Joules Group Plc
Annual Report 2017

Plain-text annual report

P U T T I N G I T I N P R I N T A N N U A L R E P O R T & A C C O U N T S 2016/17 t h e c o l o u r f u l s t o r y c o n t i n u e s P U T T I N G I T I N P R I N T A N N U A L R E P O R T & A C C O U N T S 2016/17 t h e c o l o u r f u l s t o r y c o n t i n u e s CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain information contained in this document, including any information as to the Group’s strategy, plans or future f inancial or operating performance, constitutes ‘‘forward-looking statements’’. These forward-looking statements may be identif ied by the use of forward-looking terminology, including the terms ‘‘believes’’, ‘‘estimates’’, ‘‘anticipates’’, ‘‘projects’’, ‘‘expects’’, ‘‘intends’’, ‘‘aims’’, ‘‘plans’’, ‘‘predicts’’, ‘‘may’’, ‘‘will’’, ‘‘seeks’’, ‘‘could’’, ‘‘targets’’, ‘‘assumes’’, ‘‘positioned’’ or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things, the Group’s results of operations, f inancial condition, prospects, growth, strategies and the industries in which the Group operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group’s control. Forward-looking statements are not guarantees of future performance. Even if the Group’s actual results of operations, f inancial condition and the development of the industries in which the Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. The forward-looking statements contained in this document speak only as of the date of this document. The Group and its Directors expressly disclaim any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law, the AIM Rules for Companies or the Disclosure and Transparency Rules. Note: The f inancial information contained in this document, including the f inancial information presented in a number of tables in this document, has been rounded to the nearest whole number or the nearest decimal place. Therefore, the actual arithmetic total of the numbers in a column or row in a certain table may not conform exactly to the total f igures given for that column or row. In addition, certain percentages presented in the tables in this document ref lect calculations based upon the underlying information prior to rounding, and accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers. Con tents 1 C O N T E N T S HIGHLIGHTS CHAPTER 1 - STR ATEGIC REPORT Chairman’s Statement Chief Executive’s Strategic Report Financial Review Principal Risks and Uncertainties Social Responsibility CHAPTER 2 - CORPOR ATE GOVERNANCE Board of Directors Governance Framework Audit Committee Report Nomination Committee Report Directors’ Remuneration Report Directors’ Report Statement of Directors’ Responsibilities CHAPTER 3 - CONSOLIDATED FINANCIAL STATEMENTS Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Company Balance Sheet Company Statement of Changes in Equity Notes to the Company Financial Statements Company Information 2 - 3 8 - 9 10 - 17 18 - 20 22 - 23 24 - 27 30 31 - 33 34 - 35 36 37 - 44 46 - 47 49 52 - 53 54 54 55 56 57 58 - 85 88 89 90 - 92 93 Company Secretary: Jonathan William Dargie Registered Off ice: Joules Building, The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU Nominated Adviser: Peel Hunt LLP, Moor House, 120 London Wall, London, EC2Y 5ET Broker: Liberum Capital Limited, Ropemaker Place, Level 12, 25 Ropemaker Street, London, EC2Y 9LY Corporate PR: Hudson Sandler, 29 Cloth Fair, London, EC1A 7NN Legal Advisors: Eversheds LLP, 115 Colmore Row, Birmingham, B3 3AL Auditor: Deloitte LLP, 1 Woodborough Road, Nottingham, NG1 3FG Registrars: Equiniti Limited, Aspect House, Spencer Road, Lancing, BN99 6DA Joules Group plc - Registered in England and Wales number: 10164829. Website - w w w.joulesgroup.com. 2 Hi gh li ghts Highlights 3 H I G H L I G H T S • • • • • • • Revenue increased by 19.6% to £157.0 million (18.6% constant currency) Underlying 1 Profit Before Tax increased by 34.0% to £10.1 million Underlying EBITDA 2 increased by 25.3% to £16.9 million Underlying basic EPS increased by 33.3% to 9.2 pence Gross margin increased by 190 basis points to 55.4% Active 3 customers increased by 14% to 907,000 International revenue increased by 36.2% (29.6% constant currency) - now representing 11.5% of Group revenue • Final dividend of 1.2 pence per share proposed 1. Underlying excludes exceptional and non-recurring items, primarily related to the cost of admission to AIM and the capital structure in place prior to admission and the expense of share based compensation awards introduced following the IPO. 2. EBITDA is a non-GAAP measure, a reconciliation is provided in the Financial Review. 3. Active customer is a customer on our database who has made a transaction in the last 12 months. Prior periods are restated to exclude customers registered via third party websites and for data cleansing enhancements. Reconciliation to statutory profit before tax: £MILLION FY17 FY 16 Underlying profit before tax IPO transaction costs Shareholder loan note interest Exceptional asset impairment Share based compensation Other non-recurring items Statutory profit / (loss) before tax 10.1 (0.3) - - (0.8) - 8.9 7.5 (2.7) (5.6) (0.3) - (0.1) (1.2) 4 O U R V A L U E S T h e fo l l o w i n g v a l u e s a r e t h i n g s w e h a ve a l w a y s s t o o d fo r a n d a r e t h i n g s w e ’ l l a l w a y s s t a n d fo r i n e ve r y t h i n g w e d o . C O L O U R F A M I LY “ M a k i n g t h e o r d i n a r y e x t r a o r d i n a r y . “ S u p p o r t i v e a n d l o y a l . O u r u n i q u e u s e o f c o l o u r i s w h a t J o u l e s s t a r t e d a s a fa m i l y h a s m a d e J o u l e s s t a n d o u t f o r t h r e e b u s i n e s s a n d h a s g r o w n i n t o a d e c a d e s – a n d i s s t i l l w h a t m a k e s t r u e fa m i l y l i f e s t y l e b r a n d .” J o u l e s s t a n d o u t t o d a y .” H U M O U R Q U A L I T Y “ R a i s i n g a s m i l e . “ T r i e d a n d t r u s t e d . B e i n g B r i t i s h , w e h a v e a u n i q u e I t ’s h a r d t o d e f i n e t h e m e a n i n g s e n s e o f h u m o u r a n d w e n e v e r o f q u a l i t y, b u t w h e n y o u p i c k u p o n e t a k e o u r s e l v e s t o o s e r i o u s l y .” o f o u r g a r m e n t s , y o u’ l l k n o w.” B R I T I S H “ I t ’s w h o w e a r e . We c e l e b r a t e B r i t i s h n e s s i n a m o d e r n w a y, i n a w a y t h a t s h o w s r e a l u n d e r s t a n d i n g o f o u r c u s t o m e r s , t h e i r d r e a m s , c h a l l e n g e s a n d a s p i r a t i o n s .”  5 “ T h is colou r f u l pr i nt wa s h a nd-pa i nted i n watercolou r a nd we used br ig ht pops of colou r to m a ke it contempor a r y a nd v ibr a nt .” C H A P T E R 1S T R A T E G I C R E P O R T Sit t i ng P ret t y 8 Chair man’s Statement C H A I R M A N ’ S S T A T E M E N T J O U L E S G R O U P P L C INTRODUCTION I am delighted to update the Group’s stakeholders on The brand’s strong momentum during the year, coupled what has been another very good year for the Joules with continued cost control and margin improvement, brand. This is the Group’s f irst full f inancial year as a has enabled the Group to record strong growth in prof it public company and we have continued to make great before tax for the Period. We are very pleased with progress by further expanding Joules as a premium this result, which ref lects the growing appeal of the lifestyle brand across product categories, distribution Joules brand as well as the careful execution of our clear channels and geographic markets. growth strategy. Chairman’s Statement 9 STR ATEGIC PROGRESS Joules has a distinctive brand and unique product The Board has proposed a f inal dividend of 1.2 pence per proposition. These qualities, supported by our share, which if approved at the shareholder’s AGM, will f irst-class team across the Group, represent our take the dividend for the full year to 1.8 pence per share strongest competitive advantages in what is a (FY16: nil). fast-changing and challenging retail environment. The Strategic Report and Financial Review that follow We remain committed to our focused growth strategy provide a more in-depth analysis of the trading to deliver the disciplined development and expansion of performance and f inancial results of the Group. the Joules brand. At the same time we are challenging ourselves to explore new growth opportunities, f ind OUR TEAM new ways to delight our customers and operate ever more eff iciently. The Chief Executive’s Strategic Report provides further details on our growth strategy and the progress made during the year. Central to Joules’ continued success is our fantastic team of highly skilled, creative and driven people across the business. I never cease to be proud of the shared commitment to the brand and our customers The internet and new consumer technologies are which runs through the entire team at Joules, from changing the retail environment in exciting ways and our head off ice to the stores, distribution centres and creating new opportunities for brands and retailers. across international markets. I would like to take this Joules now has more, and better, methods than opportunity to thank everyone in the Joules team across ever before to engage and connect with its growing the world for their continued hard work and dedication community of customers. At the same time, customers’ during this outstanding year for the business. expectations of brands are changing and the requirement to provide a seamless and satisfying experience across THE FUTURE all channels at all times has never been more important. As a truly multi-channel brand with an innovative culture and very strong customer connection, I am conf ident that Joules will continue to grow, adapt and prosper in this dynamic market whilst always remaining true to its core values, and providing customers with the quality products and experiences we are known and loved for. FINANCIAL RESULTS & DIVIDEND Group revenue of £157.0 million increased by 19.6% compared to the prior period (FY16: £131.3m). Excluding the impact of currency, Group revenue grew by 18.6% in the period. This ref lects strong growth in both the Retail and Wholesale segments. On a geographic basis, UK sales increased 17.8% to £139.0 million and International sales increased 36.2% to £18.0 million, now representing 11.5% of Group revenue. Underlying prof it before tax increased by 34.0% to £10.1 million, and basic underlying EPS was 9.2 pence per share (FY16: 6.9 pence). We have seen good growth in the f irst few weeks of our new f inancial year and have received positive early feedback on our Spring/Summer 2018 ranges from our wholesale customers. The short to medium-term headwinds facing UK retailers are well documented. In particular, the f inal outcome of the UK’s decision to leave the European Union remains unclear and, as a consequence, the specif ic macro- economic effects remain diff icult to predict. However, I believe that Joules is well placed to meet these uncertainties through a combination of the strength of its brand and products; its target customer demographic; and the substantial investment that has been made in the Group’s infrastructure and supply chain. We have a loyal and engaged customer base, a committed and enterprising team and a well-invested infrastructure. These qualities make us conf ident of successfully delivering the Board’s clear strategy for growing the Joules brand in the UK and internationally. NEIL MCCAUSLAND Chairman 10 Chi ef Executive’s St rat egic Re p ort C H I E F E X E C U T I V E ’ S S T R A T E G I C R E P O R T B U S I N E S S M O D E L CHIEF EXECUTIVE OFFICER’S STR ATEGIC REPORT OUR BUSINESS MODEL – BORN TO BE MULTI-CHANNEL FY17 was another very exciting year for Joules as Joules was established as a multi-channel brand. the brand continued to expand across distribution Our distribution model enables our customers to easily channels and product categories both in the UK and engage with the Joules brand and to discover our internationally. The strong progress delivered during products, shop, pay and collect their purchases in the the year was again underpinned by our focus on our way that suits their lifestyle. customers and our dedication to provide quality products and engaging experiences across all channels. THE JOULES BR AND This multi-channel approach is ref lected in the Group’s revenue mix between our two key, complementary distribution channels: Retail (including stores, e-commerce and the country shows and events circuit) Ever since Tom Joule established the Joules brand and Wholesale. The Group has a small but growing nearly three decades ago, Joules has been committed product licencing channel which, given the strength to surprising and delighting its growing community of of the Joules brand, we are conf ident will become customers with a sense of quirky Britishness. The Joules increasingly important over time. brand remains distinctive not only for its exciting use of colour, proprietary hand-drawn prints and unexpected details but also for its values that truly connect with our customers. We aim to be an uplifting part of our customers’ lives whenever they are spending quality time doing the things they love with the people who matter. These complementary routes to market underpin our focused growth strategy. Being truly multi-channel enables the Group to expand its product offering, enter new markets eff iciently and exploit further growth opportunities within existing ones while always maintaining f lexibility to meet and exceed our The brand’s continued expansion and success was customers’ changing needs. recognised at the 2016 Drapers Awards where Joules won Mainstream Brand of Year against strong competition from other leading lifestyle brands. This award represents a strong stamp of approval from the fashion industry for our brand and our talented and enterprising team. 12 Chi ef Executive’s S trategic Rep o rt C H I E F E X E C U T I V E ’ S S T R A T E G I C R E P O R T S T R A T E G Y OUR GROWTH STR ATEGY We have a clear strategy for the long-term sustainable development of Joules as a premium lifestyle brand both in the UK and internationally. This strategy is built on the key pillars described below and is underpinned by our distinctive brand, unique products and customer focus. These pillars of growth are delivered by our exceptional team of people, supported by a well-invested infrastructure and supply chain. 1. INCREASING CUSTOMER VALUE - we intend to continue to grow our customer database, increase the number of active customers and develop the value of the average active customer through providing consistent and relevant cross-channel communication 2 DRIVE TOTAL UK BR AND SALES - as a multi-channel brand, we seek to grow total UK brand sales within target customer segments by increasing the availability and accessibility of our products across existing and emerging distribution channels - making it easy for our customers to discover, research, purchase and receive our products. Our priorities are: • STORE ROLL-OUT - there is signif icant further growth potential for the brand in the UK and ROI. We target a net 10 to 12 new stores per year in the medium-term as well as relocating a number of existing stores to larger sites that better ref lect our brand and product range • E-COMMERCE – e-commerce is a fast growing and rapidly evolving channel. With ongoing enhancements to our e-commerce platform, the customer proposition and our customer management capability, we aim to increase the mix of e-commerce sales as a proportion of our total retail sales • WHOLESALE – we broaden the reach of the Joules brand through wholesale customers that are closely aligned with our brand values and product categories - including independents, department stores and online retailers. Our wholesale capabilities position us well for emerging channels such as online marketplaces and ‘Fulf illed by’ models 3. INTERNATIONAL EXPANSION - the Joules brand and products resonate well in international markets. We develop international markets via a wholesale model supported by e-commerce, leveraging our investment in central creative and design functions and our infrastructure. Our current priority markets are North America and Germany 4. PRODUCT EXTENSION - as a premium lifestyle brand, the Joules product offer naturally extends to meet many of the lifestyle needs of our customers. Joules has had success extending the product offer within existing categories and into new categories and we will continue to expand into new areas that are appropriate for the development of the Joules brand, both organically and through working with carefully selected licence partners STRATEGIC PILLARS - PRIORITIES AND DEVELOPMENTS 1. INCREASING CUSTOMER VALUE: • • • • • Maintained average customer frequency and transaction value whilst signif icantly growing the customer base Maintained customer acquisition cost levels Increased targeted customer offers and personalisation of the online proposition Increased the number of store based customer events including VIP and new store opening events Appointed f irst Chief Customer Off icer in September 2016 Chief Executive’s St rat egic Rep ort 13 2. DRIVE TOTAL UK BR AND SALES: • • • • New stores: opened 13 new stores and closed two stores in the year Portfolio management: relocated three stores and expanded a further three stores E-commerce revenue: represented 35% of total retail sales E-commerce proposition: new payment options and site personalisation deployed in the year – helping drive improved conversion metrics • Cross-channel: ‘Order in Store’ roll-out completed in H1 enabling store staff to place a customer order via a tablet device, facilitating access to our full product range in all stores • Wholesale: Next Label converted to a ‘commission’ model. Continued strong growth in the independent specialist retailer channel 3. INTERNATIONAL EXPANSION: • • • • • International revenue grew at 36.2% (29.6% constant currency) Launched Childrenswear range in 55 Dillards department stores in the US Extended number of doors and product categories with Nordstrom Further strengthened the team based in our New York showroom Gave notice to terminate arrangement with the third party distributor in the US - over 600 independent stockists to be managed in-house from Spring/Summer 2018 • Germany f ield accounts increased to over 400 stockists 4. PRODUCT EXTENSION: • Childrenswear category further developed with specif ic ranges for baby and younger and older age children • Women’s leather footwear launched with a range of Chelsea boots 14 Chi ef Executive’s S trategic Rep o rt C H I E F E X E C U T I V E ’ S S T R A T E G I C R E P O R T K E Y P E R F O R M A N C E I N D I C A T O R S KEY PERFORMANCE INDICATORS Our KPIs have been selected based on their link to the successful delivery of our strategy, they are monitored by the Board on a regular basis. STRATEGIC KP I s NUMBE R OF STORES INTERNATIONAL AS % OF TOTA L R EVE NUE F Y14 F Y15 F Y16 F Y17 80 F Y14 5 . 