31,923
(3,700)
—
(18,275)
(239)
(18,514)
(2,394)
(93)
13,603
(194)
13,409
(10,348) 3,255 (2,595) 660
— (194) — (194)
(10,348) 3,061 (2,595) 466
2013 Profit after tax* Continuing operations Express Gifts £000
Education Supplies £000
Reportable segment results*
21,823
794
Exceptional items (note 6) Operating profit/(loss) after exceptional items Unallocated costs Total group operating profit after exceptional items Finance costs (includes £283,000 exceptional finance costs) Profit before tax Tax Profit after tax
(5,890) 15,933
*
74
Discontinued operation
Kleeneze £000
Overseas Sourcing £000
Total £000
Healthcare £000
Total £000
(1,693)
1,990
42
22,956
2,612
25,568
(1,547)
(2,716)
(878)
—
(11,031)
(163)
(11,194)
(753)
(4,409)
1,112
42
11,925 (637)
2,449 —
14,374 (637)
11,288
2,449
13,737
(10,806) 482 1,103 1,585
— 2,449 (1,144) 1,305
(10,806) 2,931 (41) 2,890
Kitbag £000
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
2014 Other information Continuing operations Express Gifts £000
Education Supplies £000
Kitbag £000
Kleeneze £000
Overseas Sourcing £000
Total £000
Healthcare £000
Total £000
8,130
1,179
1,959
551
12
11,831
—
11,831
3,596 —
3,333 —
1,816 6,280
82 3,800
15 —
8,842 10,080
88 —
8,930 10,080
306,546
116,926
34,868
46,325
13,978
518,643
—
518,643
(83,636) 435,007 (239,865)
(64,982)
(57,909)
(6,101)
(554)
(369,411)
—
(369,411)
46,052 (323,359)
Continuing operations
Discontinued operation
Express Gifts £000
Education Supplies £000
Kitbag £000
Kleeneze £000
Overseas Sourcing £000
Total £000
Healthcare £000
Total £000
4,696
1,050
1,767
145
60
7,718
541
8,259
3,273 —
3,239 288
1,244 345
64 —
13 —
7,833 633
2,486 —
10,319 633
280,810
124,036
34,316
42,247
15,973
497,382
27,970
525,352
(57,497)
(233,940)
(74,085)
(46,573)
(6,480)
(1,231)
(362,309)
(13,871)
(376,180)
8,796 (367,384)
The segment assets and liabilities above include intercompany balances which eliminate on consolidation, but appear in the information presented to the CODM. Unallocated corporate assets and liabilities principally comprise current tax provisions and deferred tax assets. Information for 2013 has been restated to reflect the format of the information presented to the CODM in the current period and to ensure comparability with the figures disclosed in the current period.
www.findel.co.uk
75
COMPANY FINANCIAL STATEMENTS 104—109
467,855
CONSOLIDATED FINANCIAL STATEMENTS 58—103
2013 Other information
Capital additions Depreciation and amortisation Impairment losses Balance Sheet Assets Segment assets Unallocated corporate assets and adjustment for intercompany balances Consolidated total assets Liabilities Segment liabilities Unallocated corporate liabilities and adjustment for intercompany balances Consolidated total liabilities
GOVERNANCE 20—57
Capital additions Depreciation and amortisation Impairment losses Balance Sheet Assets Segment assets Unallocated corporate assets and adjustment for intercompany balances Consolidated total assets Liabilities Segment liabilities Unallocated corporate liabilities and adjustment for intercompany balances Consolidated total liabilities
Discontinued operation
STRATEGIC REPORT 1—19
5 Segmental analysis – continued
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
5 Segmental analysis – continued Geographical segments The group’s operations are located in the United Kingdom and Hong Kong. The following table provides an analysis of the group’s sales by geographical market, irrespective of the origin of the goods/services.
United Kingdom Europe Asia Other
2014 £000
2013 £000
487,778 13,434 7,865 11,599 520,676
543,387 14,701 9,081 13,441 580,610
The above figures include £5,940,000 of sales for discontinued operations, all of which relates to the United Kingdom. (2013: UK £88,439,000, Europe £695,000, Asia £153,000 and other £90,000). The following is an analysis of the carrying amount of non-current assets analysed by geographical area in which the assets are located.
United Kingdom Hong Kong
2014 £000
2013 £000
133,009 38 133,047
140,788 51 140,839
Major customers The group has no transactions with any single customer that amounts to more than 10% of the group’s total revenue in either the period ended 28 March 2014 or the period ended 29 March 2013.
76
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
The following is an analysis of the exceptional items arising during the period. 2013 £000
2,739 2,768 798 2,000 9,970
3,812 1,311 1,108 4,800 —
472
283
—
163
239 18,986
— — — 11,477
Continuing operations Exceptional trading costs – Restructuring costs – Onerous contracts – Onerous lease provisions – PPI redress – Impairment of other intangible assets Exceptional financing costs Debt refinancing costs Discontinued operation Restructuring costs Excess of proceeds over value of assets disposed of Pension settlement cost Loss on disposal of subsidiary
(261) 500
GOVERNANCE 20—57
2014 £000
STRATEGIC REPORT 1—19
6 Exceptional items
Restructuring costs in the current period of £2,739,000 (2013: £3,975,000) of which £nil (2013: £163,000) related to the discontinued operation, relate to management changes, redundancies and costs associated with rectifying poor systems and controls. A charge of £2,768,000 (2013: £1,311,000) has been recognised in the current period in relation to the costs of exiting a loss-making contract. The costs were unavoidable and include impairments of property, plant and equipment and unamortised license fees. Costs of £798,000 have been provided in the current period in respect of onerous lease provisions (2013: £1,108,000). This is discussed in note 21.
Impairment of other intangible assets relates to a write down of indefinite lived brand names allocated to the Kleeneze and Kitbag CGUs. Impairment testing for goodwill and indefinite lived brand names is discussed in note 13. Loss on disposal of subsidiary relates to the sale of the group’s healthcare division (Nottingham Rehab Limited), which was completed on 19 April 2013. Pension settlement cost relates the buyout of members of the Findel Education section of the Findel Group Pension Fund that were employed by NRS, which took place as a result of the sale of the business. The tax impact of exceptional items was a credit of £2,817,000 (2013: £2,616,000 credit).
7 Discontinued operations
The gross consideration payable upon completion was £24.0m, comprised of a cash payment of £22.6m to Findel Plc and a payment of £1.4m into an escrow account to satisfy the estimated value of NRS’ debt to the Findel Group Pension Fund. This valuation was completed in August 2013 and a further £0.1m was paid to Findel plc (being the excess over the value of NRS’s debt to the Findel Group Pension Fund). There were few synergies between NRS and the rest of the group, and consequently the board believed that Findel’s cash resources were better employed in developing the remainder of the group and that NRS’ interests were best served under a new owner. The excess of proceeds over the value of assets disposed of was £261,000. This has been offset by a pension settlement cost of £500,000, relating to the buyout of members of the Findel Education section of the Findel Group Pension Fund that were employed by NRS, which took place as a result of the sale of the business, and resulted in a loss on disposal of £239,000 being recognised in the consolidated income statement.
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77
COMPANY FINANCIAL STATEMENTS 104—109
On 19 April 2013, the group completed the disposal of its Healthcare Division through the sale of Nottingham Rehab Limited (“NRS”). NRS was classified as a disposal group held for sale in the financial statements for the period ended 29 March 2013. NRS’ results for the period from 30 March to 19 April 2013 and for the period ended 29 March 2013 have been presented to show the discontinued operation separately from continuing operations.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
A further £2,000,000 of costs were provided in relation to PPI redress during the period (2013: £4,800,000) bringing the provision to £2,407,000 (2013: £3,369,000).
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
7 Discontinued operations – continued Results of discontinued operation 19.4.13 £000
Revenue Expenses* Operating profit Finance revenue Finance expense Profit before taxation from discontinued operations Tax expense Profit for the year from discontinued operations *
5,940 (5,895) 45 — — 45 — 45
2013 £000
89,377 (86,928) 2,449 — — 2,449 (1,144) 1,305
2013 expenses includes £163,000 of exceptional items.
The major classes of assets and liabilities of NRS at disposal on 19 April 2013 and at 29 March 2013 were as follows:
Assets Goodwill Intangible assets Property, plant and equipment Deferred tax asset Inventory Trade and other receivables Cash
Liabilities Trade and other payables
Net assets of disposal group
19.4.13 £000
2013 £000
2,308 1,395 1,069 1,544 6,653 11,514 6,057 30,540
2,308 1,395 1,157 1,427 6,409 10,780 6,058 29,534
8,512 8,512
8,319 8,319
22,028
21,215
The above figures include goodwill, intangible assets, deferred tax, corporation tax liabilities and inter-company liabilities settled on completion. These items will be reconciling items to the segmental analysis in note 5. Net cash flows from/(used in) discontinued operation 19.4.13 £000
Operating cash flows Investing cash flows Financing cash flow Net cash inflow
(1) 15,461 — 15,460
2013 £000
(20,400) 1,119 20,629 1,348
The earnings per share from discontinued operation has been disclosed in note 12 of the consolidated financial statements.