8 % 91 F Y15 9.1% 97 F Y16 10.1% 108 F Y17 11.5% TOTAL SEL LING SPACE (SQ FT) ACTIVE CUSTOMER NUMBERS 1 F Y14 84,500 F Y14 509,000 F Y15 F Y16 F Y17 100,000 F Y15 593,000 111,000 F Y16 799,000 135,000 F Y17 907,000 Chie f Executive’s Strategic Re p ort 15 OUR FINANCIAL KPIs: Our financial KPIs have been selected to complement our strategic KPIs and ref lect our objective to deliver sales growth across channels and profit growth at a faster rate than sales growth, whilst delivering a strong return on our capital investments. Our financial KPIs, and their rationale, are: • • • • Revenue by channel - delivering balanced growth across our core sales channels Group gross margin - maintaining overall product level profitability whilst developing international wholesale markets EBITDA margin – how effectively we are leveraging our cost base and infrastructure Return on Capital Employed (‘ROCE’) – how we are managing working capital and growth capital investments FINANCI AL KPI s RE VENUE BY C HANNEL 4 £M GROUP GROSS MARGIN % 16 0 14 0 12 0 10 0 8 0 6 0 4 0 2 0 0 31.6 25.8 37.2 30.1 52.4 58.2 26.9 23.9 39.3 44.8 38.9 68.3 56.0 55.5 55.0 54.5 54.0 53.5 53.0 52.5 52.0 55.0% 55.4% 53.3% 53.5% FY1 4 FY15 2 FY16 FY17 FY14 FY15 FY16 FY17 S T O R E S E - C O M M E R C E W H O L E S A L E UNDERLYING E BITDA MARGIN % ROCE 3 % 10.8% 10.3% 11. 0 10. 5 10. 0 9. 5 9. 0 8. 5 8. 0 9 .5 % 9.0% 35 30 25 20 15 10 5 0 31.9% 32.2% 27.3% 23.9% FY1 4 FY15 FY16 FY17 FY14 FY15 FY16 FY1 7 FY14 FY15 FY16 FY17 1Active customer def ined as a customer who is registered on our database and has transacted within the last 12 months. Prior periods are restated to exclude customers registered via third party websites and for data cleansing enhancements. 2FY15 was a 53 week period. 3Return on Capital Employed (‘ROCE’) is calculated as Underlying Operating Prof it after Tax divided by Average Capital Employed (Capital Employed def ined as Underlying Net Assets adjusted for excess cash balances). 4Revenue by channel excludes shows and licencing. 16 Chi ef Executive’s S tra tegic Rep ort C H I E F E X E C U T I V E ’ S S T R A T E G I C R E P O R T B U S I N E S S R E V I E W RETAIL: MULTI-CHANNEL PROGRESS WHOLESALE: UK AND INTERNATIONAL EXPANSION Retail sales, which includes stores, e-commerce and Wholesale revenue experienced further good growth, shows, grew by an impressive 19.4% during the year up by 20.3% (17.6% in constant currency) year on year to (19.4% in constant currency). This ref lected good growth £44.8 million (FY16: £37.2m), as the Joules brand continues from both stores and e-commerce, which increased by to resonate strongly with wholesale customers both in the 29.4% to now represent 34.8% of total retail revenue UK as well as within our targeted international markets: (FY16: 32.1%). North America and Germany. The Group’s store coverage across the UK and ROI In the UK, wholesale expansion was driven through continued to expand to 108 stores at the end of the period both national multi-channel retailers such as John (FY16: 97). We opened 13 stores and closed two, with 10 Lewis and Next Label as well as through smaller, of the net new stores being opened during the first half independent specialist retailers that have a good fit of the year. This expansion was in line with our previous with the Joules brand. guidance of 10-12 net new stores for the year. During the period we also relocated three stores and extended a further three to provide larger sites that better ref lect the Joules brand proposition, showcase our product range, and enable multi-channel activities such as ‘Click & Collect’ and ‘Order in Store’. Strong international wholesale growth helped to drive international sales (including international retail) up 36.2% (29.6% in constant currency) and they now represent 11.5% of total Group revenue. This growth was underpinned by our proprietary hand-drawn prints, colour and British character as the Joules brand continues to resonate in This activity resulted in total selling space increasing international markets. to 135,000 square feet (FY16: 111,000 square feet) at the Period end. The new openings were spread across our different store location types ref lecting the breadth of appeal of the Joules brand: In the US, we further expanded our presence in key department stores, with Dillards launching childrenswear for the Autumn/Winter 2016 season and Nordstrom increasing Joules’ product range listings and the number • • • Lifestyle - Barnstaple; of doors in response to customers’ appetite for the brand. Local – Ashbourne, Ludlow, Woodbridge and Bishops We continue to see exciting growth opportunities for the Stortford; brand in the US market and during the year we started the High Street - Chelmsford and Stratford-upon-Avon; process to bring the management of over 600 independent • Metro – Leeds, Derby, Bromley and Plymouth; stockist accounts in-house, following the termination of • Premium Outlet - Swindon and Bridgend. our agreement with the third-party distributor that had previously been serving this channel. This new way of working will become effective from the Spring/Summer 2018 season and, under the management of our New York based sales and marketing team, will provide us with greater control over the long-term growth of the brand within the US. In Germany we continued to perform in line with expectations and experienced good growth in the independent retailer segment where we now have over 400 stockists. The average payback on new stores, opened for more than one year, remained at less than 12 months, and all continuing stores delivered a positive contribution. The Group continued to develop its online offering following the successful relaunch of the e-commerce platform in September 2015. In the period we added new functionality making it easier for our customers to shop and pay and continue to increase the use of personalisation. Traffic from mobile and tablet devices continued to grow, representing over 75% of the total number of visitors and we continued to see improved conversion rates. ‘Click & Collect’ and ‘Order in Store’ – where we completed the roll-out to stores in the first half of the year - continue to prove popular with our customers and demonstrate the importance of our multi- channel model and ability to deliver an integrated and consistent experience across channels. Chie f Executive’s Strategic Re p ort 17 DEVELOPMENT AS A LIFESTYLE BRAND Joules delivered sales growth across product categories One of Joules’ key competitive advantages is our very with a particularly strong performance in the core strong customer connection and their engagement with the womenswear category – with our distinctive and colourful Joules brand. During the year we appointed our first Chief “Right as Rain” outerwear and “Warm Welcome” coats and Customer Officer to help further develop our capability in gilets all proving particularly popular with our customers. this area and to increase brand awareness, customer loyalty Further development of our footwear and childrenswear and value across all channels. categories also contributed to the strong growth. We continued to progress the development of our PLATFORM FOR LONG TERM GROWTH childrenswear range from baby through to toddler, The Group’s strategy and focus is aimed towards the long younger and older girls and boys. Notable highlights in term and sustainable development of the Joules brand. We the year included our colourful ponchos, fun applique continue to invest in our stores, infrastructure, systems tops and beautifully designed dresses. Our childrenswear and people to deliver this. range is becoming increasingly popular with our international customers. During the year we invested in our US operations by strengthening our US wholesale sales team, trade Our footwear offer continued to expand with good growth showroom and IT systems. This has supported the from our very popular leather Chelsea boot range and an development of new and existing department store increased range of wellington boot styles and designs. accounts during the year as well as facilitating the Whilst licencing remains a small contributor to the Group, we are focused on continuing to build the brand through careful expansion with licensed partners for home - transition of managing the independent stockist channel in-house, which we are confident will support our long term growth in the US market. including bedding; toiletries; and eyewear. These product Phase two of our company-wide ERP replacement categories continue to perform well and highlight the programme continued through the year, with migration exciting licence income potential available to the brand to the Microsoft Dynamics AX ERP platform scheduled where we are able to identify opportunities that appeal to for FY18. This represents a significant investment for the our customers and align with Joules’ distinctive values. Group and will bring benefits including enhanced stock management across channels, process efficiencies and CUSTOMER ENGAGEMENT simplification of the IT environment. Joules has a loyal and highly engaged customer community. The creativity, skill and commitment of the Joules team Active customers, defined as customers who have are key to the brand’s continued success. We continue to purchased in the last twelve months, increased 14% against invest in skills and people development in all areas of the the prior year to 907,000 supported by effective marketing business including our customer facing colleagues and team and CRM campaigns, and our total customer database now leaders across the business. stands at 2.5 million. One example of a customer campaign, was our hugely successful ‘pass the parcel’ competition which we ran on the Joules Facebook channel in December 2016. The campaign encouraged potential and existing customers to unwrap a virtual present to potentially win a prize including a weekend stay at The Watergate Bay Hotel as well as Joules goodies. Customers were able to ‘pass the parcel’ onto a friend through social media, attracting new prospective customers to the brand. Since the year-end we have completed the acquisition of the freehold for a new head office premises. The new site, which is located very close to our existing head office in Market Harborough, includes an existing 30,000 square foot office building and development land to support future growth. We expect to commence partial occupation towards the end of FY18 following a period of refurbishment. This investment will further strengthen our brand values and culture and create a f lexible space Another notable and successful multi-channel campaign to support modern ways of working across our head office was our ‘win a Joules caravan’ competition that ran from teams. It is an important step to support the next phase February to April 2017 and attracted approximately 135,000 of growth whilst solidifying our local roots and heritage. new and existing customers to take part and enter a prize draw to win a luxury caravan decorated externally with Joules prints and kitted out inside from the Joules COLIN PORTER homeware and bedding range. The campaign, which Chief Executive Officer attracted a lot of social media engagement, was run on Facebook, the Joules website and by pitching the caravan at several of our country shows and events. 18 Financial Rev iew F I N A N C I A L R E V I E W J O U L E S G R O U P P L C PROFIT BEFORE TA X - UNDERLYING AND STATUTORY Underlying prof it before tax (‘PBT’) was £10.1 million for To provide a meaning ful year-on-year comparison these the 52 weeks to 28 May 2017, an increase of 34.0% on the items have been excluded from the underlying results prior period. Statutory PBT including exceptional IPO reported in the front section of the Annual Report. transaction costs and share based compensation was £8.9 million (FY16: £(1.2)m). As detailed in the IPO Admission Document, executive and employee share based compensation plans have been EARNINGS BEFORE INTEREST, TA X, DEPRECIATION & established with the f irst awards made in the current AMORTISATION (‘EBITDA’) f inancial period. Further detail on the plans is contained Underlying EBITDA increased by 25.3% to £16.9 million (FY16: £13.5m). The underlying EBITDA margin increased by 50 basis points from 10.3% to 10.8%. UNDERLYING AND STATUTORY RESULTS During the prior period there were some costs that were exceptional or non-recurring in nature. These items related primarily to the IPO and to the capital structure that was in place prior to the IPO. within the Director’s Remuneration Report and the Consolidated Financial Statements. In accordance with IFRS 2, the expense related to the plans is accounted for within administrative expenses. As the share plan cycle matures over the three years following the IPO, the related expense is treated as non-Underlying to provide meaning ful year-on-year comparability. A reconciliation between Underlying and Statutory (GA AP) results is provided below. 52 WEEKS ENDED 28 MAY 2017 52 WEEKS ENDED 29 MAY 2016 SHARE BASED IPO COMPENSATION IPO NO N - £MIL L ION UNDERLYING COSTS INCLUDING NI REPORTED UNDERLYIN G COSTS REC URRING REPOR TED Revenue Gross profit 157.0 87.1 - - - - 157.0 87.1 131.3 70.3 Admin expenses (76.7) (0.3) (0.8) (77.9) (62.3) Operating profit Net finance costs Profit before tax Operating profit Depreciation & Amortisation EBITDA 10.3 (0.2) 10.1 10.3 6.6 16.9 (0.3) (0.8) - - (0.3) (0.8) (0.3) - (0.8) - 9.2 (0.2) 8.9 9.2 6.6 (0.3) (0.8) 15.8 8.0 (0.5) 7.5 8.0 5.5 13.5 - - (2.7) (2.7) - (2.7) (2.7) - (2.7) - - 131.3 70.3 (0.4) (65.4) (0.4) (5.6) (6.0) (0.4) 0.4 4.8 (6.0) (1.2) 4.8 5.9 (0.0) 10.7 Fin an cial Rev iew 19 REVENUE ADMINISTR ATIVE EXPENSES - UNDERLYING Group revenue increased by 19.6% to £157.0 million from Underlying administrative expenses increased by £131.3 million in FY16 (up 18.6% on a constant currency 23.2% from £62.3 million to £76.7 million and were basis), with Retail revenue increasing by 19.4% and 48.9% of revenue (FY16: 47.4%). During the year we Wholesale revenue increasing by 20.3% (up 17.6% on a increased investment in customer acquisition and constant currency basis). Sales in International markets, digital marketing, the results of which are ref lected in which are predominantly Wholesale, increased by 36.2% the e-commerce channel performance and our active (29.6% on a constant currency basis) and now represent customer numbers at the year end. Administration 11.5% of Group revenues (FY16: 10.1%). expenses in the period included the full year impact Retail - Stores Store revenue at £68.3 million increased by 17.5%. During the year we opened 13 new stores and closed two of investments made to strengthen several head off ice functions in the second-half of the prior year as well as the f irst year of post-IPO cost base. stores, resulting in an increase in store numbers from 97 The total rental expense, including service charges, to 108. We also relocated three stores and extended a for the period was £11.7 million (FY16: £9.3m) with the further three. We had three franchises at the end of increase due to new store openings, an increase in the FY17 (FY16: 3). Retail – E-commerce E-commerce revenue at £38.9 million increased by 29.4% UK distribution centre rent, following a rent review at the start of FY17, the prior year relocation of our Shanghai sourcing off ice and New York showroom expansion. and was 34.8% of total Retail revenue (FY16: 32.1%). Underlying depreciation and amortisation increased to The E-commerce channel continued to benef it from £6.6 million (FY16: £5.5m) following the completion of more visitors and higher conversion following the prior the f irst phase of the Enterprise Resource Planning (ERP) year re-launch of the content rich, mobile optimised programme in the prior period and the impact of our new website, as well as from further customer facing website store opening and relocation programme. enhancements and ongoing new customer acquisition and retention activity. Wholesale ADMINISTR ATIVE EXPENSES – NON-UNDERLYING Non-underlying administrative expenses totalled Wholesale revenue at £44.8 million increased by 20.3% £1.1 million (FY16: £3.1m). This included IPO transaction (17.6% on a constant currency basis). Good revenue related costs of £0.3 million (FY16: £2.7m), share based growth was seen in the UK and in international markets; compensation expense of £0.8 million (FY16: £nil) and and across the larger ‘house account’ and the smaller non-recurring costs of £nil (FY16: £0.4m). ‘f ield account’ customer bases. GROSS MARGIN Share based compensation expense, accounted for in accordance with IFRS 2, includes the anticipated expense in relation to the first cycle of the Company’s new share Gross margin at 55.4% was 190 basis points higher than plan arrangements, including awards made under the Long the prior year. Our commercial and buying activity; Term Incentive Plan 2016, Deferred Bonus Plan and the all- supported with volume growth, enabled us to offset the employee Save as You Earn (SAYE) Scheme. These plans impact of weaker Sterling, relative to the US Dollar, and are detailed more fully in the Directors’ Remuneration maintain overall intake margins. The revenue growth Report and the Consolidated Financial Statements. and gross margin improvement within our Retail segment more than offset the dilutive impact of our growing NET FINANCE COSTS - UNDERLYING international wholesale business. Within the Retail segment, gross margin benefited from our increased focus on optimising full price sales and promotional activity. Underlying net f inance costs of £0.2 million (FY16: £0.5m) related to interest and facility charges on the Group’s revolving credit facility with Barclays Bank Plc. 20 Fi nancial Rev iew F I N A N C I A L R E V I E W C O N T I N U E D NET FINANCE COSTS - NON-UNDERLYING Non-underlying net f inance costs totalled £nil Following approval by shareholders at the AGM on (FY16: £5.6m). The prior year f igures consisted 27 September 2017, the dividend is expected to be paid primarily of interest on shareholder loan notes of £4.7 on 16 November 2017 to shareholders on the register at million and amortisation of the loan note arrangement 27 October 2017. fee of £0.9 million. The shareholder loan notes were converted to equity immediately prior to the IPO. CASH FLOW AND CASH POSITION TA X ATION Net cash f low from operating activities was £14.4 million (FY16: £16.9m) including a net working capital outf low of The tax charge for the period was £2.6 million £0.9 million (FY16: inf low £7.1m). (FY16: £0.6m). The effective tax rate was 28.8%. This was higher than the applicable UK corporation tax rate of 19.8% for the period due to the impact of non-deductible expenses including IPO costs and non-deductible amortisation and depreciation. EARNINGS PER SHARE AND DIVIDEND Statutory basic earnings per share for the period were 7.3 pence per share (FY16: -2.0 pence per share). Statutory diluted earnings per share for the period were 7.2 pence per share (FY16: -2.0 pence per share). On an underlying, pro forma basis the FY17 basic earnings per share were 9.2 pence (FY16: 6.9 pence). To facilitate meaning ful comparison of earnings per share the weighted average number of shares in issue has been restated on a pro forma basis to ref lect the post-IPO capital structure. The pro forma assumes that the number of shares in issue post-IPO were in issue throughout. Earnings are adjusted for the non-underlying items detailed above and to ref lect the statutory tax rate. FY16 7.5 £MILLION PBT - Underlying Statutory tax rate Tax - Underlying Earnings - Underlying Shares - Pro forma (million) Underlying Basis EPS - Pence Shares - Pro forma Diluted (million) Underlying Diluted EPS - Pence FY17 10.1 19.8% (2.0) 8.1 87.5 9.2 88.0 9.2 The Group ended the period with net cash of £6.3 million (FY16: £3.2m) an improvement of £3.1 million in the period. Gross cash was £7.0 million (FY16: £9.3m) and borrowings were £0.6 million (FY16: £6.1m), which includes borrowings under the Group’s revolving credit facility and asset f inance loans. The Group has access to a £25 million revolving credit facility provided by Barclays Bank Plc to fund seasonal working capital requirements. Subsequent to the year-end, this facility was extended by 14 months and now matures in July 2021. INVENTORY Inventory at year-end was £21.2 million (FY16: £19.3m). The increase in inventory ref lecting the growth in the business. CAPITAL EXPENDITURE Investment in property, plant, equipment and intangible assets totalled £10.7 million in FY17 (FY16: £7.1m). Major areas of expenditure in the year were new store openings and relocations and investment in our core IT infrastructure including phase two of our ERP implementation programme and ongoing enhancements 20.0% to our customer facing website. (1.5) 6.0 87.5 6.9 88.0 6.8 ACQUISITION OF FREEHOLD OFFICE Subsequent to the year-end, in July 2017, the Group completed the acquisition of freehold land and 30,000 square foot off ice building for £4.4 million including fees and stamp duty. The off ice building is intended for use as the Group’s head off ice following a period of refurbishment. The acquisition was part f inanced The Board is recommending a f inal dividend of 1.2 pence through a new £3.5 million, f ive-year term loan facility per share in respect of FY17 (FY16: nil pence per share). arranged with Barclays Bank Plc. This brings the total dividend for FY17 to 1.8 pence per share (FY16: nil pence per share). 