8 Finance expense 2014 £000
Interest on bank loans Net interest cost on defined pension obligations (note 31) Exceptional financing costs (note 6) *
78
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Findel plc Annual report and accounts 2014
9,086 790 472 10,348
2013* £000
9,937 586 283 10,806
Consolidated Financial Statements
(a) Tax charged in the income statement
Current tax expense: Current period (UK tax) Current period (overseas tax) Adjustments in respect of prior periods (UK tax)
Deferred tax expense: Origination and reversal of timing differences Effect of tax rate change on opening balance Tax expense in the income statement
*
2013* £000
2,185 19 145 2,349
— 31 (343) (312)
(1,096) 1,342 246 2,595
(48) 401 353 41
2,595 — 2,595
(1,103) 1,144 41
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
GOVERNANCE 20—57
The tax expense/(credit) in the income statement is disclosed as follows: Tax charge/(credit) on continuing operations Tax expense on discontinued operation
2014 £000
STRATEGIC REPORT 1—19
9 Current taxation
The group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. (b) Tax recognised directly in Equity
Deferred tax: Tax on defined benefit pension plans
2014 £000
2013* £000
306
(534)
The differences are reconciled below: 2014 £000
Profit/(loss) from continuing operations before tax (Loss)/profit from discontinued operation before tax
2013* £000
603 2,449 3,052 732
Effects of: Expenses not deductible for tax purposes Lower tax rates on overseas earnings Recognition of previously unrecognised deferred tax Impact of change in rate of corporation tax Adjustments in respect of prior periods Total tax charge for the period
739 72 (131) 1,256 (45) 2,595
831 10 (2,255) 404 319 41
*
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
www.findel.co.uk
79
COMPANY FINANCIAL STATEMENTS 104—109
Tax calculated at standard corporation tax rate of 23% (2013: 24%)
3,255 (194) 3,061 704
CONSOLIDATED FINANCIAL STATEMENTS 58—103
(c) Reconciliation of the total tax charge The tax expense in the income statement for the period is higher (2013: lower) than the standard rate of corporation tax in the UK of 23% (2013: 24%).
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
10 Profit for the period Continuing operations £000
Stated after (charging)/crediting: Cost of inventories recognised as expense (257,131) Impairment charge for inventories (note 15) (5,243) Amounts arising on derivatives trading not in a designated hedge accounting relationship (89) Depreciation of property, plant and equipment – owned (5,994) Operating lease rentals (10,150) Amortisation of intangible assets (2,848) Impairment of other intangible assets (note 13) (9,970) Impairment of property, plant and equipment (110) (Loss)/profit on disposal of property, plant and equipment (142) Impairment charge for receivables (note 16) (29,695) Staff costs (note 11) (65,376)
2014 Discontinued operation £000
Total £000
Continuing operations £000
2013 Discontinued operation £000
Total £000
(302) —
(275,433) (5,243)
(249,395) (5,830)
(5,256) (652)
(254,651) (6,482)
—
(89)
(147)
—
(147)
(88) — — — — — — (951)
(6,082) (10,150) (2,848) (9,970) (110) (142) (30,117) (66,237)
(5,212) (10,657) (2,621) — (633) 37 (31,378) (60,126)
(1,429) (1,237) (1,057) — — (1) (28) (12,244)
(6,641) (11,894) (3,678) — (633) 36 (31,406) (72,370)
Continuing and discontinued operations Auditor’s remuneration The analysis of auditor’s remuneration is as follows:
Audit of these financial statements Amounts receivable by the company’s auditor and its associates in respect of: Audit of financial statements of subsidiaries of the company Total audit fees Taxation compliance services (Corporation and Value Added Tax) Other tax advisory services Total services relating to taxation Other assurance services – regulatory advice regarding compliance with new FCA requirements Corporate finance and transaction services Total audit and non-audit fees *
2014 £000
2013* £000
100
100
267 367 512 — 512 220 15 1,114
317 417 319 65 384 32 314 1,147
Amounts disclosed in 2013 have been re-categorised to comply with ICAEW Technical Release Disclosure of auditor remuneration Tech14/13.
As noted in the Audit & Risk Committee Report on page 48, the level of non-audit fees paid to KPMG LLP during the year represented around 40% of the total fees paid to accounting firms by the group for non-audit services during the year.
80
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
(a) Staff costs relating to continuing and discontinued operations The average monthly number of employees (including executive directors) was as follows:
Administration Production* Selling and distribution
2014 No.
2013 No.
1,287 — 1,092 2,379
1,311 141 1,353 2,805
2014 £000
2013 £000
55,496 5,445 3,688 1,698 66,327
61,299 5,327 3,897 1,847 72,370
STRATEGIC REPORT 1—19
11 Staff costs and directors’ emoluments
Their aggregate remuneration comprised:
*
production staff in 2013 related solely to the group’s healthcare division.
(b) Directors’ emoluments Directors' emoluments which are included in the above and are detailed further in the Directors' Remuneration Report on pages 28 to 45 are as follows:
Short-term employee benefits Company pension contributions Gain on exercise of share options
*
2013 £000
2,188 206 — 2,394
2,072 204 — 2,276
2014 No.
2013 No.
1 1
1 1
Relates to the pension entitlement for Mr P B Maudsley. Please refer to the Directors' Remuneration Report for further details.
341,834 (2013: 498,574) £nil cost options over ordinary shares were granted to directors in respect of the Performance Share Plan. Emoluments in respect of the highest paid director 2013 £000
696 81 — 777
665 80 — 745
No (2013: None) £nil cost options over ordinary shares were granted to the highest paid director in respect of the Performance Share Plan.
www.findel.co.uk
81
COMPANY FINANCIAL STATEMENTS 104—109
Short-term employee benefits Company pension contributions Gain on exercise of share options
2014 £000
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Number of directors accruing benefits under defined benefit pension schemes* Number of directors accruing benefits under defined contribution pension schemes
2014 £000
GOVERNANCE 20—57
Wages and salaries Social security costs Other pension costs Share-based payments expense
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
12 Earnings per share Earnings per share figures for 2013 have been restated to show the figures as if the twenty for one share consolidation which took place on 9 April 2013 (see note 24) took place at 1 April 2012. The figures have also been restated to reflect the adoption of IAS 19 ‘Employee Benefits (revised 2011)’ (see note 1). From continuing operations Profit attributable to ordinary shareholders 2014 £000
Net profit attributable to equity holders for the purposes of basic earnings per share Other exceptional items (net of tax) Exceptional finance costs (net of tax) Net profit attributable to equity holders for the purpose of adjusted earnings per share Weighted average number of shares Ordinary shares in issue at start and end of the period (note 24) Effect of own shares held Weighted average number of shares – basic Effect of outstanding share options (note 23) Effect of convertible shares (note 24) Weighted average number of shares – diluted Earnings per share Earnings per share – Earnings per share – Earnings per share – Earnings per share – *
basic adjusted* basic diluted adjusted* diluted
2013 £000
660 (15,458) (472) 16,590
1,585 (8,415) (283) 10,283
85,942,533 (1,135,110) 84,807,423 7,609,609 8,343,935 100,760,967
85,942,533 (1,135,110) 84,807,423 6,703,071 8,343,935 99,854,429
0.78p 19.56p 0.66p 16.46p
1.87p 12.13p 1.59p 10.30p
2014 £000
2013 £000
(194) (239) — 45
1,305 (163) — 1,468
85,942,533 (1,135,110) 84,807,423 7,609,609 8,343,935 100,760,967
85,942,533 (1,135,110) 84,807,423 6,703,071 8,343,935 99,854,429
(0.23)p 0.05p (0.19)p 0.04p
1.54p 1.73p 1.31p 1.47p
Adjusted to remove the impact of exceptional items.
From discontinued operation Profit attributable to ordinary shareholders
Net (loss)/profit attributable to equity holders for the purposes of basic earnings per share Other exceptional items (net of tax) Exceptional finance costs (net of tax) Net profit attributable to equity holders for the purpose of adjusted earnings per share Weighted average number of shares Ordinary shares in issue at start and end of the period (note 24) Effect of own shares held Weighted average number of shares – basic Effect of outstanding share options (note 23) Effect of convertible shares (note 24) Weighted average number of shares – diluted Earnings per share (Loss)/earnings per share – basic Earnings per share – adjusted* basic (Loss)/earnings per share – diluted Earnings per share – adjusted* diluted *
82
Adjusted to remove the impact of exceptional items.
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
Total attributable to ordinary shareholders Profit attributable to ordinary shareholders 2014 £000
Net profit attributable to equity holders for the purposes of basic earnings per share Other exceptional items (net of tax) Exceptional finance costs (net of tax) Net profit attributable to equity holders for the purpose of adjusted earnings per share
Earnings per share Earnings per share – Earnings per share – Earnings per share – Earnings per share – *
basic adjusted* basic diluted adjusted* diluted
466 (15,697) (472) 16,635
2,890 (8,578) (283) 11,751
85,942,533 (1,135,110) 84,807,423 7,609,609 8,343,935 100,760,967
85,942,533 (1,135,110) 84,807,423 6,703,071 8,343,935 99,854,429
0.55p 19.61p 0.47p 16.50p
3.41p 13.86p 2.90p 11.77p
GOVERNANCE 20—57
Weighted average number of shares Ordinary shares in issue at start and end of the period (note 24) Effect of own shares held Weighted average number of shares – basic Effect of outstanding share options (note 23) Effect of convertible shares (note 24) Weighted average number of shares – diluted
2013 £000
STRATEGIC REPORT 1—19
12 Earnings per share – continued
Adjusted to remove the impact of exceptional items.
The earnings per share attributable to convertible ordinary shareholders is £nil.
13 Goodwill and other intangible assets £000
47,299 (2,308) 44,991 44,991
Impairment At 30 March 2012 At 29 March 2013 At 28 March 2014
(8,400) (8,400) (8,400)
Carrying amount Attributable to continuing operations Net book value at 28 March 2014 Net book value at 29 March 2013
36,591 36,591
Classified as assets held for sale Net book value at 29 March 2013 (see note 7)
2,308
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. After recognition of impairment losses, the carrying amount of goodwill has been allocated as follows:
Express Gifts Education Supplies
2014 £000
2013 £000
320 36,271 36,591
320 36,271 36,591
The amount of goodwill that is tax deductible is £2,367,000 (2013: £2,541,000).
www.findel.co.uk
83
COMPANY FINANCIAL STATEMENTS 104—109
Cost At 30 March 2012 Transfer to assets held for sale At 29 March 2013 At 28 March 2014
CONSOLIDATED FINANCIAL STATEMENTS 58—103
(a) Goodwill
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
13 Goodwill and other intangible assets – continued (b) Other intangible assets Software and IT development costs £000
Brand names £000
Customer relationships £000
Total £000
Cost At 30 March 2012 Additions Disposals Transfer from tangible assets Transfer to assets held for sale At 29 March 2013 Additions Disposals At 28 March 2014
14,531 1,905 (288) 5,270 (5,944) 15,474 2,263 — 17,737
50,241 — — — (66) 50,175 — — 50,175
21,079 — — — (589) 20,490 — — 20,490
85,851 1,905 (288) 5,270 (6,599) 86,139 2,263 — 88,402
Accumulated amortisation and impairment At 30 March 2012 Amortisation for the period Disposals Transfer from tangible assets Transfer to assets held for sale At 29 March 2013 Amortisation for the period Impairment loss Disposals At 28 March 2014
9,879 2,718 (167) 3,110 (5,027) 10,513 1,918 — — 12,431
— — — — — — — 9,970 — 9,970
10,542 960 — — (177) 11,325 930 — — 12,255
20,421 3,678 (167) 3,110 (5,204) 21,838 2,848 9,970 — 34,656
5,306 4,961
40,205 50,175
8,235 9,165
53,746 64,301
917
66
412
1,395
Carrying amount Attributable to continuing operations Net book value at 28 March 2014 Net book value at 29 March 2013 Classified as assets held for sale Net book value at 29 March 2013 (see note 7)
Brand names, which arise from the acquisition of businesses, are deemed to have an indefinite life, and therefore are subject to annual impairment tests, on the basis that they are expected to be maintained indefinitely and are expected to continue to drive value for the group. The amortisation period for customer relationships, which arose from the acquisition of businesses, is between 2 and 20 years. Management do not consider that any customer relationships are individually material. Brand names acquired in a business combination are allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. After recognition of impairment losses, the carrying amount of brand names has been allocated as follows:
Express Gifts Kleeneze Kitbag Education Supplies
2014 £000
2013 £000
1,058 19,045 — 20,102 40,205
1,058 22,845 6,170 20,102 50,175
(c) Impairment testing The group tests goodwill and indefinite lived brand names for impairment annually, or more frequently if there are indicators of impairment. The recoverable amounts of the Express Gifts, Education Supplies, Kitbag and Kleeneze CGUs are determined from value in use calculations. Significant judgements, assumptions and estimates In determining the value in use of CGUs it is necessary to make a series of assumptions to estimate the present value of future cash flows. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information. The key assumptions are as follows:
84
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
Operating cash flows Management has prepared cash flow forecasts for a three year period derived from the approved budget for financial year 2014/15. These forecasts include assumptions around sales prices and volumes, specific customer relationships and operating costs. A key assumption in relation to the operating profit forecasts for the Education CGU is that the business’s operating profit margin will improve to be in line with its competitors by the end of the forecast period. Risk adjusted discount rates The pre-tax rates used to discount the forecast cash flows are between 12.5% and 18.1% (2013: 12.7% and 17.1%). These discount rates are derived from the group’s weighted average cost of capital as adjusted for the specific risks related to each CGU.
STRATEGIC REPORT 1—19
13 Goodwill and other intangible assets – continued
Long-term growth rate To forecast beyond the detailed cash flows into perpetuity, a long-term average growth rate of 2.5% (2013: 2.5%) has been used. This is not greater than the published International Monetary Fund average growth rate in gross domestic product for the next five year period in the territories where the CGUs operate.
The carrying amount of the Kleeneze CGU was determined to be higher than the recoverable amount and an impairment loss of £3,800,000 was recognised. The impairment loss was fully allocated to indefinite lived brands and is included in exceptional items. Following the impairment loss recognised, the recoverable amount is equal to the carrying amount. Therefore, any adverse movement in a key assumption would lead to a further impairment. Sensitivity analysis is included below.
GOVERNANCE 20—57
Results The estimated recoverable amounts of the Express Gifts and Education Supplies CGUs exceed their carrying values by approximately £23,200,000 and £8,300,000 respectively and as such no impairment was necessary.
The carrying amount of the Kitbag CGU was determined to be higher than the recoverable amount and an impairment loss of £6,170,000 was recognised. The impairment loss was fully allocated to indefinite lived brands and is included in exceptional items. Following the impairment loss recognised, the recoverable amount is equal to the carrying amount. Therefore, any adverse movement in a key assumption would lead to a further impairment. Sensitivity analysis is included below.
The table below shows the risk adjusted discount rate and forecast operating cash flow assumptions used in the calculation of value in use of the Education Supplies CGU and the amount by which each assumption must change in isolation in order for the estimated recoverable amount to equal the carrying value: CGU
Education Supplies
Value in excess over carrying value (£000) Assumptions used in the calculation of value in use Pre-tax discount rate Total pre-discounted forecast operating cash flow (£000) Change required for the recoverable amount to equal the carrying value Pre-tax discount rate Total pre-discounted forecast operating cash flow
8,300 16.9% 131,479 1.0% (10%)
CGU
Impairment recognised (£000) Assumptions used in the calculation of value in use Pre-tax discount rate Total pre-discounted forecast operating cash flow (£000) Additional impairment required as a result of changes to key assumptions 1% increase in pre-tax discount rate 5% decrease in total pre-discounted forecast operating cash flow
Kleeneze
Kitbag
(3,800)
(6,170)
16.6% 37,371
18.1% 17,229
(2,149) (1,269)
(1,213) (640)
Based on the results of the impairment test for the Express Gifts CGU, management are satisfied that there is sufficient headroom such that a reasonably possible change in assumption would not lead to an impairment. Consequently, no sensitivity analysis has been disclosed.
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85
COMPANY FINANCIAL STATEMENTS 104—109
The table below shows the risk adjusted discount rate and forecast operating cash flow assumptions used in the calculation of value in use for the Kleeneze and Kitbag CGUs and the impact of changes in these key assumptions on the level of impairment loss required:
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Sensitivity analysis The results of the group’s impairment tests are dependent upon estimates and judgements made by management, particularly in relation to the key assumptions described above. A reasonably possible change in key assumptions could lead to the carrying value of the Education Supplies CGU exceeding its recoverable amount and could also result in further impairment losses being necessary in both the Kleeneze and Kitbag CGUs. Sensitivity analysis to potential changes in operating cash flows and risk adjusted discount rates has therefore been reviewed.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
14 Property, plant and equipment Land and buildings Freehold Leasehold £000 £000
Cost At 30 March 2012 Additions Disposals Transfer to intangible assets Exchange differences Transfer to assets held for sale At 29 March 2013 Additions Disposals Exchange differences At 28 March 2014
Plant and equipment £000
Assets under construction £000
Total £000
20,350 17 — — — (186) 20,181 — — (12) 20,169
2,942 44 — — 2 — 2,988 159 — (14) 3,133
58,775 6,292 (292) (5,270) — (3,918) 55,587 8,149 (423) — 63,313
— — — — — — — 1,260 — — 1,260
82,067 6,353 (292) (5,270) 2 (4,104) 78,756 9,568 (423) (26) 87,875
7,286 408 — 288 — — (101) 7,881 382 — — (12) 8,251
1,817 184 — — — — — 2,001 205 — — (10) 2,196
37,388 6,049 (281) 345 (3,110) — (2,846) 37,545 5,407 (278) 110 — 42,784
— — — — — — — — — — — — —
46,491 6,641 (281) 633 (3,110) — (2,947) 47,427 5,994 (278) 110 (22) 53,231
Carrying amount Attributable to continuing operations Net book value at 28 March 2014
11,918
937
20,529
1,260
34,644
Net book value at 29 March 2013
12,300
987
18,042
—
31,329
85
—
1,072
—
1,157
Accumulated depreciation and impairment At 30 March 2012 Provision for the period Disposals Impairment Transfer to intangible assets Exchange differences Transfer to assets held for sale At 29 March 2013 Provision for the period Disposals Impairment Exchange differences At 28 March 2014
Classified as assets held for sale Net book value at 29 March 2013 (see note 7)
An impairment review has been completed during the year on the basis set out in note 13.
86
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
2014 £000
Inventories at cost Provision for impairment
67,721 (3,315) 64,406
2013 £000
63,992 (5,096) 58,896
2014 £000
5,096 — 5,243 (7,024) 3,315
2013 £000
4,419 (224) 5,830 (4,929) 5,096
16 Trade and other receivables 2014 £000
Amount receivable following the sale of goods Allowance for doubtful debts Trade receivables* Other debtors Prepayments *
306,436 (109,439) 196,997 3,390 12,897 213,284
2013 £000
279,381 (86,553) 192,828 3,682 13,724 210,234
Certain of the group’s trade receivables are funded through a securitisation facility arranged by HSBC Investment Bank plc and funded through a vehicle owned by GRE Trust Company (Ireland) Limited. The facility is secured against those receivables and is without recourse to any of the group’s other assets. The finance provider will seek repayment of the finance, as to both principal and interest, only to the extent that collections from the receivables financed allows and the benefit of additional collections remains with the group since the assets are charged but not transferred. At the period end, receivables of £154,522,000 (2013: £150,648,000) were funded through the securitisation facility, and the facilities utilised were £109,710,000 (2013: £105,000,000). Due to the different nature of debtors within the Express Gifts operating segment compared to that in the rest of the group, the following analysis on trade receivables has been split between Express Gifts and the rest of the group. Express Gifts The average credit period taken on sales of goods is 303 days (2013: 302 days). Interest is charged at 3.1% (2013: 2.9%) per month on the outstanding balance. Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.
Included in the group’s trade receivable balance are debtors with a carrying amount of £43,413,000 (2013: £44,093,000) which are past due at the reporting date which are partially provided against. There has not been a significant change in credit quality and the net amounts are still considered recoverable. The group does not hold any collateral over these balances. The average age of these receivables is 86 days (2013: 87 days)**. Further analysis of the ageing of these balances is given in the table below.
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87
COMPANY FINANCIAL STATEMENTS 104—109
Before accepting any new customer, the group uses an external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are continually reviewed. There are no customers who represent more than 1% of the total balance of group trade receivables.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
In the prior period, old overdue balances were written off on the last day of the financial year. In the current period management has reconsidered the interpretation of an uncollectable debt in light of amounts received in respect of balances previously written off as uncollectable. As a result, there has been a change in practice and the same magnitude of write off has not taken place in the current period. This accounts for the large variances on the gross receivable and allowance for doubtful debt amounts year-on-year. This change has no impact on the level of net trade receivables, which are comparable year-on-year.