22 Pri ncipal Risks and Unc erta int ies P R I N C I P A L R I S K S a n d U N C E R T A I N T I E S J O U L E S G R O U P P L C Set out below are the principal risks and uncertainties The Board also recognises that the nature and scope that the Directors consider could impact the business. of risks can change and that there may be other risks The Board continually reviews the potential risks facing to which the Group is exposed and so the list is not the Group and the controls in place to mitigate any intended to be exhaustive. potential adverse impacts. EXTERNAL RISKS The Corporate Governance Report includes an overview of our approach to risk management and internal control systems and processes. External risks ref lect those risks where we are unable to inf luence the likelihood of the risk arising and therefore focus is on minimising the impact should the risk arise. RISK AND IMPACT Economy MITIGATING FACTORS The majority of the Group’s revenue is generated from sales As a premium lifestyle brand with a geographically disperse in the UK to UK customers. A deterioration in the retail store portfolio, a strong e-commerce channel and UK economy may adversely impact consumer confidence long standing wholesale customer accounts, the Directors and spending on discretionary items. A reduction in consider that the UK business would be less affected by consumer expenditure could materially and adversely a reduction in consumer expenditure than many other affect the Group’s financial condition, operations and clothing retailers. business prospects. In addition, the property portfolio has short lease terms, The expected exit of the UK from the EU has increased the providing relative f lexibility to close or relocate stores likelihood and potential impact of this risk. should it become necessary. Competitor Actions New competitors or existing clothing retailers or lifestyle Joules differentiates from competitors through its strong brands may target our segment of the market. Existing brand and products that are known for their quality, details, competitors may increase their level of discounting or colour and prints. Our large customer database allows promotions and/or expand their presence in new channels. the Group to communicate effectively with customers, These actions could adversely impact our sales and profits. developing customer engagement and loyalty. Foreign Exchange The Group purchases the majority of its product stock from The Group’s Treasury Policy sets out the parameters and overseas and is therefore exposed to foreign currency risk, procedures relating to foreign currency hedging. We primarily the US Dollar. currently seek to hedge a material proportion of forecasted Without mitigation, input costs may f luctuate in the short US Dollar requirement 12 months ahead through the use of term, creating uncertainty as to profits and cash f lows. forward contracts. The anticipated exit of the UK from the EU has resulted in a The Group’s US wholesale business generates US Dollar devaluation of GBP to the US Dollar and increased volatility. income which provides a degree of natural hedging. This may be sustained or worsen going forward. Regulatory and Political New regulations or compliance requirements may be The Group has processes in place to monitor and report to introduced from time to time. These may have a material the Board on new regulations and compliance requirements impact on the cost base or operational complexity of the that could have an impact on the business. The impact of business. Non-compliance with the regulation could result any new regulation is evaluated and ref lected in the Group’s in financial penalties. financial forecasts and planning. The anticipated exit of the UK from the EU has increased uncertainty in this area. Prin cip al Risks & Uncer tain ties 23 INTERNAL RISKS Internal risks ref lect those where we can inf luence the likelihood of the risk arising and the impact if the risk should arise. RISK AND IMPACT Brand and Reputation MITIGATING FACTORS The strength of our brand and its reputation are very Brand and reputation are monitored closely by senior important to the success of the Group. Failure to protect management and the Board. The Group’s public relations and manage this could reduce the confidence and trust are actively managed and customer feedback, both direct that customers place in the business, which could have a and indirect, is carefully monitored. detrimental impact on sales, profits and business prospects. We carefully consider each new trade customer with whom Our brand may be undermined or damaged by our actions we do business and monitor on an ongoing basis. or those of our wholesale partners. Product Sourcing The Group’s products are predominantly manufactured The Group has a policy and process for the selection of new overseas. Failure to carry out sufficient due diligence, and suppliers. This includes a review of compliance with laws to act in the event of any negative findings, especially in and regulations and that suppliers meet generally accepted relation to ethical or quality related issues, could adversely standards of good practice. In addition, suppliers are impact our brand and reputation. required to sign up to Joules’ code of conduct. The Group operates a programme of ethical audits across the product supply base supported by a third party agency. Design As with all clothing and lifestyle brands there is a risk that Joules has a long established in-house creative and design our offer will not satisfy the needs of our customers or that team who have a high level of awareness and understanding we fail to correctly identify trends that are important to of our target customer segment. A large proportion of our customer base. These outcomes may result in lower our product range is anchored in classic products that are sales, excess inventories and/or higher markdowns. evolved season to season. Early feedback from our trade customers can allow us to further refine our product range ahead of significant purchase commitments. Key Management Our performance is linked to the performance of our people The Group’s remuneration policy, which includes a long and in particular to the leadership of key individuals. The loss term incentive scheme and performance-related pay, is of a key individual at management level or within a specialist designed to attract and retain key management. The Group skill set could have a detrimental effect on our operations operates learning and development initiatives to increase and, in some cases, the creative vision for the brand. the opportunities for internal succession. ERP System We are in the process of implementing a new IT platform, The first phase of our implementation went live in Microsoft Dynamics AX, across the Group. With any November 2015, supporting our US wholesale operations. A project of this scale, there is a risk of a poorly managed dedicated programme team with significant experience of implementation or take up of new systems, which could our business processes and ERP implementation has been result in business disruption. established. The programme team reports monthly to a steering committee comprised of Group senior management. IT Security and Systems Availability Non availability of the Group’s IT systems, including the A Business Continuity Plan exists to minimise the impact of website, for a prolonged period could result in business a loss of key systems and to recover the use of the system disruption, loss of sales and reputational damage. and associated data. A regular assessment of vulnerability Malicious attacks, data breaches or viruses, could lead to to malicious attacks is performed and any weaknesses business interruption and reputational damage. rectified. All Group employees are made aware of the Group’s IT security policies and we deploy a suite of tools (email filtering, antivirus etc) to protect against such events. Supply Chain The disruption to any material element of the Group’s The Business Continuity Plan includes an established supply chain, in particular the UK central distribution procedure in the event of the loss of the UK distribution centre, could impact sales and impact on our ability to centre. In addition the Group maintains insurance cover at supply our wholesale customers, stores and consumers. an appropriate level to protect against the impact of such an interruption. 24 So cial Responsibility S O C I A L R E S P O N S I B I L I T Y R E S P O N S I B L Y J O U L E S RESPONSIBLY JOULES Our Responsibly Joules framework is central to our Our Responsibly Joules framework has four core business and ref lects our intrinsic brand values. The elements which align with the way we operate framework sets out our core beliefs about the way we as a business: want our business to operate; fairly, responsibly and sustainably. We believe it is not only the right thing to do, but that it also drives value for our many stakeholders, both internal and external, including our customers, employees, investors, local communities and suppliers. • • • • Charitably Joules Sourcing with Integrity Protecting our Environment from Shire to Shore Our Joules Family This year we established the Responsibly Joules Steering CHARITABLY JOULES Group, chaired by the Group CFO and comprising directors from across the business. Each director has responsibility for one element of our Responsibly Joules framework and is supported by a team from across the business. This approach is enabling us to raise the prof ile of Responsibly Joules and increase employee engagement. We are proud that our stores sit at the heart of many communities and believe that we have a responsibility to play a positive role within those communities. We continue to support local community causes, charities and schools across the country with the local fundraising programmes that matter to our customers. We also have four charity partners with whom we have ongoing relationships; The Princes Trust, The British Bee Keepers Association, Nuzzlets and Farms for City Children. All of these partners have a focus or purpose that closely aligns with Joules core values increasing the engagement with our employees and customers. This year we have expanded the level of support that we have been able to provide to these charity partners; both f inancially and physically. Our achievements include: • Working with our employees to raise and donate over £70,000 for our Charitably Joules partners • Donating nearly £100,000 in gifts-in-kind to our charity partners. This included providing Joules wellies to all of the Farms for City Children farms for adults and children to use as they are exploring the muddy outdoors and providing the uniform for the volunteers at Nuzzlets • Facilitating both store and head off ice staff in volunteering with our charity partners, including our founder, Tom Joule, who has spent time mentoring young people with The Prince’s Trust TH E PRINCE’S TRU ST FARMS FOR CITY CHILDREN TH E BRITISH BEEKEEPERS ASSOCIATIO N NUZZ LET S Social Res pon sibility 25 SUPPORTING THE PRINCES TRUST (case study) We support The Prince’s Trust Enterprise Programme in Leicester and Kettering, helping to fund an ‘Introduction to Business’ course for young people interested in “ We are delighted to be partnering with Joules to setting up their own business. Our funding also helps transform young lives. It’s been great to see so many provide mentors and business loans for those who take teams at Joules driving our partnership across stores their business dream forwards into reality. This year we ran an employee auction and raff le to raise money for The Prince’s Trust. The auction saw employees from across the business offer auction ‘lots’ which ranged from a bespoke lunch menu for a week, to a holiday home for a weekend. Employees were invited and engaging customers. On behalf of everyone at The Prince’s Trust and the young people you support – the biggest thank you!” to bid on lots with all proceeds going to The Prince’s CATHERINE HUTCHINSON Trust. Bidding was fast, furious and engaging and raised Corporate Partnerships Manager over £6,400. This money, in addition to other funds donated by Joules in the last year, has helped to support the 249 young people that have taken part in the Enterprise programme in Leicester and Northamptonshire since our partnership commenced. 26 So cial Responsibilit y S O C I A L R E S P O N S I B I L I T Y C O N T I N U E D SOURCING WITH INTEGRITY Our customers, employees and shareholders have Our packaging focus high expectations of us and our sourcing practices. Consequently, we have stringent standards in place which govern how we manage our supply chain and partners. In England, the quality and high levels of recycled content in our carrier bags means that we don’t have to charge our customer the carrier bag tax. We are These include standards on working and labour practices, continuing to look at ways to further improve the fair wages, health and safety, animal testing and material environmental credentials of our packaging. use and sourcing. All of our direct suppliers are required to sign up to the Joules Code and conf irm that they are Tracking energ y consumption complying with these standards. We recognise that simply communicating our standards and expectations isn’t always enough, and we therefore regularly audit our product manufacturers for compliance with these requirements. All of our product suppliers are audited for ethical and social compliance using internationally recognised standards by a respected, independent, third party compliance organisation. We endeavour to continually review our product supply chain to ensure our suppliers meet these requirements and strive for best practice in every area. PROTECTING OUR ENVIRONMENT, FROM SHIRE TO SHORE With our roots in the British countryside, the environment is very important to us, and we are committed to working to protect it by continually considering the environmental impacts of our operations and working to reduce them where we can. This includes: Managing our logistics We utilise third party distribution partners to deliver our product to our stores, wholesale customers and our customers’ homes. In deciding who to partner with, the environmental credentials of these partners are an important factor. This includes considerations such as their f ill rates, fuel eff iciency, use of electric vehicles and long-term strategy and environmental targets. Our UK logistics partners have strong commitments in place to continuously improve their environmental performance. We review their environmental performance to ensure that they continue to meet our expectations. We continue to operate our biomass boiler which heats our Distribution Centre, as well as installing energy eff icient lighting into all new, relocated and refurbished stores. We are working with our energy suppliers to enhance the reporting and insight available to enable us to identify opportunities to further reduce energy consumption across our business activities. Measurement We continue to focus on improving the coverage, quality and accuracy of the data to quantify the environmental impacts across all areas of our operations. This data is important to prioritise areas of focus as we continue to grow both in the UK and internationally. “J o u l e s h a v e s h o w n r e a l p a s s i o n a n d e n t h u s i a s m f o r g i v i n g b a c k t o t h e i r l o c a l c o m m u n i t i e s t h r o u g h o u r Te a m C h a l l e n g e p r o g r a m m e . T h e y h a v e a c h i e v e d g r e a t t h i n g s a n d m a d e s u c h a d i f f e r e n c e t o t h e p r o j e c t s t h e y h a v e s u p p o r t e d . T h e y a r e a g r e a t e x a m p l e o f h o w b u s i n e s s v o l u n t e e r i n g c a n h a v e a p o s i t i v e a n d l a s t i n g i m p a c t o n t h e c o m m u n i t y” JULIETTE HEWITT Leicestershire Cares Social Res pon sibility 27 OUR JOULES FAMILY It is our people that make our business the great success We rolled out a series of ‘Listening Groups’ for employees that it is today and we are committed to continuing to across the business. The Listening Groups allow us to offer them a working life and benef its programme that gather views on all aspects of working at Joules. builds our reputation as an employer of choice. They cover many areas including culture, learning and In the last year, we have continued to enhance our development, and reward. Employees are given the employee offering, expanding existing areas as well chance to share with us how they think we’re doing and as launching several new programmes: what we are good at and what we could improve. Building on the launch of our employee volunteering Employee engagement and communications is achieved policy, we saw 64 employees participating in through regular ‘Directors brief ings’ to all head off ice volunteering days during the last year. We were and warehouse employees, a weekly newsletter and the delighted that of these, over 30% were from senior Group intranet. We hold a store manager conference management positions within the business, showing twice per year and issue a weekly newsletter for all store the strength of our leadership commitment. based employees. The communications