GOVERNANCE 20—57
Movement in the provision for impairment: Balance at beginning of period Transfer to assets held for sale Provision made in the period Provision utilised in the period Balance at end of period
STRATEGIC REPORT 1—19
15 Inventories
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
16 Trade and other receivables – continued Rest of group The average credit period taken on sales of goods is 26 days (2013: 25 days). Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience. Given the nature of the public sector customer base within the Education Supplies business segment, it is not considered necessary to utilise formal credit scoring. However, credit references are sought for all new customers prior to extending credit. There are no customers who represent more than 1% of the total balance of group trade receivables. Included in the group’s trade receivable balance are debtors with a carrying amount of £756,000 (2013: £931,000) which are past due at the reporting date which are partially provided against. There has not been a significant change in credit quality and the amounts are still considered recoverable. The group does not hold any collateral over these balances. The average age of these receivables is 141 days (2013: 105 days)**. Further analysis of the ageing of these balances is given in the table below. ** Management have reviewed the methodology used in the calculation of the average age of past due receivables which are impaired and have adopted a revised approach which they feel gives a figure that more accurately reflects the ageing of these balances. As such the ageing disclosed in prior year has been restated to reflect the new methodology.
Movement in the allowance for doubtful debts: Express Gifts £000
Balance at the beginning of the period Impairment losses recognised Amounts written off as uncollectible Balance at end of period
Balance at the beginning of the period Impairment losses recognised Amounts written off as uncollectible Balance at end of period
83,060 29,491 (6,684) 105,867
Rest of group £000
3,493 204 (125) 3,572
Express Gifts £000
Rest of group £000
80,256 30,332 (27,528) 83,060
2,603 1,046 (156) 3,493
2014 £000
86,553 29,695 (6,809) 109,439
2013 £000
82,859 31,378 (27,684) 86,553
Express Gifts The carrying value of not past due debtors which are unimpaired is £137,673,000 (2013: £133,483,000). There are no past due debtors which are unimpaired. The ageing analysis of past due debtors which are impaired have carrying values as follows:
0 – 60 days 60 – 120 days 120+ days Total
88
Findel plc Annual report and accounts 2014
2014 £000
2013 £000
17,725 10,834 14,854 43,413
17,885 10,588 15,620 44,093
Consolidated Financial Statements
Rest of group The carrying value of not past due debtors which are unimpaired is £9,219,000 (2013: £9,548,000). The ageing analysis of past due debtors which are unimpaired have carrying values as follows:
0 – 60 days 60 – 120 days 120+ days Total
2014 £000
2013 £000
3,790 771 1,375 5,936
3,625 432 716 4,773
2014 £000
2013 £000
12 88 656 756
269 159 503 931
STRATEGIC REPORT 1—19
16 Trade and other receivables – continued
The ageing analysis of past due debtors which are impaired have carrying values as follows:
In determining the recoverability of a trade receivable the group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.
GOVERNANCE 20—57
0 – 60 days 60 – 120 days 120+ days Total
The directors consider that the group’s maximum exposure to credit risk is the carrying value of the trade and other receivables and that their carrying amount approximates their fair value.
Due to a change in practice during the period, overdue receivables with a carrying value of £1,577,000 were sold to third party debt collection agencies. As a result of the sales, the contractual rights to receive the cash flows from these assets were transferred to the purchasers. Total proceeds received from debt sales during the period were £3,564,000, resulting in a profit on disposal of £1,987,000.
17 Cash and cash equivalents Cash at bank and in hand
2014 £000
2013 £000
24,270
27,965
Cash and cash equivalents comprises cash held by the group, and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. In 2013, cash and cash equivalents excluded £6,058,000 of cash classified within assets held for sale.
Trade payables Other payables Accruals
2014 £000
2013 £000
51,613 6,288 17,760 75,661
48,550 4,546 20,621 73,717
The average credit period taken for trade purchases is 59 days (2013: 58 days). No interest is charged on trade payables. The group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. The directors consider that the carrying amount of trade and other payables approximates their fair value.
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89
COMPANY FINANCIAL STATEMENTS 104—109
18 Trade and other payables
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The group uses a number of forbearance measures to assist those customers approaching, or at the point of experiencing, financial difficulties. Such measures include arrangement to pay less than the minimum payment and the suspension of interest charges to help the customer pay off their debt. We expect customers to resume normal payments where they are able. At the balance sheet date forbearance measures were in place on 27,323 accounts (2013: 25,116) with total balances of £15,967,604 (2013: £14,364,608). Where the group considers there is a risk of loss, provisions are assessed as detailed above.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
19 Loans and borrowings Secured borrowing at amortised cost Bank loans Amount due for settlement within one year Amount due for settlement after one year The average interest rates paid on the loans were as follows: Bank loans
2014 £000
2013 £000
231,223
259,176
— 231,223 231,223
— 259,176 259,176
3.53%
3.43%
All borrowings are arranged at floating rates, thus exposing the group to cash flow interest rate risk. The group manages this risk by undertaking interest rate hedging as described in note 20. All the bank loans are denominated in sterling. The directors consider that the carrying value of bank loans approximates their fair value. The group entered into agreements for the provision of new lending facilities on 11 February 2011, which were implemented by way of amendment and restatement of the previous revolving credit facilities, and an amendment to the securitisation facility. The key commercial terms of these facilities are as follows:
the facilities expire on 22 March 2016; the available amount under the two revolving credit facilities will vary between £196,742,000* and £131,742,000* in accordance with the seasonal working capital requirements of the group’s business; and
interest is charged at 3% over LIBOR for the two revolving credit facilities.
*
Available facility limits were amended following the sale of NRS – see below
A further amendment was made to these facilities on 30 May 2014, whereby the variability of the available amounts was removed, leaving it at £146,532,000 until 22 March 2015 and £126,532,000 until maturity, covenant limits were rebased around management’s business plans, and a prohibition on the payment of dividends was removed with effect from April 2016. Following the sale of NRS, the group’s facilities decreased by £28.1m on 1 May 2013, in line with the facility agreements. A further reduction of £0.1m became effective on 19 August 2013, following the completion of the valuation of NRS’s debt to the Findel Group Pension Fund, and payment of the proceeds received in this regard to the lenders. See note 7 for details. The lenders and the trustees of the group’s defined benefit pension schemes hold fixed and floating charges over the majority of the group’s assets. The securitisation facility was further amended on 14 January 2014, at which point the borrowing limit increased from £105,000,000 to £130,000,000. The group incurred exceptional finance costs in the period of £472,000 (2013: £283,000) in respect of fees associated with amendments to its credit facilities. 2014 £000
Borrowing facilities The group had undrawn committed borrowing facilities as follows: Expiring in one year or less Expiring in more than two years but not more than five years *
90
— 19* 19
2013 £000
— 15,566* 15,566
This figure represents drawn headroom against the available facilities. Total headroom (i.e. including cash and cash equivalents) at 28 March 2014 is £24,289,000 (2013: £43,531,000).
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
STRATEGIC REPORT 1—19
20 Derivative financial instruments At 28 March 2014 the group held no derivative financial instruments. At 29 March 2013 the fair value of the group’s derivative financial instruments was £nil. Treasury and risk management The group’s treasury function seeks to reduce or eliminate exposure to foreign exchange, interest rate and other financial risks, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Interest rate risk management The group’s interest rate exposure is managed by the use of derivative arrangements. Currency risk management A proportion of the products sold through the group’s Home Shopping division and the Educational Supplies division are procured through the group’s Overseas Sourcing Division. The currency of purchase for these goods is principally the US Dollar, with a proportion being in Hong Kong Dollars. The group has a policy of hedging these foreign currency denominated transactions by entering into forward exchange purchase contracts for the purchases forecast within the current half year period.
GOVERNANCE 20—57
Borrowing risk The group’s exposure to borrowing and cash investment risk is managed by dealing only with banks and financial institutions with strong credit ratings, within limits set for each organisation.
21 Provisions Onerous leases £000
2014 Analysed as: Current Non-current
2013 Analysed as: Current Non-current
Onerous contracts £000
Total £000
— 3,800 (431) — 3,369 2,000 (2,962) — 2,407
— 397 — — 397 1,858 (114) (284) 1,857
4,114 5,305 (2,988) — 6,431 4,656 (3,842) (284) 6,961
2,023 674 2,697
2,407 — 2,407
1,806 51 1,857
6,236 725 6,961
1,308 1,357 2,665
3,369 — 3,369
228 169 397
4,905 1,526 6,431
Onerous leases A provision was made in the current and prior periods for onerous leases for vacated leasehold properties. These provisions will be utilised over approximately three years. PPI redress In both the current and prior periods, a provision has been made in respect of redress for mis-sold Payment Protection Insurance (PPI). The provision has been calculated based upon the results of a mailing of affected customers. The provision is expected to be utilised over approximately three years. Onerous contracts In both the current and prior year, a provision was made in respect of unavoidable costs to be incurred in respect of contracts that have become loss making. The provision was calculated based on assessment of the cash flows over the life of the contracts in question. The costs are expected to be incurred over the next five years.
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91
COMPANY FINANCIAL STATEMENTS 104—109
4,114 1,108 (2,557) — 2,665 798 (766) — 2,697
CONSOLIDATED FINANCIAL STATEMENTS 58—103
At 30 March 2012 Provided in the period Utilised in the period Reversal of unutilised amounts At 29 March 2013 Provided in the period Utilised in the period Reversal of unutilised amounts At 28 March 2014
PPI redress £000
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
22 Deferred tax Recognised deferred tax Short-term timing differences £000
At 30 March 2012 (842) Impact of change in rate of corporation tax 35 Recognised in other comprehensive income* — (Credit)/charge for the period (306) Transferred to assets held for sale (note 7) — At 29 March 2013 (1,113) Impact of change in rate of corporation tax 168 Recognised in other comprehensive income* — (Credit)/charge for the period 64 At 28 March 2014 (881) *
Accelerated capital allowances £000
(5,556) 232 — (2,151) 901 (6,574) 986 — (114) (5,702)
Retirement benefit obligations £000
(2,227) 93 (778) 145 — (2,767) 425 306 194 (1,842)
Tax losses £000
Other intangible assets £000
(10,763) 448 — 1,937 — (8,378) 1,257 — (423) (7,544)
Total £000
9,769 (407) — 327 525 10,214 (1,494) — (817) 7,903
(9,619) 401 (778) (48) 1,426 (8,618) 1,342 306 (1,096) (8,066)
relates to actuarial gains/losses on defined benefit pension plans where deferred tax has been recognised. 2013 figure differs from the £534,000 disclosed in the Statement of Other Comprehensive Income due to the recognition of a current tax credit of £244,000 in Other Comprehensive Income in relation to the restatement of pension interest following the adoption of IAS 19 Employee Benefits (Revised 2011). Refer to note 1 for details. This restatement has no impact on the opening deferred tax asset.
Certain deferred tax assets and liabilities have been offset in accordance with the group’s accounting policies. The following is the analysis of the deferred tax balances (before offset) for balance sheet purposes: 2014 £000
Deferred tax liabilities Deferred tax assets
7,903 (15,969) (8,066)
2013 £000
10,214 (18,832) (8,618)
The March 2013 Budget announced that the UK corporation tax rate will reduce to 20% by 2015 in addition to the planned reduction to 21% by 2014 previously announced in the December 2012 Autumn Statement. The announced 3% rate reduction will reduce the company’s future current tax charge and has been reflected in the calculation of the company’s deferred tax asset since the 20% rate was substantively enacted at the balance sheet date. Recognition of deferred tax assets is based on management’s assumptions that it is probable that the entities will have taxable profits against which the unused tax losses and deductible temporary timing differences can be utilised. Generally, in determining the amounts of deferred tax assets to be recognised, management uses profitability information and forecasted operating results based on approved business plans. The aggregate value of deferred tax assets which have not been recognised is £5,289,000 (2013: £8,529,000). These amounts primarily relate to carried forward tax losses. No asset has been recognised in respect of these differences because there is insufficient evidence that the relevant subsidiaries will make suitable future taxable profits against which these assets may be utilised. Unrecognised deferred tax The following are the major deferred tax assets not recognised by the group and movements thereon during the current and prior reporting period: Short-term timing differences £000
At 30 March 2012 Adjustments in respect of prior periods Impact of change in rate of corporation tax Movements during the period At 29 March 2013 Adjustments in respect of prior periods Impact of change in rate of corporation tax Movements during the period At 28 March 2014
92
(836) 186 27 (109) (732) 1,779 (46) (1,589) (588)
Findel plc Annual report and accounts 2014
Accelerated capital allowances £000
(747) (2,428) 132 2,956 (87) (1,041) 49 1,076 (3)
Retirement benefit obligations £000
— (887) 37 (924) (1,774) 1,573 10 191 —
Tax losses £000
(13,024) 8,442 191 (1,545) (5,936) 10,449 (196) (7,817) (3,500)
Other intangible assets £000
(110) 340 (10) (220) — (9,958) 433 8,327 (1,198)
Total £000
(14,717) 5,653 377 158 (8,529) 2,802 250 188 (5,289)
Consolidated Financial Statements
Performance Share Plan (equity settled) The group issued to certain senior employees conditional awards of performance shares under a Performance Share Plan (PSP) that require the group to award shares to the employee on the vesting of the award subject to the achievement of certain predetermined performance conditions. The performance period is three years after which the awards may vest. All numbers shown in this note are stated after the effects of the twenty for one share consolidation which was completed on 9 April 2013. Comparative figures have been restated where appropriate.
STRATEGIC REPORT 1—19
23 Share-based payments
The performance conditions that apply to the awards granted since November 2010 have been based upon the following bases: Awards made between August 2010 and December 2011: linked to the absolute share price in the three months to March 2014, plus an adjusted earnings per share for the year ended 28 March 2014 of at least 17.4p per share.
•
Awards made between June 2012 and December 2012: linked to the absolute share price in the three months to March 2015, plus an adjusted earnings per share for the year ended 27 March 2015 of at least 18.4p per share.
•
Awards made between July 2013 and December 2013: half linked to the absolute share price in the three months to March 2016 and half linked to the adjusted earnings per share for the year to 26 March 2016 as set out on page 42 of the Remuneration Committee Report.
For awards granted in November 2008, awards will vest in full dependent on the achievement of a debt reduction of not less than £100.0m over the three years of the performance period whilst maintaining a return on capital of not less than 17% in the final year. These awards lapsed during the prior period as the performance conditions were not met. 2014 No. of shares
2013 Restated No. of shares
2013 As disclosed No. of shares
Outstanding at the beginning of the period Granted during the period Lapsed during the period Number of 100p/5p (2013 as disclosed) ordinary shares
6,703,071 1,490,888 (584,350) 7,609,609
4,873,751 2,588,410 (759,090) 6,703,071
97,475,015 51,768,195 (15,181,795) 134,061,415
Impact of share consolidation post period end Number of 100p ordinary shares
7,609,609
6,703,071
(127,358,344) 6,703,071
The fair values of the awards in the current period and prior year were calculated using a Stochastic Valuation (aka “Monte-Carlo”) model. The inputs into the model were as follows: 2013 Restated
2013 As disclosed
179.3 — 82.1 N/A 3.0 0.5 N/A — 142.7 N/A N/A
70.0 — 93.0 N/A 3.0 0.3 N/A — 28.0 N/A N/A
3.5 — 93.0 N/A 3.0 0.3 N/A — 1.4 N/A N/A
Expected volatility was determined by calculating the historical volatility of the group’s share price over the previous three years. The group recognised a charge of £1,698,000 (2013: £1,847,000) related to equity-settled share-based payment transactions in the year reflecting the charge arising in the period being offset by the reversal of charges on non-market related performance criteria share options which are no longer expected to vest. Share warrants (equity settled) Share warrants for 4,256,503 ordinary shares with an exercise price of 20p per share were issued to the group’s lenders in connection with the placing and open offer and firm placing in the period to 2 April 2010. The warrants could have been exercised at any time in the three years, 11 August 2010 to 11 August 2013. The fair value of each share warrant at the time of issue was 20p amounting to £851,000 in total. None of these warrants were exercised during this three year period and at 28 March 2014, all warrants had expired. Following the rights issue and placing in March 2011, the exercise price was adjusted to 13.60p or 272p following the twenty for one share consideration completed on 9 April 2013.
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93
COMPANY FINANCIAL STATEMENTS 104—109
Weighted average share price (pence) Weighted average exercise price (pence) Expected volatility (%) (applicable to share price performance condition) Expected volatility (%) (applicable to TSR performance condition) Expected life (years) Risk free rate (%) (applicable to share price performance condition) Risk free rate (%) (applicable to TSR performance condition) Expected dividend yield (%) Weighted average fair value (pence) (applicable to share price performance condition) Weighted average fair value (pence) (applicable to TSR performance condition) Weighted average fair value (pence) (applicable to EPS performance condition)
2014
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The estimated fair value of the awards granted during the period is £2,180,000 (2013: £731,000). In each case these costs are expensed over three years.
GOVERNANCE 20—57
•
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
24 Share capital The company has two classes of ordinary shares, neither of which carry any right to fixed income. Ordinary shares of 100p each 2014 Number of shares
Allotted, issued and fully paid *
85,942,533
2013 Number of shares*
85,942,533
2014 £000
2013 £000
85,942
85,942
reflects the twenty for one share consolidation which took place on 9 April 2013 – see below. Prior to the consolidation 1,718,850,664 ordinary shares of 5p each.
Convertible ordinary shares of 479.4p each 2014 Number of shares
Allotted, issued and fully paid *
8,343,935
2013 Number of shares*
8,343,935
2014 £000
2013 £000
40,000
40,000
reflects the twenty for one share consolidation which took place on 9 April 2013 – see below. Prior to the consolidation 166,878,704 ordinary shares of 23.97p each.
The following rights are attached to convertible shares:
The shares may be converted into 8,343,935 ordinary shares at the option of the holders of the convertible shares in the event that: (i) the company’s volume weighted average ordinary share price rises above 479.4p for a period of one month during the period commencing on 22 March 2013 and ending on 22 March 2021; (ii) an offer is made for the company (regardless of the share performance of the company). The holders of the shares are entitled to attend but not vote at the general meetings (save in respect of any resolution relating to the convertible shares). The shares may participate in dividends or other distributions declared in excess of 50% of the net income in a particular accounting reference period. The shares are freely transferable and the terms may be varied only with the approval of 85% of the convertible shareholders.
If the shares have not been converted by 22 March 2021 they will automatically convert into non-voting deferred shares. The company will have the right to buy back such deferred shares for a nominal value at the time. Share consolidation On 9 April 2013, following approval from shareholders, a twenty for one share consolidation was completed. The share consolidation was based on every 20 existing ordinary shares being consolidated into one new ordinary share, with the fractional entitlements arising from the share consolidation being aggregated and sold in the market on behalf of the relevant shareholders and donated to charity. Following the share consolidation, shareholders will still hold the same proportion of the company’s ordinary share capital as before the share consolidation (save in respect of fractional entitlements). Other than a change in nominal value the shares carry equivalent rights under the Articles of Association to the existing ordinary shares.
25 Capital reserves Share premium Capital redemption reserve
2014 £000
2013 £000
93,454 403 93,857
93,454 403 93,857
The capital redemption reserve arose on the purchase and cancellation of 8,060,234 ordinary shares during the year ended 31 March 1999. None of the above reserves are distributable.
94
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
£000
Balance at 30 March 2012 Currency translation gain arising on consolidation Balance at 29 March 2013 Currency translation loss arising on consolidation Balance at 28 March 2014
606 150 756 (251) 505
STRATEGIC REPORT 1—19
26 Translation reserve
27 Hedging reserve £000
(215) 126 (89) 89 —
28 Accumulated losses £000
*
(116,053) 2,890 (9,213) 1,847 534 (119,995) 1,466 9,481 1,698 (306) (108,656)
restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
29 Capital commitments At 28 March 2014, amounts contracted for but not provided in the financial statements in respect of property, plant and equipment amounted to £383,000 (2013: £2,759,000).