aim to keep We ran four team volunteering days through the year, in partnership with Leicestershire Cares. Teams from across the business spent a day supporting local employees up to date on Group initiatives and f inancial performance. We encourage employee feedback through formal and informal channels. communities doing everything from tree planting to We are an equal opportunities employer and give full clearing waterways of litter. We launched a Save As You Earn (SAYE) scheme in the year with nearly a third of eligible staff participating. The Joules Leadership Development Programme was launched during the year with over 250 employees participating in the programme that has been delivered from the top down, focusing on self-awareness, inf luencing, motivation and team effectiveness to those members who manage and inf luence teams. and fair consideration to employment applications regardless of race, gender and/or disability, having regard to an applicant’s aptitudes and abilities. We also strive to provide ongoing training, career development and promotion opportunities for all employees. In the unfortunate event that an employee should become disabled we are committed to continuing their employment and for arranging appropriate training. “A t r ip to t he f ish i ng tow n of W h it st able wa s t he stor y beh i nd t h is pr i nt . T he f lower s were f i r st h a nd pa i nted by ou r P r i nt Te a m wh i lst sit t i ng i n a cot t age ga rden by t he be ach” C H A P T E R 2C O R P O R A T E G O V E R N A N C E T he B est of t he Bu nch 30 Co rpo rate Governance B O A R D O F D I R E C T O R S J O U L E S G R O U P P L C NEIL MCCAUSLAND Non-Executive Chairman TOM JOULE Founder & Chief Brand Officer COLIN PORTER Chief Executive Officer Neil joined Joules in 2013. He also chairs Karen Tom founded Joules in 1989 selling practical, high Colin joined Joules in 2010 from Crombie, where Millen, Create Fertility and Skin Ltd. Neil was the quality garments at shows and events around he was Joint Manag ing Director. Prior to this Senior Independent Director of the Post Off ice the UK. Tom’s entrepreneurial spirit, and f lair Colin spent over 10 years at House of Fraser, Limited for four years until September 2015, in giving products personality to match those of becoming Commercial Director on the main where he chaired the remuneration committee Joules customers’ colorful and uplifting outlook, board. Colin has also held a number of senior and served on both the audit and nominations has been central to the brands’ continued success positions within the retail sector including at committees. Prior to that he was a non-executive and expansion. Now a global lifestyle brand, in Etam, L aura Ashley and Arcadia. Director of Nuff ield Health. Over the last 15 years his current role, Tom is focused on connecting he has chaired a number of companies, including with the Joules customer and category product six years as chairman of Kurt Geiger. direction. Between 2010 and 2016 Tom has featured four times in Drapers 100 Most Inf luential people in Fashion Retail. In 2015 he was a f inalist in the Fashion Entrepreneur of the Year category at the Great British Entrepreneur Awards. MARC DENCH Chief Financial Officer DAVID STEAD JILL LITTLE Senior Independent Non-Executive Director Independent Non-Executive Director Marc joined Joules in 2015 from Walgreens Boots David joined the Board in April 2016. David is Jill joined the Board in April 2016. Jill is currently the Alliance, where he was Chief Financial Off icer of currently on the board of Card Factory plc as Senior Non-Executive Director of Shaftesbury plc and its International Retail & Global Consumer Brands an Independent Non-Executive Director and is previously chaired their remuneration committee. division. Marc has previously held a number a member of the Council at the University of Jill has spent the majority of her career in the retail of senior f inancial and corporate development Birmingham. He has many years experience as industry, firstly at Simpsons of Piccadilly and then positions at Alliance Boots, Homeserve, Experian a director of companies in the UK retail sector. at the John Lewis Partnership (1975 to 2012). Jill and Freeserve plc. Whilst at Freeserve, he was David was the CFO of Dunelm Group plc for 12 became Merchandise Director on the board of John involved in the successful IPO process and the years from 2003 to 2015. Prior to this, David Lewis, moving roles to become the Strategy and subsequent merger with Wanadoo. Marc is a served as Finance Director for Boots The Chemists International Director where she was responsible for chartered accountant and has an MBA from and Boots Healthcare International between 1991 developing the long-term strategy and international Sauder Business School. and 2003. David is a chartered accountant, having expansion of John Lewis. Thereafter Jill became spent the early part of his career with KPMG. Business Development Director of the John Lewis Partnership. Jill is also Chairman of National Trust Enterprises Ltd, National Trust Renewable Energy Ltd and their advisory Commercial Group. Since March of this year, Jill has also joined the board of Nobia AB, as a non-executive Director. G O V E R N A N C E F R A M E W O R K J O U L E S G R O U P P L C Corpo rate Go vernance 31 CHAIRMAN’S INTRODUCTION I have pleasure in introducing the Joules Group plc Directors are aware of their right to have any concerns Corporate Governance Statement, our second since recorded in the board minutes. our admittance to trading on AIM on 26 May 2016. The Board is committed to supporting high standards of corporate governance and, for this reason, we have continued to operate appropriate measures to comply, as far as is practicable, with the April 2016 UK Corporate Governance Code (the “Code”). In this section of the Annual Report we set out our governance framework and describe the work we have done to ensure good corporate governance throughout Joules Group plc and its subsidiaries (‘the Group’). NEIL MCCAUSLAND Non-Executive Chairman BOARD SIZE AND COMPOSITION For the f inancial year ended 28 May 2017, the Board has continued to comprise of six Directors: a Non-Executive Chairman, two further Non-Executive Directors and three Executive Directors. ROLE OF THE BOARD The Board is collectively responsible for the long term success of the Group. It provides entrepreneurial leadership, sets Group strategy, upholds the Group’s culture and values, reviews management performance and ensures that the Group’s obligations to shareholders are understood and met. HOW THE BOARD OPER ATES The Executive Directors are responsible for business operations and for ensuring that the necessary f inancial and human resources are in place to carry out the Group’s strategic aims. The Non-Executive Directors’ role is to provide an independent view of the Group’s business and to constructively challenge management and help develop proposals on strategy. The Board as a whole review all strategic issues and The Board is satisf ied that all directors are able to allocate suff icient time to the company to discharge their responsibilities effectively. MATTERS RESERVED FOR THE BOARD Certain matters are reserved for approval by the Board, these include: • • • • • • • • Strategy and business plans – including annual budget Acquisitions and disposals of businesses (including minority interests) Changes in share capital and dividends Board membership and Committees and delegation of authority Remuneration and employment benef its Corporate statutory reporting Appointment of auditors New debt facilities • Major capital and revenue commitments • • • Corporate governance, policy approval, internal control and risk management Certain litigation matters in line with the Joules litigation reporting policy Corporate social responsibilities BOARD MEETINGS The Board has met twelve times in the reporting period. For all Board meetings an agenda is established and a Board pack is circulated at least 48 hours ahead of the meeting. As a minimum, the items covered include: • Financial performance review • Management accounts and KPIs • • • • • Update on governance, f inance, legal & risk matters Updates on signif icant business initiatives Proposals on any major items of capital expenditure Health and Safety Compliance with banking covenants and cash f low forecast key strategic decisions on a regular basis. Control over The Board receives reports from the Executive directors the performance of the Group is maintained through to enable it to be informed of and supervise the matters evaluation of f inancial information; the monitoring of within its remit. The Board considers at least annually performance against key budgetary targets; and, by the Group’s strategic plan and, on a regular rolling basis, monitoring the return on strategic investments. the Board receives presentations from management on The chairman takes responsibility for ensuring that the directors receive accurate, timely and clear information. key areas of the Group’s operations. 32 Cor porate Governa nc e G O V E R N A N C E F R A M E W O R K C O N T I N U E D BOARD MEETINGS The following table shows Directors’ attendance at scheduled Board and Committee meetings in the period under review: BOARD AUDIT REMUNERATION NOMINATION NEIL MCCAUSLAND 12/12 3/3 2/2 TOM JOULE COLIN PORTER MARC DENCH DAVID STEAD JILL LITTLE 12/12 12/12 12/12 12/12 11/12 - - - 3/3 3/3 - - - 2/2 2/2 1/1 - - - 1/1 1/1 BOARD DECISIONS AND ACTIVITY DURING THE YEAR SEPARATION OF DUTIES The Board has a schedule of regular business, financial and There is a clear division of responsibilities between the operational matters, and each Board Committee that has Chairman and Chief Executive Officer. Neil McCausland, met to date has compiled a schedule of work, to ensure the Chairman, leads the Board and is responsible for its that all areas for which the Board has responsibility are effectiveness and governance. He sets the Board agenda addressed and reviewed during the course of the year. The and ensures that sufficient time is allocated to important Chairman, aided by the Company Secretary, is responsible matters, in particular, strategic issues. Colin Porter, the for ensuring that the Directors receive accurate and timely Chief Executive Officer is responsible for the day-to-day information to enable the Board to discharge its duties. management of Joules’ operations and for recommending The Company Secretary compiles the Board and Committee strategy to the Board. Colin is then responsible for papers which are circulated to Directors at least 48 hours implementing that strategy supported by the wider prior to meetings. The Company Secretary also ensures management team. that any feedback or suggestions for improvement on board papers is fed back to management. The Company Secretary provides minutes of each meeting and every Director is aware of the right to have any concerns minuted. The Non-Executive Directors have responsibility for determining the remuneration of Executive Directors and have a prime role in appointing and, where necessary, removing Executive Directors, and in succession planning. BOARD COMMITTEES INDUCTION OF NEW DIRECTORS The Board has delegated specific responsibilities to the Audit, Remuneration and Nomination Committees. Each Committee has written terms of reference setting out its duties, authority and reporting responsibilities, with copies available on the Company’s website (www. joulesgroup.com) or on request from the Company Secretary. The terms of reference of each Committee were put in place at the time of the Company’s admission to AIM on 26 May 2016 and they are kept under review to ensure they remain appropriate and ref lect any changes in legislation, regulation or best-practice. Each Committee comprises Non-Executive Directors of the Company. The Company Secretary is the secretary of the Audit and Nomination Committees and the Group Legal Counsel is secretary for the Remuneration Committee. BOARD EFFECTIVENESS The skills and experience of the Board are set out in their biographical details on page 30. The experience and knowledge of each of the Directors gives them the ability to constructively challenge strategy and to scrutinise performance. No new directors were appointed during the year and there were no resignations. It is intended that, in the future, on joining the Board, new directors will undergo an induction programme which will be tailored to the existing knowledge and experience of the director concerned, including store and office visits; meetings with key employees; and presentations from management on topics such as strategy, finance and risk. The Chairman will be responsible for this process. TIME COMMITMENTS The Board is satisfied that the Chairman and each of the Non-Executive and Executive Directors continue to be able to devote sufficient time to the Company’s business. There has been no change in the Chairman’s other time commitments since his appointment. EVALUATION The Board conducted a thorough and formal board review during the year. This was led by the Chairman and consisted of interviews; the completion of questionnaires; and in-depth discussions between the Executive and Non- Executive Directors. Corpo rate G overnance 33 No major changes to the function and focus of the Board The Board considers that the internal controls in place arose from this evaluation, however, the findings will be are appropriate for the size, complexity and risk profile used as the basis of future discussions by the Board, and of the Group. the Nomination Committee, when considering short and long term succession planning. The Chairman will continue to meet regularly with the Non-Executive Directors without the Executive Directors being present. The Senior Independent Non-Executive Director will also meet with his fellow Non-Executive Director, at least annually, to appraise the Chairman’s performance and on such other occasions as are deemed appropriate. DEVELOPMENT The Company Secretary ensures that all Directors are kept abreast of changes in relevant legislation and regulations, with the assistance of the Group’s advisers where appropriate. Executive Directors are subject to the Group’s performance development review process through which their performance against objectives is reviewed and their personal and professional development needs considered. EXTERNAL APPOINTMENTS In the appropriate circumstances, the Board may authorise Executive Directors to take non-executive positions in other companies and organisations provided the time commitment does not conf lict with the Director’s duties to the Company. The appointment to such positions is subject to Board approval. CONFLICTS OF INTEREST At each meeting the Board considers Directors’ conf licts of interest. The Company’s Articles of Association (‘Articles’) provide for the Board to authorise any actual or potential conf licts of interest. INDEPENDENT PROFESSIONAL ADVICE Directors have access to independent professional advice at the Company’s expense. In addition, they have access to the advice and services of the Company Secretary who is responsible for advice on corporate governance matters to the Board. DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE The principal elements of the Group’s internal control system include: • • Day to day management of the activities of the Group by the executive Directors A detailed annual budget is prepared including an integrated profit and loss, balance sheet and cash f low. The budget is approved by the Board • Monthly reporting of performance against the budget is prepared and reviewed by the Board • A schedule of delegated authority is maintained which defines levels of approval authority over such items as capital expenditure, commercial contracts, litigation and treasury matters • Maintenance of a risk register which is reviewed at least annually by the Board The Group continues to review its system of internal control to ensure compliance with best practice, whilst also having regard to its size and the resources available. BOARD DIVERSITY The Board does not have a formal board diversity policy but plans to continue to review the need for such a policy annually taking into account the size of the Board and skills required. RELATIONS WITH SHAREHOLDERS The Group maintains communication with institutional shareholders through individual meetings with Executive Directors, particularly following publication of the Group’s interim and full year preliminary results. All shareholders are encouraged to attend the Annual General Meeting at which the Group’s activities will be considered and questions answered. General information about the Group is also available on the Group’s website: www.joulesgroup. com. This includes an overview of activities of the Group and details of all recent Group announcements. The Non- Executive Directors are available to discuss any matters stakeholders might wish to raise, and the Chairman and Non-Executive Directors will attend meetings with investors and analysts as required. Investor relations The Company has purchased directors’ and officers’ liability activity and a review of the share register are standing insurance during the year as allowed by the Company’s items on the Board’s agenda and the chairman ensures Articles. ongoing, effective communication with shareholders. ELECTION OF DIRECTORS The Senior Independent Director is available to shareholders if they have any concerns which fail to be In accordance with the Code all Directors will offer resolved through normal contact channels of the Chairman, themselves for election at each AGM. Chief Executive or other Executive Directors or when such contact channels are inappropriate. RISK MANAGEMENT AND INTERNAL CONTROLS The Board has ultimate responsibility for the Group’s ANNUAL GENERAL MEETING (‘AGM’) system of internal control and for reviewing its The Company’s AGM will take place on 27 September 2017. effectiveness. However, any such system of internal control The Annual Report and Accounts and Notice of the AGM can provide only reasonable, but not absolute, assurance will be sent to shareholders at least 20 working days prior against material misstatement or loss. to this date. 34 Audit Co mm itt ee Report A U D I T C O M M I T T E E R E P O R T J O U L E S G R O U P P L C On behalf of the Board, I am pleased to present the Audit The main items of business considered by the Audit Committee report for the 52 weeks ended 28 May 2017. Committee during the year have included: The Audit Committee has responsibility for, amongst other things, the monitoring of the f inancial integrity of the f inancial statements of the Group and the involvement of the Group’s auditors in the external audit process, together with providing oversight and advice to the Board in relation to current and potential future risk exposures of the Group, reviewing and approving various formal reporting requirements and promoting a risk awareness culture within the Group. The Audit • • • • • • • Review of the f inancial statements and Annual Report Consideration of the external audit report and management representation letter Going concern review Review of the risk management and internal