30 Operating lease arrangements At the balance sheet date, the group had total minimum lease payments under non-cancellable operating leases, which fall due as follows: 2013 £000
9,646 18,217 35,541 63,404
12,141 24,411 38,778 75,330
The above amounts include amounts provided for onerous leases in note 21. During the period £10,150,000 was recognised as an expense in the consolidated income statement in respect of operating leases (2013: £11,894,000, of which £1,237,000 related to discontinued operation).
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95
COMPANY FINANCIAL STATEMENTS 104—109
Within one year In the second to fifth years After five years
2014 £000
CONSOLIDATED FINANCIAL STATEMENTS 58—103
At 30 March 2012 Profit for the period* Actuarial loss on defined benefit pension schemes* Share-based payments Tax relating to components of comprehensive income* At 29 March 2013 Profit for the period Actuarial gain on defined benefit pension schemes Share-based payments Tax relating to components of comprehensive income At 28 March 2014
GOVERNANCE 20—57
Balance at 30 March 2012 Amounts recycled to Income Statement Balance at 29 March 2013 Amounts recycled to Income Statement Balance at 28 March 2014
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
31 Pensions Defined contribution schemes The group operates a defined contribution retirement benefit plan for all qualifying employees. The assets of the plan are held separately from those of the group in funds under the control of trustees. The only obligation of the group with respect to the retirement benefit plan is to make the specified contributions. The total expense recognised in the income statement of £3,640,000 (2013: £3,897,000) represents contributions payable at rates specified by the rules of the plan. Defined benefit schemes During the prior period the principal UK scheme (the “Findel Group Pension Fund”) was merged with the Findel Education Pension Scheme (including the Philip and Tracey section) and the Galt Group Employees’ Pension Scheme, becoming a single scheme with four sections. The aim of the exercise was to reduce the administration costs of the schemes. The combined scheme is administered by Barnett Waddingham LLP (Barnett Waddingham). The first triennial valuation of the merged scheme was completed at 5 April 2013 by Barnett Waddingham using a “market related basis” method. The principal actuarial assumptions adopted in that valuation were a pre-retirement discount rate of 5% per annum and a post retirement discount rate of 3.5% per annum. The actuarial value of the assets was sufficient to cover 78% of the benefits that had accrued to members, after allowing for expected future increases in pensionable remuneration. The market value of the scheme’s assets at the date of valuation was £110.1m. The next formal valuation is due with an effective date no later than 5 April 2016. The most recent valuation of the plan for IAS 19 purposes was carried out at 28 March 2014 by Barnett Waddingham. The present value of the defined benefit obligation and the related current service cost and past service cost, were measured using the projected unit credit method. 2014 £000
Fair value of scheme assets Present value of funded obligations Deficit in the scheme
112,270 (120,820) (8,550)
2013 £000
110,690 (130,431) (19,741)
Plan assets
Plan assets comprise: Equities/Property Bonds Other Actual return on plan assets**
2014 £000
2013 £000
65,859 45,751 660 112,270 3.4%
57,161 46,829 6,700 110,690 11.5%
2014 £000
2013 £000
** based on market conditions at the balance sheet date, reflecting the mix of assets held.
Movement in the present value of defined benefit obligations
At beginning of period Interest cost Actuarial gain/(loss)* Benefits paid (including buyout) Administration expenses* Settlement cost on sale of subsidiary At end of period *
96
2013 figures restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Findel plc Annual report and accounts 2014
(130,431) (5,430) 10,321 5,370 (150) (500) (120,820)
(114,361) (5,550) (15,559) 5,160 (121) — (130,431)
Consolidated Financial Statements
Movement in the fair value plan assets 2014 £000
At beginning of period Company contributions Interest on assets* Actuarial gain/(loss)* Benefits paid At end of period *
110,690 3,150 4,640 (840) (5,370) 112,270
2013 £000
101,390 3,150 4,964 6,346 (5,160) 110,690
STRATEGIC REPORT 1—19
31 Pensions – continued
2013 figures restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Movement in the pension deficit 2014 £000
*
(19,741) (790) 9,481 3,150 (150) (500) (8,550)
(12,971) (586) (9,213) 3,150 (121) — (19,741)
GOVERNANCE 20—57
Deficit at the beginning of the period Net interest cost* Actuarial gain/(loss)* Company contributions Administration expenses* Settlement cost on sale of subsidiary Deficit at the end of the period
2013 £000
2013 figures restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Expense recognised in the consolidated income statement
(i) Included within Administrative expenses Administration expenses*
(150)
(121)
(790)
(586)
2014 £000
2013 £000
2013 figures restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
(ii) Included within financial income and expense Interest cost* *
2013 £000
2013 figures restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
Amounts recognised in other comprehensive income
Actuarial gain/(loss)* *
9,481
(9,213)
2013 figures restated for the impact of IAS 19 ‘Employee Benefits (revised 2011)’, see note 1.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
*
2014 £000
COMPANY FINANCIAL STATEMENTS 104—109
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97
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
31 Pensions – continued Actuarial Assumptions The following are the principal actuarial assumptions at the reporting date:
Discount rate for scheme liabilities RPI Price Inflation CPI Price Inflation Rate of increase to pensions in payment Rate of increase to deferred pensions Post retirement mortality (in years) Current pensioners at 65 – male Current pensioners at 65 – female Future pensioners at 45 – male Future pensioners at 45 – female
2014 %
2013 %
4.50 3.40 2.40 3.50 2.90
4.30 3.30 2.30 3.50 2.80
87.5 90.0 89.2 91.9
87.1 89.4 88.5 91.0
Assumptions regarding post retirement mortality are based on published statistics and mortality tables (SAPS (S1NA) tables with CMI projections with a 1.25% pa long-term rate of improvement). Sensitivities The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below: Assumption
Change in assumption
Impact on scheme liabilities
Discount rate Inflation assumption Post retirement mortality
Increase/decrease by 0.25% Increase/decrease by 0.25% Increase by one year
Decrease/increase by £5.8m Decrease/increase by £2.2m Increase by £3.0m
The above sensitivities are approximate and show the likely increase to the Scheme’s liabilities under IAS19 if an assumption is adjusted whilst all other assumptions remain the same. The sensitivities are for illustration purposes only and do not necessarily represent the directors’ view of the expected changes to the assumptions in the future. The individual assumptions could move in the opposite direction to those illustrated above and it is reasonable to expect a reduction the Scheme’s liabilities under IAS19 of a similar magnitude. There have been no changes to the methods and assumptions used to calculate the sensitivity analyses between the current period and prior period. Risks Investment risk Allowance is made in the assumptions for the expected long-term performance of asset classes such as equities. There is a risk that these returns will not be achieved in practice, which would result in an increase in the scheme’s liabilities and further contributions being required. Further, the value of the Scheme’s assets may not move in line with the Scheme’s liabilities – either because the Scheme invests in volatile assets whose value might fall, or because the value of the liabilities has increased due to falling interest rates and the assets are not of sufficient duration to keep up (or a combination of these). Inflation In projecting the expected future benefit payments, assumptions are made regarding future price inflation. There is a risk that the actual rate of inflation will be higher than assumed which will increase the cost of providing the benefits and thus the liability. This would result in additional contributions being required and a deterioration in the solvency position unless investment returns are similarly higher than expected. Mortality It is not possible to predict with any certainty how long members of the Scheme will live, and if members live longer than expected, additional contributions will be required and the Scheme’s solvency position will deteriorate. Funding The scheme is funded by Findel plc and its subsidiaries. Following the completion of the triennial valuation in April 2013 a new schedule of contributions was agreed which sees the company contribute £4.1m to the scheme in the financial year 2015 and a further £2.5m per annum in each of the two financial years ending in March 2016 and 2017. This means that the company’s contributions will average approximately £3.0m per annum for the next three years, which is approximately equivalent to the level of contributions made in the three years from 2011 to 2014. The weighted average duration of the scheme’s IAS 19 liabilities is 19 years.
98
Findel plc Annual report and accounts 2014
Consolidated Financial Statements
The group holds and uses financial instruments to finance its operations and to manage its interest rate and liquidity risks. The group primarily finances its operations using share capital and borrowings. The main risks arising from the group’s financial instruments are credit, interest rate, foreign currency and liquidity risk. The board reviews and agrees the policies for managing each of these risks on an annual basis. A full description of the group’s approach to managing these risks is set out on page 17. The group does not engage in trading or speculative activities using derivative financial instruments. A group offset arrangement exists for cash balances to take advantage of the most rewarding short-term investment opportunities.
STRATEGIC REPORT 1—19
32 Financial instruments
Capital risk management The group manages its capital to ensure that the group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the net debt and equity balance. The board of directors reviews the capital structure of the group regularly considering both the costs and risks associated with each class of capital. The capital structure of the group consists of:
Net debt Borrowings (note 19) Cash at bank and in hand (note 17) Cash classified as assets held for sale (note 7) Total equity Share capital (note 24) Capital reserves (note 25) Translation reserve (note 26) Hedging reserve (note 27) Accumulated losses (note 28)
231,223 (24,270) — 206,953
259,176 (27,965) (6,058) 225,153
125,942 93,857 505 — (108,656) 111,648
125,942 93,857 756 (89) (119,995) 100,471
1.85
2.24
Externally imposed capital requirement Revolving credit facility The group is subject to three financial covenants based on debt based ratios (Interest Cover, Net Debt: EBITDA and Free Cash Flow). These covenants are tested quarterly against pre-agreed limits which change in accordance with the seasonal working capital requirements of the group’s business. Securitisation facility The group is subject to a number of covenants in relation to the quality of receivables securitised, of which the principal measures are the collection ratio, the default ratio, the excess spread ratio and the dilution ratio. The covenants are tested monthly against pre-agreed targets, testing for compliance on a three month rolling basis.
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COMPANY FINANCIAL STATEMENTS 104—109
Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Gearing (being net debt divided by total equity)
2013 £000
GOVERNANCE 20—57
2014 £000
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
32 Financial Instruments – continued Fair value of financial assets and liabilities The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: 2014 Carrying value £000
Trade and other receivables and included within assets held for sale Cash and cash equivalents Trade and other payables and included within liabilities held for sale Secured bank loans
2014 Fair value £000
2013 Carrying value £000
2013 Fair value £000
200,387 — 24,270 (57,901) — (231,223)
200,387 — 24,270 (57,901) — (231,223)
196,510 5,417 27,965 (53,096) (3,468) (259,176)
196,510 5,417 27,965 (53,096) (3,468) (259,176)
(64,467)
(64,467)
(85,848)
(85,848)
Unrecognised gain/(loss)
—
—
Basis for determining fair values The following summarises the principal methods and assumptions used in estimating the fair value of financial instruments reflected in the table above: (a) Derivatives Broker quotes are used for all interest rate swaps, caps and foreign currency exchange contracts where relevant. (b) Interest-bearing loans and borrowings Fair value is calculated based on discounted expected future principal and interest cash flows. (c) Trade and other receivables/payables Trade receivables are stated net of allowance for doubtful debts where applicable, which in respect of Express Gifts is determined by reference to past default experience. The main risks arising from the group’s financial instruments are credit, interest rate, foreign currency, and liquidity risk. The board reviews and agrees the policies for managing each of these risks on an annual basis. Fair value hierarchy The different levels of valuation method for financial instruments carried at fair value have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The derivative financial instruments held by the group at 29 March 2013, namely the interest rate caps, were valued under level 2 measurement bases. At 28 March 2014 the group holds no derivative financial instruments. Financial risk management objectives The group’s financial risks include market risk (including currency risk and interest risk), credit risk, liquidity risk and cash flow interest rate risk. The group seeks to minimise the effects of these risks by using derivative financial instruments to manage its exposure although there were no such instruments in place at 28 March 2014. The use of financial derivatives is governed by the group’s policies approved by the board of directors. The group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Market risk The group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:
forward foreign exchange contracts to hedge the exchange rate risk arising on the purchase of inventory principally in US dollars; and interest rate caps to mitigate the risk of rising interest rates.
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Findel plc Annual report and accounts 2014
Consolidated Financial Statements
Foreign currency risk management The group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed utilising forward foreign exchange contracts. The carrying amounts of the group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Assets
Euro Hong Kong dollar US dollar
Liabilities
2014 £000
2013 £000
1,081 452 2,156 3,689
1,102 257 1,256 2,615
2014 £000
(3,451) (230) (1,275) (4,956)
Net exposure 2013 £000
(2,561) (202) (980) (3,743)
2014 £000
(2,370) 222 881 (1,267)
2013 £000
(1,459) 55 276 (1,128)
The following table details the group’s sensitivity to a 10% increase and decrease in the Sterling against the relevant foreign currencies. 10% represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit and other equity where Sterling strengthens 10% against the relevant currency. For a 10% weakening of Sterling against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative.
216
133
(20)
(5)
US dollar currency impact 2014 2013 £000 £000
(80)
(25)
Forward foreign exchange contracts The group enters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions out to approximately 12 months from the balance sheet date. However, as the group does not seek to apply hedge accounting treatment to these contracts, and to mitigate against fair value movements being charged in the income statement, all contracts are completed within the relevant accounting period such that there are no contracts outstanding at either 29 March 2013 or 28 March 2014. No charges relating to changes in the fair value of non-hedging currency derivatives were credited to income in the period (2013: £nil).
The group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at balance sheet date was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 50 basis points higher/lower and all other variables were held constant, the group’s profit and equity reserves for the period ended 28 March 2014 would decrease/increase by £1,288,000 (2013: decrease/increase by £1,353,000). This is mainly attributable to the group’s exposure to interest rates on its variable rate borrowings.
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COMPANY FINANCIAL STATEMENTS 104—109
Interest rate risk management The group is exposed to interest rate risk as the group borrows funds at floating interest rates. The risk is managed by the group by the use of interest rate swap and cap contracts when considered necessary although no such instruments were in place at 28 March 2014. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite; ensuring hedging strategies are applied, by either positioning the balance sheet or protecting interest expense through different interest rate cycles.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Profit or loss and equity
Hong Kong dollar currency impact 2014 2013 £000 £000
GOVERNANCE 20—57
Foreign currency sensitivity analysis A significant proportion of products sold through the group’s Home Shopping and Educational Supplies divisions are procured through the group’s Far East buying office. The currency of purchase for these goods is principally the US dollar, with a proportion being in Hong Kong dollars.
Euro currency impact 2014 2013 £000 £000
STRATEGIC REPORT 1—19
32 Financial Instruments – continued
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
32 Financial Instruments – continued Interest rate cap contracts Under interest rate cap contracts, the group agrees to cap the LIBOR element of its interest cost at an agreed level calculated on agreed notional principal amounts. Such contracts enable the group to mitigate the risk of rising interest rates on its variable rate debt. The following interest rate cap was transacted on 12 January 2011: Maturity Less than 12 months 1 to 2 years 2 to 3 years
Notional £000
— — — —
2014 Cap rate
Market value £000
Notional £000
— — — —
90,000 — — 90,000
— — —
2013 Cap rate
Market value £000
3.00% — —
— — — —
These contracts were designated as cash flow hedges from inception in accordance with IAS 39. The movement in the fair value of these instruments during the year was as follows: 2014 £000
Asset at 29 March 2013 Movement in fair value credited to the hedging reserve Movement in fair value of ineffective element charged to income statement Asset at 28 March 2014
— — — —
2013 £000
21 — (21) —
Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made when there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. A more detailed commentary of the group’s exposure to credit risk within its trade receivables, and the procedures employed to manage this risk, is set out in note 16. The group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The group defines counterparties as having similar characteristics if they are connected entities. Concentration of credit did not exceed 5% of gross monetary assets at any time during the year. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the directors’ best estimate of the group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the group’s short, medium and long-term funding and liquidity management requirements. The group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 19 is a description of additional undrawn facilities that the group has at its disposal to further reduce liquidity risk.
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Findel plc Annual report and accounts 2014
Consolidated Financial Statements
Liquidity and interest risk tables The following tables detail the group’s remaining contractual maturity for its financial assets and financial liabilities. The tables have been drawn up based on the undiscounted cash flows of the financial assets and financial liabilities based on the earliest date on which the group can be required to pay. The table includes both estimated interest and principal cash flows. 2014 Weighted average effective interest rate %
Financial liabilities Non-interest bearing Variable interest rate instruments
3.53
Less than 1 year £000
1 to 5 years £000
(57,902) (231,223) (289,125)
— — —
Total £000
(57,902) (231,223) (289,125)
Financial liabilities Non-interest bearing Variable interest rate instruments
3.43
Less than 1 year £000
1 to 5 years £000
(53,096) (259,176) (312,272)
— — —
Total £000
(53,096) (259,176) (312,272)
The group enters into derivative financial instruments relating to gross settled foreign exchange contracts, net settled interest rate swaps and net settled interest rate caps. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the interest and foreign currency rates prevailing at the balance sheet date. This figure represents drawn headroom against the available facilities. Total headroom (i.e. including cash and cash equivalents) at 28 March 2014 is £24,289,000 (2013: £43,531,000).
33 Related parties There were no related party transactions to be disclosed for the period to 28 March 2014 or to 29 March 2013. Transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not discussed in this note. All transactions and outstanding balances between the group companies are priced on an arms-length basis and are to be settled in the ordinary course of business.
Short-term employee benefits Company pension contributions Share-based payments
2014 £000
2013 £000
2,188 206 2,394 915 3,309
2,072 204 2,276 846 3,122
www.findel.co.uk
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COMPANY FINANCIAL STATEMENTS 104—109
Compensation of key management personnel The remuneration of the directors including consultancy contracts and share-based payments, who are the key management of the group, is set out in the audited part of the Directors’ Remuneration Report on pages 40 to 45 and is summarised below.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
The group has access to financing and securitisation facilities, the total unused amount of which is £19,000* (2013: £15,566,000) at the balance sheet date. The group expects to meet its other obligations from operating cash flows. Borrowings drawn under the group’s revolving credit facilities are shown above as being repaid within one year as drawings are made on one month or three month loan periods. The group may then redraw these amounts until the contractual maturity of the underlying facility which expires on 22 March 2016.
*
GOVERNANCE 20—57
2013 Weighted average effective interest rate %
STRATEGIC REPORT 1—19
32 Financial Instruments – continued
Company Financial Statements
Company Balance Sheet at 28 March 2014
2014 £000
2013 £000
3 4
11,805 139,124 150,929
10,894 142,124 153,018
5
125,440 5,430 130,870 (67,161) 63,709 214,638 (121,513) (1,105) 92,020
160,402 952 161,354 (74,228) 87,126 240,144 (154,176) (1,188) 84,780
125,942 403 93,454 (127,779) 92,020
125,942 403 93,454 (135,019) 84,780
Notes
Fixed assets Tangible assets Investments Current assets Debtors: amounts falling due within one year Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provision for liabilities Net assets Capital and reserves Called-up share capital Capital redemption reserve Share premium account Profit and loss account Equity shareholders’ funds Approved by the board and authorised for issue on 3 June 2014 R W J Siddle T J Kowalski
104
}
Directors
Findel plc Annual report and accounts 2014
6
7 8
11 12 12 12 13
Company Financial Statements
Notes to the Company Financial Statements
Basis of accounting The separate financial statements of the company are presented as required by the Companies Act 2006. They have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards and law. The principal accounting policies are summarised below. They have all been applied consistently throughout the period and the preceding year. The company has taken advantage of the allowed exemption from FRS 29 “Financial Instruments: Disclosures”.
STRATEGIC REPORT 1—19
1 Significant accounting policies
Fixed assets and depreciation Tangible fixed assets are stated at cost, net of depreciation, and any provision for impairment. Depreciation is calculated to write off all tangible fixed assets on a straight-line basis, except for land, over their estimated useful lives using the following rates: Freehold buildings: Fixtures and equipment: Leased assets:
2% 5% – 33% Term of lease GOVERNANCE 20—57
Assets held in the course of construction are not depreciated until they are brought into use. Fixed asset investments Fixed asset investments are stated at cost, less provision for impairment where appropriate. Financial instruments Derivative financial instruments and hedge accounting The company’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates. The company uses derivative financial instruments (primarily forward foreign currency contracts and interest rate caps) to hedge the risks in this regard. The significant interest rate risk arises from bank loans. The company converts a proportion of its floating rate debt to fixed rates, when appropriate. Derivative financial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in reserves and the ineffective portion is recognised immediately in the profit and loss account.