control systems Reviewing the need for an internal audit function Review of whistleblowing reports Review of the implications of forthcoming updates or Committee also provides advice to the board as to changes to accounting standards whether the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides ROLE OF THE EXTERNAL AUDITOR the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. MEMBERS OF THE AUDIT COMMITTEE The Audit Committee monitors the Company’s relationship with the external auditor, Deloitte LLP, to ensure that auditor independence and objectivity are maintained. As part of its review the Committee monitors the provision of non-audit services by the The Committee consists of three Non-Executive external auditor. The breakdown of fees between audit Directors: David Stead (Chair), Neil McCausland and non-audit services is provided in note 5 of the and Jill Little. The Auditor (Deloitte LLP), the Chief Group’s Consolidated Financial Statements. The non- Executive Off icer and Chief Financial Off icer also attend audit fees related to tax advisory and Remuneration Committee meetings by invitation. The Committee has Committee advice. The Committee also assesses the met three times since 5 September 2016, being the date auditor’s performance. Having reviewed the auditor’s the Group’s last Annual Report was approved. independence and performance, the Audit Committee The Board is satisf ied that I, as Chairman of the Committee, have recent and relevant f inancial recommends that Deloitte LLP be re-appointed as the Company’s auditor at the next AGM. experience. I am a chartered accountant and I have served as Finance Director in a number of companies AUDIT PROCESS including Dunelm Group plc. I report formally to The auditor prepares an audit plan that sets out the the Board, as appropriate, on issues discussed by scope of the audit, key areas of audit focus, audit the Audit Committee and I present the Committee’s materiality and the audit timetable for audit work. recommendations. The Committee also takes time to meet with the external auditors without any Executive Directors or senior This plan is reviewed and agreed in advance by the Audit Committee. Following the completion of its work, the auditor presents its f indings to the Audit Committee management present. DUTIES for discussion. INTERNAL AUDIT The duties of the Audit Committee are set out in its Terms of Reference, which are available on the Company website (w w w.joulesgroup.com) and are also available on request from the Company Secretary. The Committee meets a minimum of twice per year. At present the Group does not have an internal audit function. In view of the size and nature of the Group’s business, the Committee believes that management is able to derive assurance as to the adequacy and effectiveness of internal controls and risk management procedures without a formal internal audit function. This will be kept under review as the business evolves.  Audit Co mmittee Repor t 35 RISK MANAGEMENT AND INTERNAL CONTROLS GOING CONCERN The Group has a framework of risk management and The Directors have prepared a detailed f inancial forecast internal control systems, policies and procedures. with a supporting business plan covering the medium The Audit Committee is responsible for reviewing the term future. The forecast indicates that the Group risk management and internal control framework and will remain in compliance with covenants throughout ensuring that it operates effectively. The Committee the forecast period. As such, the Directors have a has reviewed the framework and is satisf ied that the reasonable expectation that the Company and the Group internal control systems in place are currently have adequate resources to continue in operational operating effectively. existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in WHISTLEBLOWING preparing f inancial statements. The Group has in place a whistleblowing policy which sets out the formal process by which an employee of the Group may, in conf idence, raise concerns about possible improprieties in f inancial reporting or other matters. Whistleblowing is a standing item on the Committee’s agenda, and updates will be provided at each meeting. During the period, there were no incidents for consideration. DAVID STEAD Audit Committee Chairman 36 Nomination Co mmit tee Report N O M I N A T I O N C O M M I T T E E R E P O R T J O U L E S G R O U P P L C On behalf of the board I am pleased to present the ACTIVITY DURING THE YEAR Nomination Committee Report for the 52 weeks ended 28 May 2017 (FY17). MEMBERS OF THE NOMINATION COMMITTEE The Committee has met formally once during the year and at this meeting, the f irst since admission to AIM, members agreed the schedule of work for the upcoming year. There was no necessity for changes to Board The Nomination Committee consists of three Non- appointments during the year and the Committee Executive Directors; Neil McCausland (Chair), David focussed its work on the following areas: Stead and Jill Little. Executive Directors attend by invitation. DUTIES • The structure and composition of the Board and its Committees. The Committee discussed the skills, experience and diversity of the current Board and committee members taking into account the In carrying out its duties, the Nomination Committee is current and future needs of the Group, its culture primarily responsible for: • • • • • • Identifying and nominating candidates to f ill Board vacancies Evaluating the structure and composition of the Board with regard to the balance of skills, knowledge and experience and making recommendations accordingly Drafting the job descriptions of all Board members Reviewing the time requirements of Non-Executive Directors Giving full consideration to succession planning Reviewing the leadership of the Group The Committee is scheduled to meet once a year but it will meet more frequently if required. The Committee reports to the Board on how it has discharged its responsibilities. The Committee’s written Terms of Reference are available on the Group’s website (w w w.joulesgroup.com). and strategic objectives. The Committee believes that the Board has the necessary balance of skills, knowledge and experience for its current needs. The Committee believes that the Directors are able to devote suff icient time to the Group, taking into account their other Directorships • The structure of the Operating Board. The Committee reviewed the current management structure of the Group and options for the future. In particular, the membership and work of the Operating Board, which consists of senior management of the Group and meets monthly to review performance and progress against strategic objectives and is responsible for the implementation of the Group’s strategy • Succession planning. The Committee discussed long term succession planning and emergency cover, and the need to identify and develop talent both within the Group and from the wider market. In its discussions the Committee recognised the importance of looking at a diverse range of candidates when considering future appointments TERMS OF REFERENCE The committee will keep its terms of reference under review with the main objective of ensuring that an appropriate management framework and governance structure is in place. NEIL MCCAUSLAND Nomination Committee Chairman Dire ct ors’ Re mun erat ion Rep ort 37 D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T J O U L E S G R O U P P L C On behalf of the Board I am pleased to present the The Company’s first long-term incentive awards were Directors’ Remuneration Report for the 52 weeks ended granted under the LTIP in July 2016 (‘LTIP 2016’) and 28 May 2017 (FY17). Although not subject to the reporting therefore there was no LTIP awards due to vest in respect of regulations of fully listed companies in the UK, the the year ended 28 May 2017. Remuneration Committee has taken account of these regulations in the preparation of the FY17 Directors’ EXECUTIVE DIRECTOR SALARIES AND NON-EXECUTIVE Remuneration Report as a matter of best practice. DIRECTOR FEES Therefore this report is presented as: In line with the salary review timetable for all other • A Directors’ Remuneration Policy Report – setting employees, the Executive Directors’ base salaries were out the parameters within which the remuneration reviewed in December 2016. The base salary for C N arrangements for Directors operate; and Porter and T S L Joule set at IPO, £345,000 and £335,000 • An Annual Report on Remuneration – setting out the respectively, is unchanged. The base salary for M S Dench remuneration earned by Directors in respect of FY17 was increased from £220,000 to £250,000 with effect from and how we intend to apply the policy for FY18 1 December 2016 taking into account his performance, development in role and contribution since he joined the OUR APPROACH TO REMUNERATION – KEY PRINCIPLES business in 2015 and the competitiveness of his package Our policy on executive remuneration adopted on against the market and his previous employer. admission to AIM is designed to:- With effect from 29 May 2017, the Chairman’s fee was • Include a competitive mix of base salary and short and long term incentives, with an appropriate proportion of the package determined by stretching targets linked to the Group’s performance; increased to £75,000, as agreed prior to the IPO. No other changes have been made to Non-Executive Directors’ fees. REMUNERATION FOR THE YEAR COMMENCING 29 MAY 2017 • Promote the long-term success of the Group, in A summary of the proposed application of our remuneration line with our strategy and focus on profitability and policy for FY18 is set out below: growth; and • Provide appropriate alignment between the interests of shareholders and executives. Alignment is further enhanced through shareholding guidelines and the deferral of a proportion of the annual bonus as shares • It is intended that Executive director’s base salaries will be reviewed annually in December, at the same time as the pay review for the wider workforce • The maximum annual bonus opportunity for FY18 will be 100% of salary for C N Porter, T S L Joule and, FY17 was the first full year of operation of our Directors’ unchanged at 150% of salary for M S Dench. The annual Remuneration Policy. bonus is subject to the achievement of stretching profit FY17 PERFORMANCE AND ANNUAL BONUS OUTCOME • The second awards under the LTIP (‘LTIP 2017’) will be before tax (‘PBT’) performance targets As detailed in the Strategic Report and Financial Review, Joules has delivered strong results and made continued progress against its stated strategic priorities. Growth was delivered across the brand’s distribution channels and geographic markets, ref lecting the growing appeal of the Joules brand and the quality and design of our products, both in the UK and internationally. Based on FY17 underlying PBT of £10.1 million the Executive Directors will receive 96.3% of their maximum annual bonus opportunity. Half the bonus earned being paid in cash and half as a share award deferred over three years. Further details are set out in the following pages. granted following the announcement of the FY17 full year results. The maximum LTIP opportunity for C N Porter and T S L Joule is 100% of salary and, unchanged at 150% of salary for M S Dench. These awards are subject to stretching targets with 80% of the award linked to an EPS target and 20% of the award linked to a strategic target of international revenue • The 150% of salary annual bonus and LTIP award to M S Dench is unchanged from FY17, however, the proportion of the FY18 annual bonus earned that will be paid in cash has been reduced to one third and the deferred share award element has been increased from half to two-thirds. This recognises his on-going contribution to the group whilst providing a long term alignment with the interests of shareholders. 38 Di re ct ors’ Rem un erat ion Repo rt D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T C O N T I N U E D The Committee will continue to monitor our remuneration DIRECTORS’ REMUNERATION POLICY REPORT policy to ensure it remains aligned to the business strategy and the delivery of shareholder value. We remain committed to a responsible approach to executive pay as I trust that this Remuneration Report demonstrates and hope that we can rely on your continued support at our AGM. JILL LITTLE Remuneration Committee Chairman The following section sets out our Directors’ Remuneration Policy (the “Policy”). The aim of the Policy is to align the interests of Executive Directors with the Group’s strategic vision and the long-term creation of shareholder value. The Policy is intended to remunerate Executive Directors competitively and appropriately for effective delivery and allows them to share in this success and the value delivered to shareholders. EXECUTIVE DIRECTORS’ REMUNERATION POLICY The table below sets out the elements of Executive Directors’ compensation and how each element operates, as well as the maximum opportunity of each element and any applicable performance measures. Fixed Remuneration ELEMENT, PURPOSE & STRATEGIC LIN K OPERATION MAXI MUM OPPOR T UN IT Y BASIC SALARY To provide a competitive base salary for the market in which the Group operates to attract and retain Executive Directors of a suitable calibre. Usually reviewed annually taking account of: • • Group performance Role, experience and individual performance Competitive salary levels and market forces Pay and conditions elsewhere in the Group • • Increases will normally be in line with the range of salary increases awarded (in percentage terms) to other Group employees. Increases above this level may be awarded to take account of individual circumstances, such as: • • Promotion Change in scope or increase in responsibilities An individual’s development or performance in role Alignment with the market over time A change in the size or complexity of the business • • • BENEFITS To provide market competitive benefits as part of the total remuneration package. Executive Directors currently receive private medical insurance, company car or allowance, staff discounts and the right to participate in the Save As You Earn (SAYE) scheme. Other benefits may be provided based on individual circumstances. For example, relocation or travel expenses. Whilst the Committee has not set a maximum level of benefits that Executive Directors may receive the value of benefits is set at a level which the Committee considers appropriate, taking into account market practice and individual circumstances. RETIREMENT BENEFITS To provide an appropriate level of retirement benefit (or cash allowance equivalent). Executive Directors are eligible to participate in the Group defined contribution pension plan. In appropriate circumstances (e.g. if contributions exceed the annual or lifetime pension allowance in the UK), Executive Directors may be permitted to take the benefit as additional salary instead of pension contributions. The contribution level for FY18 is set at 5% of salary (there is an overall limit of up to 10% of salary). Dire ct ors’ Re mun erat ion Rep or t 39 Variable Remuneration E LEMENT, PURPOSE & STRATEGIC LIN K OPERATION ANNUAL BONUS Rewards performance against targets which support the strategic direction of the Group. Deferral provides a retention element through share ownership and direct alignment to shareholders’ interests. Awards are based on performance (typically measured over one year). Pay-out levels are determined by the Committee after the year end. The Committee has discretion to amend pay-outs should any formulaic output not ref lect their assessment of performance. A proportion (normally 50%) of any bonus is paid in cash with the balance paid in the form of shares (subject to a de-minimis amount of £10,000) usually deferred for three years. For M S Dench, the proportion of the FY18 annual bonus earned will be paid in cash and has been reduced to one third and the deferred share award element has been increased to two thirds. Awards may include dividend equivalents earned between grant and vesting date. LONG-TERM INCENTIVE (‘LTIP’) To create alignment between the interests of Executive Directors and shareholders through the delivery of performance based awards in Group shares. Awards can be made over conditional shares or nil cost options (or cash equivalent). Vesting is subject to the achievement of specified performance conditions normally over three years. Awards may include dividend equivalents earned between grant and vesting date. Awards may be structured as Qualifying LTIP awards comprising of a HMRC tax-qualifying option and an LTIP award, with the vesting of the LTIP award scaled back to take account of any gain made on the exercise of the tax-qualifying option. MAX IMUM OPPOR TU NI TY A ND PER FORMA NC E METR IC S The annual bonus opportunity is up to a maximum of 150% of base salary. For FY18 the maximum bonus opportunity for C N Porter and T S L Joule is 100% of salary, and 150% of salary for MS Dench. Performance measure: Targets are set annually and aligned with key financial, strategic and/or individual targets with the weightings between these measures determined by the Committee each year considering the Group’s priorities at the time. The FY18 bonus is based on a PBT target. The maximum LTIP opportunity is 150% of base salary. The maximum LTIP 2017 award for C N Porter and T S L Joule is 100% of salary and 150% of salary for M S Dench. Where an award is structured as a Qualifying LTIP, the shares subject to the tax-qualifying option element are excluded for the purposes of this limit, ref lecting the scale back. Performance measure: Set to reflect longer term strategy and business performance. Performance measures and their weighting are reviewed annually to maintain appropriateness and relevance. For threshold levels of performance 25% of the award will vest rising to 100% for maximum performance. Below threshold the award will not vest. The LTIP 2017 awards are subject to stretching targets with 80% of award based on EPS and 20% based on international revenue. INFORMATION SUPPORTING THE POLICY TABLE EXPLANATION OF PERFORMANCE MEASURES CHOSEN The Committee considers EPS to be the key measure Performance measures for the annual bonus and long- term incentive are selected that ref lect the Group’s of sustainable business performance and international revenue growth to be a key strategic priority. strategy. Stretching performance targets are set each The Committee retains the discretion to adjust or set year by the Committee, taking into account a number of different performance measures or targets where it different factors. For FY18, the annual bonus is based on PBT. Stretch targets for the maximum awards under the bonus are set against outperformance of internal company forecasts. The performance measure for the LTIP 2017 grant is adjusted diluted Earnings Per Share (EPS) (80% of award weighting) and international revenue (20% of award weighting). considers it appropriate to do so (for example, to ref lect a change in strategy, a material acquisition and/or a divestment of a Group business or change in prevailing market conditions and to assess performance on a fair and