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs. Where financial liabilities are extinguished by equity instruments issued the difference between the carrying value of the debt extinguished and the fair value of the equity instrument issued is recorded in the profit and loss account. Taxation Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered). Deferred tax is measured on a non-discounted basis, at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse. Both current and deferred tax are measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Share-based payments The accounting policy for share-based payments is set out in note 1 to the consolidated financial statements. Where the company grants options over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity. Amounts recharged to the subsidiary, reimbursed by the subsidiary are recognised as a reduction in the cost of investment in subsidiary. Dividend distribution Dividend distributions to Findel plc shareholders are recognised in the financial statements in the period in which the dividends are approved.
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COMPANY FINANCIAL STATEMENTS 104—109
Deferred tax is recognised on a non-discounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of underlying timing differences can be deducted.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the profit and loss account as they arise.
Company Financial Statements
Notes to the Company Financial Statements
1 Significant accounting policies – continued Leases Operating leases Leases in which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease. Incentives from lessors are recognised as a systematic reduction of the charge over the periods benefiting from the incentives. Retirement benefit costs For defined benefit schemes, the pension scheme assets are measured using fair values whilst the pension scheme liabilities are measured using a projected unit method and discounted using an appropriate discount rate. The Findel Group Pension Scheme is a defined benefit scheme. However, the company is unable to identify its share of the underlying assets and liabilities in the scheme on a consistent and reasonable basis and, consequently, has taken the exemption afforded by FRS 17 “Retirement benefits” to treat the pension scheme as if it were a defined contribution scheme. For defined contribution schemes, the amount charged to the profit and loss account in respect of pension costs and other postretirement benefits is the contributions payable in the period. Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the balance sheet. Cash flow statement The company has taken advantage of the exemption from the requirement of FRS 1 (“Cash flow statements”) to present a cash flow statement, as it produces consolidated financial statements which are available to the public. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.
2 Profit/(loss) for the year As permitted by section 408 of the Companies Act 2006, the company has elected not to present its own profit and loss account for the year. The company reported a profit for the financial period ended 28 March 2014 of £6,516,000 (2013: £3,311,000 loss). The auditors’ remuneration for audit services to the company was £100,000 (2013: £100,000).
3 Tangible fixed assets Land and buildings Freehold Leasehold £000 £000
Cost At 29 March 2013 Additions Disposals At 28 March 2014 Accumulated depreciation At 29 March 2013 Charge for the period Disposals At 28 March 2014 Carrying amount Net book value at 28 March 2014 Net book value at 29 March 2013
Fixtures and equipment £000
Assets under construction £000
17,234 — — 17,234
404 — — 404
200 20 (33) 187
— 1,260 — 1,260
17,838 1,280 (33) 19,085
6,563 329 — 6,892
229 16 — 245
152 24 (33) 143
— — — —
6,944 369 (33) 7,280
10,342 10,671
159 175
44 48
1,260 —
11,805 10,894
Freehold land and buildings includes land costing £800,000 (2013: £800,000) on which no depreciation is charged.
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Findel plc Annual report and accounts 2014
Total £000
Company Financial Statements
Shares in group undertakings £000
Cost At 29 March 2013 Disposals At 28 March 2014
203,491 — 203,491
Provisions At 29 March 2013 Disposals Impairment loss At 28 March 2014
61,367 — 3,000 64,367
139,124
Net book value at 29 March 2013
142,124
Principal subsidiary undertakings are listed in note 3 to the consolidated financial statements. The company completed the disposal of NRS on 19 April 2013. Full details can be found in note 7 to the consolidated financial statements. A profit on disposal of £14,940,000 has been recorded in the company’s income statement in the current period based on disposal net proceeds of £22,670,000 less costs of £1,151,000, write off of intercompany receivable of £6,579,000, previously included within debtors, and the carrying value of the investments at the date of disposal of £nil.
GOVERNANCE 20—57
Carrying amount Net book value at 28 March 2014
STRATEGIC REPORT 1—19
4 Investments
The impairment provision booked in the current period is based on the value in use calculations set out in note 13 to the consolidated financial statements as compared to the carrying values of the respective businesses.
5 Debtors: amounts falling due within one year 119,964 274 526 3,031 1,645 125,440
154,544 4 1,238 3,356 1,260 160,402
2014 £000
2013 £000
— 1,168 59,922 401 5,670 67,161
4,081 1,353 60,913 50 7,831 74,228
2014 £000
2013 £000
121,513
154,176
6 Creditors: amounts falling due within one year Bank loans and overdrafts Trade creditors Amounts due to subsidiary undertakings Other creditors Accruals and deferred income
7 Creditors: amounts falling due after more than one year Bank loans
The maturity profile and interest rates relating to the bank loans are outlined in note 19 to the consolidated financial statements.
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COMPANY FINANCIAL STATEMENTS 104—109
2013 £000
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Amounts due from subsidiary undertakings Trade debtors Other debtors Corporation tax Prepayments and accrued income
2014 £000
Company Financial Statements
Notes to the Company Financial Statements
8 Provision for liabilities Onerous leases £000
At 29 March 2013 Utilised during the period Provided in the period At 28 March 2014
1,188 (383) 300 1,105
Onerous leases Provision was made in the current and prior periods for onerous leases for vacated leasehold properties. These provisions will be utilised over approximately three years.
9 Derivatives The group’s derivative financial instruments are all held by the company. Please refer to note 20 to the consolidated financial statements for the required disclosures.
10 Share-based payments The company’s share of the total group cost of share-based payments during the year is £635,000 (2013: £559,000). Please refer to note 23 to the consolidated financial statements for the required disclosures in respect of share-based payments.
11 Called-up share capital Ordinary shares of 100p each 2014 2013 Numberof shares Number of shares*
Allotted, issued and fully paid *
85,942,533
85,942,533
2014 £000
2013 £000
85,942
85,942
reflects the twenty for one share consolidation which took place on 9 April 2013 – see below. Prior to the consolidation 1,718,850,664 ordinary shares of 5p each.
Convertible ordinary shares of 479.4p each 2014 2013 Number of shares Number of shares*
Allotted, issued and fully paid *
8,343,935
8,343,935
2014 £000
2013 £000
40,000
40,000
reflects the twenty for one share consolidation which took place on 9 April 2013 – see below. Prior to the consolidation 166,878,704 ordinary shares of 23.97p each.
Details of movements in the company’s share capital and their principle terms are shown in note 24 to the consolidated financial statements. Please refer to note 24 of the consolidated financial statements for details of the share consolidation that took place on 9 April 2013.
12 Reserves
At 29 March 2013 Profit for the period Share-based payments Cash flow hedges At 28 March 2014
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Findel plc Annual report and accounts 2014
Capital redemption reserve £000
Share premium account £000
403 — — — 403
93,454 — — — 93,454
Profit and loss account £000
(135,019) 6,516 635 89 (127,779)
Company Financial Statements
2014 £000
Profit/(loss) for the financial period Share-based payments Cash flow hedge Net increase/(reduction) in equity shareholders’ funds Opening equity shareholders’ funds Closing equity shareholders’ funds
2013 £000
6,516 635 89 7,240 84,780 92,020
(3,311) 559 126 (2,626) 87,406 84,780
STRATEGIC REPORT 1—19
13 Reconciliation of movements in equity shareholders’ funds
14 Financial commitments The company had no capital commitments at 28 March 2014 or 29 March 2013. Annual commitments under non-cancellable operating leases are as follows:
Expiry date: Within one year In the second to fifth years After five years
— 1,648 2,995 4,643
— 1,084 3,340 4,424
Other assets 2014 £000
2013 £000
— 1,148 — 1,148
— 2,032 — 2,032
GOVERNANCE 20—57
Land and buildings 2014 2013 £000 £000
Leases of land and buildings are typically subject to rent reviews at specified intervals and provide for the lessee to pay all insurance, maintenance and repair costs.
15 Retirement benefits
Outstanding contributions amounting to £40,000 (2013: £nil) were payable to the scheme and are included within other creditors. Defined benefit pension scheme The company’s employees participate in the Findel Group Pension Scheme, a defined benefit pension scheme with the assets held in separate trustee administered funds. As the company is unable to identify its share of the underlying assets and liabilities in the scheme on a consistent and reasonable basis, it has taken advantage of the exemption afforded by FRS 17 (“Retirement benefits”) to treat the pension scheme as if it were a defined contribution scheme. The pensions charge for the year to the profit and loss account, which represents contributions payable by the company to the fund and accrued contributions, amounted to £2,270,000 (2013: £2,270,000). The disclosures required regarding the assets and liabilities of the scheme can be found in note 31 to the consolidated financial statements.
16 Related party transactions
There were no related party transactions to be disclosed for the period to 28 March 2014.
17 Contingent liability The company has issued guarantees of financial support to all its trading subsidiaries from 3 June 2014. The company has a contingent liability for guarantees given in respect of securitisation borrowing facility of its subsidiary, Express Gifts Limited, to a maximum of £130.0m (2013: £105.0m). At 28 March 2014, the borrowings in respect of these guarantees amounted to £109.7m (2013: £105.0m). No loss is expected to arise.
www.findel.co.uk
109
COMPANY FINANCIAL STATEMENTS 104—109
The company has taken advantage of the exemption in FRS 8 “Related party disclosures” not to disclose transactions with other members of the group headed by the company.
CONSOLIDATED FINANCIAL STATEMENTS 58—103
Defined contribution pension scheme The group operates a defined contribution retirement benefit plan for all qualifying employees. The pension cost for the period represents contributions payable by the company to the scheme and amounted to £2,567,000 (2013: £2,565,000).
Company Financial Statements
Notes
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Findel plc Annual report and accounts 2014
Findel plc
Findel plc ANNUAL REPORT & ACCOUNTS
2014 A N N U A L R E P O RT & A C C O U N T S 2 014 www.findel.co.uk
Findel plc Registered Office: 2 Gregory Street, Hyde, Cheshire SK14 4TH
www.findel.co.uk