consistent basis from year to year). Awards and options may be adjusted in the event of a variation of share capital in accordance with the rules of the LTIP. 40 Di recto rs’ Remunerat ion Report D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T C O N T I N U E D APPLICATION OF MALUS AND CLAWBACK Until this guideline is met Executive Directors will be For up to three years following the payment of an annual bonus award (and two years after the vesting of an LTIP award), the Committee may require the repayment of all or some of the award if there is corporate failure, a material required to retain half of any shares which vest under the deferred bonus or LTIP (after sales to cover tax). LEGACY REMUNERATION error or misstatement of the financial results, gross The Committee has the right to settle remuneration misconduct or if information comes to light which, had it arrangements that were put in place prior to this Policy been known, would have affected a decision as to the extent being created and in respect of remuneration awarded to to which an award would have vested. individuals prior to becoming an Executive Director (and The Committee also has the right to reduce, cancel or impose further restrictions on unvested LTIP and deferred bonus shares in similar circumstances (including material failure of risk management). which was not awarded in anticipation of becoming an Executive Director). NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY The remuneration Policy for the Chairman and Non- SHAREHOLDING GUIDELINES Executive Directors is to pay fees necessary to attract the To promote further alignment to shareholders interests and share ownership, each Executive Director is required to build and maintain a shareholding equal to two times the value of their annual base salary. individual of the calibre required, taking into consideration the size and complexity of the business and the time commitment of the role, without paying more than is necessary. Details are set out in the table below: APPROACH TO SETTING FEES BASIS OF FEES OTHER • • • • • • • The fees of the Non-Executive Directors are agreed by the Chairman and CEO and the fees for the Chairman are determined by the Board as a whole Fees are set taking into account the level of responsibility, relevant experience and specialist knowledge of each Non-Executive Director and fees at companies of a similar size and complexity Non-Executive Directors are paid a basic fee for membership of the Board with additional fees being paid for chairmanship of Board Committees Additional fees may also be paid for other Board responsibilities or roles Fees are normally paid in cash Non-Executive Directors may be eligible to receive benefits such as travel and other expenses Neither the Chairman nor any of the Non-Executive Directors are eligible to participate in any of the Group’s incentive arrangements APPROACH TO RECRUITMENT REMUNERATION The Committee will typically seek to align the The Policy aims to facilitate the appointment of individuals of sufficient calibre to lead the business and execute the strategy effectively for the benefit of shareholders. When appointing a new Executive Director the Committee seeks to ensure that arrangements are in the best interests of the Company and not to pay more than is appropriate. remuneration package with the Group’s Remuneration Policy. The Committee may make payments or awards to recognise or ‘buy-out’ remuneration packages forfeited on leaving a previous employer. The Committee’s intention is that such awards would be made on a ‘like-for-like’ basis as those forfeited. The Committee will take into consideration relevant The remuneration package for a newly appointed Chairman factors, which may include the calibre of the individual, or Non-Executive Director will normally be in line with their existing remuneration package, and their specific the structure set out in the Non-Executive Directors’ circumstance, including the jurisdiction from which they Remuneration Policy. are recruited. Dire ct ors’ Re mun erat ion Rep or t 41 SERVICE CONTRACTS PAYMENTS FOR LOSS OF OFFICE Each of the Executive Directors have service contracts Payments for loss of office will be in line with the with the Group. The notice period of Executive Directors’ provisions of the Executive Directors’ service contracts and service will not exceed 12 months. All Non-Executive the rules of the share plans (as set out in the IPO Admission Directors have initial fixed term agreements with the Group document). Where a buy-out award is made then the leaver for no more than three years. Details of the Directors’ provisions would be determined at the time of the award. service contracts, are set out below: In appropriate circumstances, payments may also be made NAM E COMMENCEMENT NOTICE PERIOD and under the terms of the SAYE plan. The Committee in respect of accrued holiday, outplacement, legal fees T S Joule 20 May 2016 C N Porter 20 May 2016 M S Dench 20 May 2016 N W McCausland 20 May 2016 J C Little D A Stead 20 May 2016 20 May 2016 12 months 12 months 6 months 1 month 1 month 1 month CONSULTATION WITH SHAREHOLDERS The Committee will consider shareholder feedback received on remuneration matters including issues raised at the AGM as well as any additional comments received during any other meeting with shareholders. The Committee will seek to engage directly with major shareholders and their representative bodies should any material changes be made to the Policy. Annual Report on Remuneration SINGLE TOTAL FIGURE OF REMUNERATION reserves the right to make additional payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise or any claim arising in connection with the termination of Director’s office or employment. Where the Committee retains discretion it will be used to provide f lexibility in certain situations, taking into account the particular circumstances of the Director’s departure and performance. There is no entitlement to any compensation in the event of Non-Executive Directors’ contracts not being renewed or the agreement terminating earlier. The tables below detail the total remuneration earned by each Director in respect of FY17. FY17 EX ECUT IVE DIRECTOR S T S L Joule C N Porter M S Dench N ON-EXECUTI VE D IR E CTORS N W McCausland J C Little D A Stead Total FY16 EX ECUT IVE DIRECTOR S T S L Joule C N Porter M S Dench1 N ON-EXECUTI VE D IR E CTORS N W McCausland J C Little2 D A Stead2 Total SALARIES /FEES £000 335.0 345.0 235.0 75.0 50.0 55.0 1,095.0 290.1 287.3 128.3 40.0 7.1 7.8 760.5 TAXABLE BENEFITS £000 35.5 22.6 12.0 - - - 70.1 35.3 20.4 5.1 - - - ANNUAL BONUS (INCLUDING DEFERRED BONUS) £000 TOTAL REMUNERATION £000 332.3 337.1 339.5 - - - 719.6 722.0 598.3 75.0 50.0 55.0 PENSION £000 16.8 17.3 11.8 - - - 45.9 1,008.9 2,219.9 ADMISSION AWARD & DEFERRED BONUS1 £000 - - 288.2 - - - 14.5 14.4 6.4 - - - 1. In FY16 M S Dench was granted (i) an option over 312,500 shares with an exercise price of £1.60 per share on Admission (the face value of this award at grant was £500,000 and the fair value of the award included in the table is £68,231); and (ii) a deferred share bonus with a face value at grant of £220,000. 2. J S Little and D A Stead were 339.9 322.1 428.0 40.0 7.1 7.8 60.8 35.3 288.2 1,144.8 appointed as Non-Executive Directors on 20 May 2016. 42 Di re ct ors’ Remunera tion Report D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T C O N T I N U E D BASE SALARIES The base salaries for the Executive Directors will normally For FY18 the annual bonus opportunity for C N Porter and be reviewed with effect from December. EX ECUT IVE DI REC TORS T S L Joule C N Porter M S Dench BASE SALARY AT 1 DECEMBER 2016 £335,000 £345,000 £250,000 BASE SALARY APPLICABLE ON ADMISSION £335,000 £345,000 £220,000 T S L Joule will be 100% of salary and for M S Dench 150% of salary. Annual bonus is subject to the achievement of stretching PBT performance targets, with payment made 50% in cash and 50% deferred into shares (vesting after a further three years). For M S Dench payment will be 33% cash and 67% deferred into shares (vesting after a further three years). The Committee considers PBT to be the key short term financial measure. The actual targets are not disclosed due to commercial confidentiality reasons but the PBT target will be disclosed when we report the performance out-turn in the FY18 Directors’ Remuneration Report. LONG-TERM INCENTIVES There were no LTIP awards due to vest in respect of the year ended 28 May 2017. In FY17, the Committee granted LTIP awards as set out in the table below. LTIP 2016 DATE OF GRANT % OF SALARY T S L Joule* 6 July 2016 100% C N Porter M S Dench 6 July 2016 100% 6 July 2016 150% NUMBER OF SHARES 194,767 200,581 191,860 *Note: Because T S L Joule’s existing shareholding in the business is greater than 30%, it is intended that the LTIP 2016 awards will be cancelled and re-issued after the AGM subject to approval of a separate resolution at the AGM in relation to Rule 9 of the Takeover Code. Vesting of the awards will be based upon the amount of the adjusted diluted Earnings Per Share (EPS) delivered in the final Financial Year of the three year performance period (FY19). Below the threshold vesting target of 11.5p, none of this component of the award will vest. 25% of this component will vest if adjusted diluted EPS is 11.5p, with 100% vesting at 14p, and vesting determined on a straight- line basis between these figures. As noted above, the base salary for C N Porter and T S L Joule set at IPO is unchanged. The base salary for M S Dench was increased with effect from 1 December 2016 taking into account his performance, development in role and contribution since he joined the business in 2015 and the competitiveness of his package against the market and his previous employer. TAXABLE BENEFITS The taxable benefits for the Executive Directors included a company car or car allowance, private fuel and private medical insurance. ANNUAL BONUS For FY17 the maximum annual bonus opportunity for the Executive Directors was 100% of salary (and 150% of salary for M S Dench) subject to the achievement of stretching PBT performance targets. The following table set out the bonuses earned by the Executive Directors for FY17 and how this ref lects performance for the year. PE RFOR MANCE MEASU RE TAR GET PERFORMANCE ACTUAL PERFORMANCE BONUS EARNED (% OF SALARY) PBT £9.2m £10.1m 96.3% For FY17 the values of each Executive Directors’ annual bonus paid in cash and deferred into shares for three years were as follows: EX ECUT IVE DI REC TORS T S L Joule* C N Porter M S Dench CASH PAYMENT £000 166.1 168.5 169.7 TOTAL ANNUAL BONUS SHOWN IN SINGLE FIGURE TABLE ABOVE FO R FY17 £000 DEFERRED INTO SHARES £000 166.1 168.5 169.7 332.3 337.1 339.5 *Because T S L Joule’s existing shareholding in the business is greater than 30%, the deferred share award to be granted to T S L Joule will be conditional on approval of a separate resolution at the AGM in relation to Rule 9 of the Takeover Code. Dire ct ors’ Re mun erat ion Rep ort 43 For FY18, the Committee intends to grant LTIP awards as set out in the table below. PAYMENTS MADE TO FORMER DIRECTORS DURING THE YEAR No payments were made in the year to any former Director of the Group. PAYMENTS FOR LOSS OF OFFICE MADE DURING THE YEAR No payments for loss of office were made in the year to any Director of the Group. STATEMENT OF DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS The interests of the Directors and their immediate families in the Group’s ordinary shares as at 29 May 2016 were as follows. BENEFICIALLY OWN ED AT 29 MAY 2016 NUMBER BENEFICIALLY OWN ED AT 28 MAY 2017 NUMBER UNVESTED OUTSTANDI NG SHARE AWA RDS AT 28 MAY 2 017 NUMBER 1 28,147,210 28,147,210 194,767 2,129,142 2,269,822 62,500 82,500 200,581 636,492 EXECUTIVE DIRECTORS T S L Joule C N Porter M S Dench NON-EXECUTI V E DIRECTORS N W McCausland 625,375 625,375 J C Little D A Stead 15,625 31,250 15,625 31,250 - - - 1ESOP, LTIP, Deferred share awards and SAYE. LTI P 2017 T S L Joule* C N Porter M S Dench % OF SALARY 100% 100% 150% *Because T S L Joule’s existing shareholding in the business is greater than 30%, the LTIP to be granted to T S L Joule will be conditional on approval of a separate resolution at the AGM in relation to Rule 9 of the Takeover Code. Vesting of the awards will be based upon the amount of the adjusted diluted Earnings Per Share (EPS) and the level of international revenue delivered in the final Financial Year of the three year performance period (FY20). • • EPS target (80% of award): Below the threshold vesting target of 14p, none of the award will vest. 25% of the award will vest if adjusted diluted EPS is 14p, with 100% vesting at 18p, and vesting determined on a straight-line basis between these figures. International revenue target (20% of award): Below the threshold vesting target of £36 million, none of the award will vest. 25% of the award will vest if international revenue is £36 million, with 100% vesting at £46 million. Vesting is determined on a straight-line basis between these figures. EPS is the most suitable performance measure for the Group supporting a focus on profitability and growth, and has therefore been chosen as the primary LTIP metric. NON-EXECUTIVE DIRECTOR FEES Details of Non-executive Directors’ fees for FY18 are set out below: • • • Chairman’s fee: £75,000 Non-executive director fee: £50,000 for D A Stead and £45,000 for J C Little Additional fee for chair of a Board Committee: £5,000 44 Di re ct ors’ Remunera tion Report D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T C O N T I N U E D The interests of the Directors and their immediate families OUTSTANDING DIRECTORS’ SHARE AWARDS in the Group’s ordinary shares did not change between 28 May 2017 and the date these accounts were signed on 25 July 2017. Each Executive Director holds awards under the Company’s LTIP, Deferred Bonus Plan (DBP), SAYE Scheme and Executive Share Option Plan (ESOP) as follows. DI REC TOR SHARE PLAN DATE OF GRANT SHARE PRICE AT GRANT EXERCISE PRICE NUMBER OF SHARES / OPTIONS AWARDED PERFORMANCE PERIOD VESTING DAT E T S L Joule LTIP 2016 6 July 2016 C N Porter LTIP 20161 6 July 2016 M S Dench LTIP 20161 6 July 2016 DBP ESOP 14 July 2016 26 May 2018 £1.72 £1.72 £1.72 £1.66 £1.60 £0.01 194,767 3 years to 6 July 2019 end of FY19 £0.01 200,581 3 years to 6 July 2019 £0.01 191,860 3 years to 6 July 2019 end of FY19 end of FY19 £0.01 £1.60 132,132 312,500 - - 14 July 2019 26 May 2018 1C N Porter and M S Dench also received tax qualifying options of up to a maximum of £30,000, which were granted under the Tax Qualifying LTIP, and subject to the same performance conditions as the LTIP award. The tax qualifying options have an exercise price of £1.72 per share (being the market value on the date of grant). The vesting of the LTIP award will be scaled back to take account of any gain made under the tax qualifying option. REMUNERATION COMMITTEE The Chief Executive Officer and Chief Financial Officer The members of the Committee are J C Little (Chair), N W McCausland and D A Stead. The Group’s General Counsel attends the meeting as secretary to the Committee. occasionally attend meetings and provide information and support as requested. Neither Executive Director is present when their remuneration package is considered. The Committee meets at least once a year and has The duties of the Remuneration Committee are set out in responsibility for: • Maintaining the remuneration policy; its Terms of Reference, which are available on the Group’s website (www.joulesgroup.com) and are also available on • Reviewing and determining the remuneration packages request from the Company Secretary. of the Executive Directors; This report was approved by the Board on 25 July 2017 and • Monitoring the level and structure of the remuneration signed on its behalf by: of Senior Management; and • Production of the annual report on Directors’ remuneration. J C LITTLE Chairman of the Remuneration Committee 46 Di re ct ors’ Report D I R E C T O R S ’ R E P O R T J O U L E S G R O U P P L C The Directors present their Annual Report on the affairs At 28 May 2017 the Company had been notified of the of the Group, together with the f inancial statements and following substantial shareholders comprising 3% or more Auditors’ Report, for the 52 weeks ended 28 May 2017. of the issued ordinary share capital of the Company: The Governance Framework Section on pages 31 to 33 also forms part of this Directors’ Report. DIRECTORS The Directors of the Company during the period under review, and subsequently to the date of this report, were: NEIL MCCAUSLAND TOM JOULE COLIN PORTER MARC DENCH DAVID STEAD JILL LITTLE % of issued share capital TOM JOULE 32.17% BLACKROCK INVESTMENT MANAGEMENT 11.43% STANDARD LIFE INVESTMENTS OLD MUTUAL GLOBAL INVESTORS HARGREAVE HALE 9.49% 7.24% 6.61% COLUMBIA THREADNEEDLE INVESTMENTS 3.69% 1798 VOLANTIS A X A INVESTMENT MANAGERS 3.31% 3.01% RESULTS AND DIVIDENDS Results for the 52 weeks ended 28 May 2017 are set out in the Consolidated Income Statement on page 54. The Directors are recommending a f inal dividend of 1.2 pence per share which, if approved, at the AGM will result in a full year dividend of 1.8 pence per share for FY17. ARTICLES OF ASSOCIATION ACQUISITION OF THE COMPANY’S OWN SHARES At the AGM held on 26 October 2016, the Company was authorised in accordance with section 701 of the Act to make market purchases (within the meaning of section 693(4) of the Act) of up to 8,749,979 Ordinary Shares (being approximately 10 per cent of the Share Capital) on such terms and in such manner as the Directors of the Company may from time to time determine. This authority was not used during the year or up to the date A copy of the full articles of association are available of this report. Shareholders will be asked to renew these on request from the Company Secretary and are also authorities at the AGM as detailed in the next AGM Notice. available on the Group’s website w w w.joulesgroup.com. The Company held no treasury shares during the year. Any amendments to the articles of association can be made by a special resolution of the Shareholders. DIRECTORS’ INTERESTS SHARE CAPITAL AND SUBSTANTIAL SHAREHOLDERS Details of the issued share capital, together with details Details of the Directors’ benef icial interests are set out in the Remuneration Report on pages 37 to 44. of the movements during the year, are shown in Note 18 to DIRECTORS’ INDEMNITIES AND DIRECTORS AND the Consolidated Financial Statements. The Company has OFFICERS’ LIABILITY INSUR ANCE one class of ordinary share and each ordinary share carries the right to one vote at general meetings of the Company. The Company has purchased directors’ and off icers’ liability insurance during the year as allowed by the Company’s articles. Dire ct ors’ Re port 47 FINANCIAL RISK MANAGEMENT POLITICAL DONATIONS Details of the Directors’ assessment of the principal risks and No political donations were made during the period uncertainties which could impact the business are outlined in under review. the Principal Risks & Uncertainties section on pages 22 and 23. The Board manages internal risk through the on-going EMPLOYEE INVOLVEMENT review of the Group’s risk register and the Board manages external risk through the monitoring of the economic and regulatory environment and market conditions. GOING CONCERN The Directors’ recognise that communication with the Group’s employees is essential and the Group places importance on the contributions and view of its employees. Details of employee involvement are set out in the Social Responsibility Report on pages 24 and 27. The Company’s going concern statement can be found in the Consolidated Financial Statements on page 59. DISABLED EMPLOYEES POST BALANCE SHEET EVENTS Details of the Group’s policy in relation to disabled employees is set out in the Social Responsibility Report There have been no material post balance sheet events. on pages 24 and 27. ANNUAL GENER AL MEETING DISCLOSURE OF INFORMATION TO THE AUDITORS The Company’s AGM will be held on 27 September 2017. In the case of each Director in off ice at the date the FUTURE DEVELOPMENTS IN THE BUSINESS OF THE COMPANY Directors’ Report is approved, the following applies: • The Director knows of no information, which would be relevant to the auditors for the purpose of their The Strategic Report on pages 8 to 27 sets out the audit report, of which the auditors are not aware; likely future developments of the Company. and CHANGE OF CONTROL So far as the Directors are aware, there are no arrangements in place that the operation of which at a later date may result in a change of control of the Company. • The Director has taken all steps that he/she ought to have taken as a director to make him/herself aware of any such information and to establish that the auditors are aware of it AUDITOR The Auditor, Deloitte LLP, has indicated their BR ANCHES OUTSIDE THE UK willingness to continue in off ice and a resolution seeking The Group has branches in France, Germany and the Republic of Ireland. to re-appoint them will be proposed at the AGM. This Directors’ report was approved by the Board of Directors and authorised for issue on 25 July 2017. JONATHAN DARGIE Company Secretary Statemen t of Directo rs’ Res po ns ibi li ties 49 S T A T E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S J O U L E S G R O U P P L C STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Annual The Directors are responsible for keeping adequate Report and Accounts, including the f inancial statements, accounting records that are suff icient to show and in accordance with applicable law and regulations. explain the Company’s transactions and disclose with Company law requires the Directors to prepare f inancial statements for each f inancial year. Under that law the Directors have elected to prepare the Group’s Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, and the Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). reasonable accuracy at any time the f inancial position of the Group and Company and enable them to ensure that the f inancial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. WEBSITE PUBLICATION Under company law the Directors must not approve The Directors are responsible for ensuring the Directors’ the f inancial statements unless they are satisf ied that Report and f inancial statements are made available on they give a true and fair view of the state of affairs of a website. Financial statements are published on the the Group and Company and of the prof it or loss of the Company’s website (w w w.joulesgroup.com) in accordance Group for that period. The Directors are also required with legislation in the United Kingdom governing the to prepare f inancial statements in accordance with preparation and dissemination of f inancial statements, the rules of the London Stock Exchange for companies which may vary from legislation in other jurisdictions. trading securities on the Alternative Investment Market. The maintenance and integrity of the Company’s website In preparing these f inancial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently • Make judgements and accounting estimates that are reasonable and prudent • State whether they have been prepared in accordance with applicable accounting standards, subject to any material departures disclosed and explained in the f inancial statements; and • Prepare the f inancial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the f inancial statements contained therein. MARC DENCH Chief Financial Officer 25 July 2017 “O u r P r i nt Te a m c apt u red t he Br it ish se a side wonder f u l ly i n t h is border pr i nt . W h i lst add i ng a few l it t le touches of t hei r ow n.” C H A P T E R 3 F I N A N C I A L S T A T E M E N T S C O N S O L I D A T E D M a k i ng a Spl a sh 52 Au di to r’s Report A U D I T O R ’ S R E P O R T J O U L E S G R O U P P L C INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS OF JOULES GROUP PLC An audit involves obtaining evidence about the amounts We have audited the f inancial statements of Joules Group and disclosures in the f inancial statements suff icient to plc (the ‘Company’) and its subsidiaries (the ‘Group’) give reasonable assurance that the f inancial statements for the 52 week period ended 28 May 2017 (‘period’) are free from material misstatement, whether caused which comprise the Consolidated Income Statement, by fraud or error. This includes an assessment of: the Consolidated Statement of Comprehensive Income, whether the accounting policies are appropriate to the the Consolidated Statement of Financial Position, the Group’s and the parent company’s circumstances and Consolidated Statement of Changes in Equity, the have been consistently applied and adequately disclosed; Consolidated Statement of Cash f lows and the related the reasonableness of signif icant accounting estimates notes 1 to 28, the Company Balance Sheet, the Company made by the directors; and the overall presentation Statement of Changes in Equity and the related notes of the f inancial statements. In addition, we read all 29 to 36. The f inancial reporting framework that has the f inancial and non-f inancial information in the been applied in the preparation of the group f inancial annual report to identify material inconsistencies with statements is applicable law and International Financial the audited f inancial statements and to identify any Reporting Standards (IFRSs) as adopted by the European information that is apparently materially incorrect Union. The f inancial reporting framework that has based on, or materially inconsistent with, the knowledge been applied in the preparation of the parent company acquired by us in the course of performing the f inancial statements is United Kingdom Accounting audit. If we become aware of any apparent material Standards (United Kingdom Generally Accepted misstatements or inconsistencies we consider the Accounting Practice), including FRS101 ‘Reduced implications for our report. Disclosure Framework’ applicable in the UK and Republic of Ireland. OPINION ON FINANCIAL STATEMENTS This report is made solely to the company’s members, In our opinion: as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. • The f inancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 28 May 2017 and of the group’s prof it for the period then ended • The group f inancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union • The parent company f inancial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; RESPECTIVE RESPONSIBILITIES OF DIRECTORS and AND AUDITOR • The f inancial statements for the group and parent As explained more fully in the Directors’ Responsibilities company have been prepared in accordance with the Statement, the directors are responsible for the requirements of the Companies Act 2006 preparation of the f inancial statements and for being satisf ied that they give a true and fair view. Our OPINION ON OTHER MATTER PRESCRIBED BY THE responsibility is to audit and express an opinion on the COMPANIES ACT 2006 f inancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. In our opinion, based on the work undertaken in the course of the audit: • The information given in the Strategic Report and the Directors’ Report for the f inancial year for which the f inancial statements are prepared is consistent with the f inancial statements; and Audito r’s Report 53 • The Strategic Report and the Directors’ Report have • The parent company f inancial statements are not in been prepared in accordance with applicable legal agreement with the accounting records and returns; requirements. or In the lig ht of the knowledge and understanding of the company and it’s environment obtained in the course of the audit, we have not identif ied any material misstatements in the Strateg ic Report and the Directors’ Report. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters where the Companies Act 2006 requires us 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 • Certain disclosures of directors’ remuneration specif ied by law are not made; or • We have not received all the information and explanations we require for our audit ANDREW HALLS FCA Senior statutory auditor for and on behalf of Deloitte LLP Statutory Auditor Nottingham, UK 25 July 2017 54 Co nsol idat ed Fina nc ial St at ement s C O N S O L I D A T E D I N C O M E S T A T E M E N T J O U L E S G R O U P P L C REVEN UE Cos t of sales GROSS PROFI T Ot he r adminis trative expenses S hare bas ed payments Excep tion al administrative expenses Tot al a dmin is trative expenses OPERATI NG PROFIT F ina nce cost s and similar charges PROFIT/(L OSS) BE FORE TAX In com e tax ex p ense PROFIT/(L OSS) FOR THE PERIOD Bas ic ear nin gs/(loss) per share (pence) Dilu ted ear nin gs/(loss) per share (pence) C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E J O U L E S G R O U P P L C Profit/( l oss) for the period Ite ms that may be reclassified subsequently to profit or loss: Net los s aris in g on changes in fair value of hedg ing i ns trument s entered into for cash f low hedges Exchange dif fe rence on translation of foreign operations Gain s arisin g during the period on defe rred tax on cas h f low h edg es Gain s arisin g during the period on deferred tax on s hare option s 52WKS ENDED 52WKS E ND E D 28 MAY 2017 29 MAY 2016 NOTE £’000 £’000 2 5 5 27 5 6 7 26 26 NOTE 20 20 20 7 157,032 (69,981) 87,051 (76,729) (829) (341) (77,899) 9,152 (241) 8,911 (2,568) 6,343 7.25 7.22 131,262 (61,003) 70,259 (62,296) - (3,128) (65,424) 4,835 (6,015) (1,180) (613) (1,793) (2.04) (2.04) 52WKS ENDED 52WKS E ND E D 28 MAY 2017 29 MAY 2016 £’000 6,343 (640) 11 112 177 £’000 (1,793) (26) (48) 15 - TOTAL COMPREHENSIVE INCOME / (EXPENSE) FOR THE PERIOD 6,003 (1,852) Con sol idated Fin an cial Statements 55 C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N J O U L E S G R O U P P L C 28 MAY 2017 29 MAY 2016 NOTE £’000 £’000 NON-CUR RENT ASSETS Prope r t y, plant and equipment Intan g ibles Deferred tax T OTA L NON-CURRENT ASSE TS CU RRENT A SSETS Invento ries Trade an d other receivables Cu rrent cor poration tax receiva ble Cas h a nd cash equivalents D erivative f in ancial instruments TOTA L CURRENT ASSETS TOTA L ASSETS CUR RENT LIABILITIES Trade an d other payables Cu rrent cor poration tax paya ble Bo rrow ings Provis ion s D erivative f in ancial instruments TOTA L CURRENT LIABILITIE S NON-CURRENT LIABILITIES Bo rrow ings TOTA L LIA BIL ITIES NET ASSETS EQU ITIES Share capital Hedg in g reser ve Tran sl ation reser ve Merge r reser ve Retain ed ear nings Share premium TOTA L EQUITY 8 9 17 10 12 22 11 13 15 14 11 15 18 20 20 19 19 19 11,646 9,499 612 21,757 21,194 14,013 - 6,964 1,345 43,516 65,273 32,256 1,018 333 636 1,502 35,745 294 36,039 29,234 875 (139) (61) (125,807) 142,956 11,410 29,234 11,151 5,903 653 17,707 19,253 10,856 231 9,278 962 40,580 58,287 27,919 - 5,461 773 488 34,641 627 35,268 23,019 875 389 (72) (125,807) 136,224 11,410 23,019 These financial statements of Joules Group plc (Company Registration Number 10164829) were approved by the Board of Directors and authorised for issue on 25 July 2017 and were signed on behalf of the Board of Directors by - MARC DENCH Chief Financial Officer 25 July 2017 56 Co nsol idat ed Fina nc ial St at ement s C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y J O U L E S G R O U P P L C MERGER HEDG IN G TRANSLATION SHAR E SHAR E R ETAIN ED RESERVE RES ER VE R ESER V E C APITAL PR EMI UM EAR N IN GS £’000 £’000 £’000 £’000 £’000 £’000 TOTA L EQUITY £’000 Balance at 31 May 2015 (125,662) Loss for the period Other comprehensive income for the period - - Share buyback (note 18) (145) Share issue (note 18) Share capital reduction (note 18) Share issue (note 18) - - - Balance at 29 May 2016 (125,807) Prof it for the period Other comprehensive income for the period Gains arising during the period on deferred tax on cash f low hedges Dividends Issued (note 28) Shares issued (note 27) Credit to equity for equity settled share based payments excl. NI (note 27) Gains arising during the period on deferred tax on share based payments - - - - - - - 400 - (11) - - - - 389 - (640) 112 - - - - (24) 91,510 - (48) - - - - (72) - 11 - - - - - - - - 37,009 (127,715) 71 875 - - - - - - - - - - - - - 11,410 11,410 - - - - - - - 10,302 (23,474) (1,793) (1,793) - - - (59) (145) 37,009 127,715 - - 11,481 136,224 23,019 6,343 6,343 - - (629) 112 (525) (525) - - 737 737 177 177 Balance at 28 May 2017 (125,807) (139) (61) 875 11,410 142,956 29,234 Con sol idated Fin an cial Statements 57 C O N S O L I D A T E D C A S H F L O W S T A T E M E N T J O U L E S G R O U P P L C Net cash in f low from operating activities Prof it before interest and income taxes Adjustme nts for: Dep reciation Amor tis ation S hare bas ed payments Impa irment of f ixed assets F ina nce expen se Ta x paid In crease in inventor y In crease in receivables In crease in p ayables Net cash f rom operating activities Ca s h f low from investing activities Pu rcha se of proper t y, plant and equipment and intang ible assets 8/9 Net cash us ed in investing activities Ca s h f low from financing activities Proceeds from new share capital subscribed Redem ption of shares Rep ayment of borrowings Dividend paid Net cash us ed in financing activities Net (decreas e)/increase in cash and cash equival ents Cas h an d cas h equivalents at beg inning of period Ef fect of foreign exchange rate changes Ca s h and cas h equivalents at end of period 18 18 21 28 21 22 NOTE 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S END ED 29 MAY 2016 £’000 9,152 4,835 8 9 27 4,920 1,688 829 - (241) (997) (1,941) (3,157) 4,108 14,361 (10,700) (10,700) - - (5,461) (525) (5,986) (2,325) 9,278 11 6,964 4,516 1,011 - 380 (461) (500) (1,601) (700) 9,389 16,869 (7,087) (7,087) 11,481 (145) (13,913) - (2,577) 7,205 2,121 (48) 9,278 58 Notes to the Consolida ted Fin anci al S tatem ent s N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S J O U L E S G R O U P P L C 1. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The f inancial information has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The particular accounting policies adopted and applied are described below. The Group f inancial statements comprise the f inancial information of the parent undertaking and its subsidiary undertakings. The principal activity of the group is the design and sale of lifestyle clothing, related accessories and a homeware range, through the multi-channel business structure embracing retail stores, e-commerce, country shows and events and wholesale. The company’s registered off ice is Joules Building, The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU. (IFRSs) Application of new and revised International Financial Reporting Standards (IFRSs) Adoption of new and revised standards There have been no new IFRSs adopted in the current year which have impacted the Group’s f inancial statements. At the date of authorisation of these f inancial statements, the following Standards and Interpretations which have not been applied in these f inancial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): IFRS 1 (amendments) IFRS 2 (amendments) IFRS 4 (amendments) IFRS 9 IFRS 12 (amendments) IFRS 17 (amendments) IFRS 15 IFRS 16 IAS 7 (amendments) IAS 12 (amendments) IAS 28 (amendments) IAS 40 (amendments) Annual improvements Share-based payment Insurance contracts Financial instruments Annual improvements Insurance contracts Revenue from contracts with customers Leases Cash f low statements Share-based payment Annual improvements Investment properties The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the f inancial statements of the Group in future periods, except that • • IFRS 9 will impact both the measurement and disclosures of Financial Instruments; and IFRS 16 will have a material impact on the reported assets, liabilities and income statement for the Group. Furthermore, extensive disclosures will be required by IFRS 16. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed. Note s to the Co nso lidat ed Fin an ci al St at em e nts 59 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of preparation The historical f inancial information incorporates the f inancial statements of the group and entities controlled by the Group (its subsidiaries) to 28 May 2017 and 29 May 2016. The historic f inancial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. These are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out below. The annual f inancial statements have been prepared on the historical cost basis, except for certain f inancial assets and liabilities which are carried at fair value or amortised cost as appropriate. The preparation of f inancial statements in conformity with International Financial Reporting Standards adopted by the European Union requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the f inancial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated f inancial statements incorporate the f inancial statements of the Company and its subsidiaries. Control is achieved when the Company: • • • has power over the investee is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are suff icient to give it power over the entity. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. When necessary, adjustments are made to the f inancial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash f lows relating to transactions between members of the Group are eliminated in full on consolidation. Going concern The Directors have prepared a detailed forecast with a supporting business plan for the foreseeable future. The forecast indicates that the Group will remain in compliance with covenants throughout the forecast period. As such, the Directors have a reasonable expectation the Company and Group will have adequate resources to continue in operational existence for the foreseeable future. As such, they continue to prepare the f inancial statements on the basis of going concern. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. 60 Notes to the Consolida ted Fin anci al S tatem ent s 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Sale of goods • • • • • • Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisf ied: the Group has transferred to the buyer the signif icant risks and rewards of ownership of the goods the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold the amount of revenue can be measured reliably it is probable that the economic benef its associated with the transaction will f low to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably Property, plant and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the statement of f inancial position at their fair value, being the deemed cost at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life or, if held under a f inance lease term, whichever is the shorter. Leasehold improvements - straight line over the lease period, typically 5-10 years Fixtures and f ittings - straight line over 3 – 5 years Motor vehicles - straight line over 4 years Intangible assets IT projects Software and IT represent computer systems and processes used by the Group in order to generate future economic value through normal business operations. The underlying assets are amortised over the period from which the Group expects to benef it, which is typically between three to eight years. Intangible assets acquired separately Intangible assets with f inite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indef inite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. Internally-generated intangible assets An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale the intention to complete the intangible asset and use or sell it the ability to use or sell the intangible asset how the intangible asset will generate probable future economic benef its Note s to the Cons olidate d Financia l State m en ts 61 1. SIGNIFICANT ACCOUNTING POLICIES (continued) • • the availability of adequate technical, f inancial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset f irst meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in prof it or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Derecognition of intangible assets An intangible asset is derecognised on disposal, or when no future economic benef its are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in prof it or loss when the asset is derecognised. Impairment of tangible and intangible assets At each statement of f inancial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash f lows are discounted to their present value using a pre- tax discount rate that ref lects current market assessments of the time value of money and the risks specif ic to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in prof it or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Inventories Inventories are valued at the lower of cost and net realisable value, after making due allowance for any obsolete or slow moving items. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable prof it for the year. Taxable prof it differs from net prof it reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. 62 Note s to the Cons olidat ed Fin an ci al St at em e nt s 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the f inancial statements and the corresponding tax bases used in the computation of taxable prof it. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable prof its will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, following the relevant accounting for utilising temporary differences. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates and tax laws enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets ref lects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax for the year Current and deferred tax are recognised in prof it or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Foreign currencies Transactions entered into by the Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transaction occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated statement of comprehensive income. Hire purchase and leasing commitments (Leasing) Leases are classif ied as f inance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classif ied as operating leases. The Group as lessee Assets held under f inance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of f inancial position as a f inance lease obligation. Lease payments are apportioned between f inance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in prof it or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benef its from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Note s to the Cons olidate d Financia l State m ent s 63 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Pensions The Group operates a defined contribution pension scheme. Contributions payable for the period are recognised as an expense when employees have rendered service entitling them to the contributions. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash f lows estimated to settle the present obligation, its carrying amount is the present value of those cash f lows (when the effect of the time value of money is material). When some or all of the economic benef its required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Returns provision Present obligations arising under sales returns are recognised and measured as provisions, reducing revenue, when it is probable that the Group will be required to settle the obligation under sales contracts. The returns provision is based on Management’s best estimates and the actual returns could differ from these estimates. Lease dilapidation The Group recognises present obligations arising from lease contracts where it is required to restore the stores to their pre-lease condition upon the expiry of leases. Financial instruments Financial assets and f inancial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and f inancial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of f inancial assets and f inancial liabilities (other than f inancial assets and f inancial liabilities at fair value through prof it or loss) are added to or deducted from the fair value of the f inancial assets or f inancial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of f inancial assets or f inancial liabilities at fair value through prof it or loss are recognised immediately in prof it or loss. For f inancial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the signif icance of the inputs to the fair value measurement, which are described as follows: • • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability 64 Note s to the Conso lida te d Fin a nc ia l State m en ts 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets Trade and other receivables Trade and other receivables originated by the company are stated at amortised cost as reduced by appropriate allowances for doubtful debts. Cash and cash equivalents Cash and cash equivalents are measured at fair value, based on the relevant exchange rates at the statement of f inancial position and include overdrafts where these are used on a day-to- day basis to manage cash. Loans and receivables Trade receivables, loans and other receivables that have f ixed or determinable payments that are not quoted in an active market are classif ied 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. Financial liabilities Financial liabilities and equity instruments are classif ied according to the substance of the contractual arrangements entered into and are classif ied as either f inancial liabilities ‘at FVTPL’ or ‘other f inancial liabilities’. Financial liabilities are classif ied as at FVTPL where the f inancial liability is either held for trading or it is designated as at FVTPL. Other financial liabilities Other f inancial liabilities, including loans payable, are initially measured at fair value, net of transaction costs. Other f inancial liabilities are subsequently measured at amortised cost. Loans payable Interest-bearing loans are initially recorded on the day that the loans are advanced at the net proceeds received. At subsequent reporting dates, interest-bearing borrowings are measured at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on the accrual basis in the statement of comprehensive income using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables Trade payables are stated at amortised cost. Derivative financial instruments and cash f low hedges The Group holds derivative f inancial instruments to hedge its foreign currency exposures. These derivatives, classif ied as cash f low hedges, are initially recognised at fair value and then re-measured at fair value at the end of each reporting date. Hedging instruments are documented at inception and effectiveness is tested throughout their duration. Changes in the value of cash f low hedges are recognised in other comprehensive income and any ineffective portion is immediately recognised in the statement of comprehensive income. If the f irm commitment or forecast transaction that is the subject of a cash f low hedge results in the recognition of a non-f inancial asset or liability, then at the time the asset is recognised, the associated gains or losses on the derivative that had been previously recognised on other comprehensive income are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or liability, amounts deferred in other comprehensive income are recognised in the statement of comprehensive income in the same period in which the hedged item affects net prof it. Note s to the Co nso lidat ed Fin an ci al St at em e nts 65 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Share-based payments Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 27. 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 equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non- market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in prof it or loss such that the cumulative expense ref lects the revised estimate, with a corresponding adjustment to equity reserves. For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in prof it or loss for the year. Critical accounting judgements and key sources of estimation uncertainty Drawing up the f inancial statements in accordance with IFRS requires management to make the necessary estimates and assessments. Estimates are based on past experience and other reasonable assessment criteria. There remains a probability, however, that the estimates and assessments will bring about an adjustment in the value of the assets and liabilities in future f inancial years. The Directors have made signif icant accounting estimates and judgements in applying the Group’s accounting policies in the following areas: Impairment Stores are identif ied for further impairment testing primarily on the basis of current performance, with growth assumptions based on directors’ knowledge and experience. The Directors have used forecast models and an appropriate pre-tax weighted average cost of capital in its property, plant and equipment impairment calculations. Inventory valuation The Directors have used their knowledge and experience of the retail industry in determining the level and rates of provisioning required to calculate the appropriate inventory carrying values. Inventory is carried in the f inancial statements at the lower of cost and net realisable value. Sales in the retail industry vary with changes in consumer demand. As a result there is a risk that the cost of inventory exceeds its net realisable value. Management calculate the inventory provision on the basis of the ageing prof ile of what is in stock. Adjustments are made where appropriate based on directors’ knowledge and experience to calculate the appropriate inventory carrying values. 66 Notes to the Consolidat ed Fin anci al St at em e nts 2. REVENUE The revenue and prof it before taxation are attributable to the one principal activity of the Group. Sale of goods 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S END ED 29 MAY 2016 £’000 157,032 157,032 131,262 131,262 3. SEGMENT REPORTING The Group has three reportable segments; Retail, Wholesale and Other. For each of the three segments, the Group’s chief operating decision maker (the “Board”) reviews internal management reports on a monthly basis. Each segment can be summarised as follows: • Retail: Retail includes sales and costs relevant to stores, e-commerce, shows and franchises. • Wholesale: Wholesale includes sales and costs relevant to the sale of products to other retail businesses or distributors for onward sale to their customer. • Other: Other includes income from licencing, central costs and items that are not distinguishable into categories above. The accounting policies of the reportable segments are the same as described in note 1. Information regarding the results of each reportable segment is included below. Segment results before exceptional items are used to measure performance as management believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries. There are no discontinued operations in the period. 52 WEEKS ENDED 28 MAY 20 17 Revenue Cost of sales GROSS PROFIT Administration expenses SEGMENT RESULT RECONCILIATION OF SEGMENT RESULT TO PROFIT BEFORE TAX Segment result Depreciation and amortisation Share based payments (incl NI) Exceptional costs Net finance expense PROFIT BEFORE TAX R ETAIL £ ’00 0 WHOLESALE £ ’00 0 OT HER £ ’00 0 TOTA L £’000 111,884 44,749 399 157,032 (42,389) (27,592) - (69,981) 69,495 17,157 399 87,051 (39,171) (8,246) (22,704) (70,121) 30,324 8,911 (22,305) 16,930 30,324 8,911 (22,305) 16,930 (3,901) (364) (2,344) (6,609) (828) (341) (241) 8,911 Note s to the Cons olidate d Financia l State m ent s 67 3. SEGMENT REPORTING (continued) 52 WEEKS ENDED 29 MAY 20 16 Revenue Cost of sales GROSS PROFIT Administration expenses SEGMENT RESULT RECONCILIATION OF SEGMENT RESULT TO PROFIT BEFORE TAX Segment result Depreciation and amortisation Exceptional costs Net finance expense LOSS BEFORE TAX Geographical Information R ETAIL £ ’00 0 WHO LES ALE £ ’00 0 OT HER £ ’00 0 TOTA L £’000 93,687 37,196 (36,616) (24,387) 57,071 12,809 379 - 379 131,262 (61,003) 70,259 (34,146) (5,998) (16,625) (56,769) 22,925 6,811 (16,246) 13,490 22,925 (3,306) 6,811 (16,246) 13,490 (258) (1,963) (5,527) (3,128) (6,015) (1,180) The Group’s revenue from external customers by geographical location are as detailed below. Predominantly all non-current assets (excluding f inancial instruments, deferred tax assets and other f inancial assets) are situated in the UK, therefore separate geographical disclosure of non-current assets is not considered necessary. 52 weeks ended 28 May 2017 52 weeks ended 29 May 2016 4. INFORMATION REGARDING DIRECTORS AND EMPLOYEES Staff costs during the period Wages and salaries Social security costs Other pension costs Equity-settled share-based payment charges (incl. NI) Prior year wages and salaries adjusted to include warehouse salary costs. UK £ ’00 0 IN TER N AT IONA L £ ’00 0 139,030 118,041 18,002 13,222 TOTA L £’000 157,032 131,262 5 2W K S EN DED 28 MAY 2017 £’000 26,321 2,393 232 829 29,775 22,8411,885227-24,95352WKS ENDED29 MAY 2016 £’00068 Note s to the Conso lida te d Fin a nc ia l State m en ts 4. INFORMATION REGARDING DIRECTORS AND EMPLOYEES (continued) Average number of persons employed Head office Stores and Shows Warehousing Directors’ remuneration The tables below detail the total remuneration earned by each Director. N UMBER N UMBE R 416 1,010 120 1,546 52WEEK S END ED 28 M AY 20 17 Executive Directors T S L Joule C N Porter M S Dench Non-Executive Directors N W McCausland J C Little D A Stead Total 52WEEK S END ED 29 M AY 20 16 Executive Directors T S L Joule C N Porter M S Dench Non-Executive Directors N W McCausland J C Little D A Stead Total SALARIES /FEES £000 TAXABLE BENEFITS £000 PENSION £000 CASH BONUS £000 BONUS DEFERRED INTO SHARES £000 TOTAL REMUNERATION £0 00 335.0 345.0 235.0 75.0 50.0 55.0 35.5 22.6 12.0 - - - 16.8 17.3 11.8 - - - 166.2 168.6 169.8 - - - 166.2 168.6 169.8 - - - 719.6 722.0 598.3 75.0 50.0 55.0 1,095.0 70.1 45.9 504.5 504.5 2,219.9 SALARIES /FEES £000 TAXABLE BENEFITS £000 PENSION £000 CASH BONUS £000 BONUS DEFERRED INTO SHARES £000 TOTAL REMUNERATION £0 00 290.1 287.3 128.3 40.0 7.1 7.8 760.5 35.3 20.4 5.1 - - - 14.5 14.4 6.4 - - - - - - - - - - - 288.2 - - - 339.9 322.1 428.0 40.0 7.1 7.8 60.8 35.3 1,008.9 288.2 1,144.8 The number of directors to whom retirement benef its have accrued during the period was 3 (2016: 3). 353998881,439 Note s to the Cons olidate d Financia l State m en ts 69 5. PROFIT FOR THE YEAR Prof it (before tax) is stated after charging: Cost of inventories recognised as expense Staff costs (see note 4) Transportation, carriage and packaging Property, rent and service charges Depreciation of property, plant and equipment Amortisation of internally-generated intangible assets included in other operating expenses Impairment of property, plant and equipment Impairment loss recognised on trade receivables Net foreign exchange (gains)/losses Gain on disposal of property, plant and equipment Write down of inventory in the period Other expenses Total 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S END ED 29 MAY 2016 £’000 61,851 29,775 8,354 11,658 4,920 1,688 - 240 (247) - 126 51,376 24,953 6,905 9,267 4,516 1,011 380 16 304 (15) 196 29,515 147,880 27,518 126,427 Other expenses include £341,000 for May 2017 (May 2016: £3,128,000) of exceptional items which have been disclosed separately on the face of the income statement in order to summarise the underlying results. The exceptional costs in the period of £341,000 relate to IPO transaction costs (2016: £2,748,000 of IPO related transaction costs and £380,000 of other non-recurring costs, including asset impairment). Neither ‘underlying prof it or loss’ nor ‘exceptional items’ are def ined by IFRS, however, the Directors believe that the disclosures presented in this manner provide a clear presentation of the f inancial performance of the group. 70 Note s to the Cons olidat ed Fin an ci al St at em e nt s 5. PROFIT FOR THE YEAR (continued) Auditors’ remuneration The analysis of auditors’ remuneration is as follows: Audit of these financial statements Audit of financial statements of subsidiaries of the Company Total audit fees Other services pursuant to legislation: Tax compliance Tax advice Services relating to IPO Remuneration and share plan advisory Audit related assurance services Total non-audit fees 6. INTEREST PAYABLE AND SIMILAR CHARGES Bank loan interest Finance loan interest Shareholder loan note interest Amortisation of debt costs 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S END ED 29 MAY 2016 £’000 6 74 80 27 32 - 54 13 126 4 40 44 66 74 803 - 5 948 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S E NDE D 29 MAY 2016 £’000 176 65 - - 241 378 83 4,676 878 6,015 During the prior period the Shareholder loan note debt was settled and all remaining unamortised debt costs were expensed. Amortisation of debt costs relates to fees incurred in 2013 with regard to the Shareholder loan notes, as these fees related to a debt facility they were amortised over the expected life of the facility. Note s to the Co nso lidat ed Fin an ci al St at em e nts 71 7. INCOME TAX a) Analysis of charge in the period Current tax UK corporation tax based on the profit/(loss) for the period Adjustment in respect of prior periods Overseas tax Total current tax charge Deferred taxation (note 17) Adjustment in respect of prior periods Origination and reversal of timing differences Effect of adjustment in tax rate Total deferred taxation charge Tax charge for the period (note 7b) In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised in other comprehensive income. Deferred taxation (note 17) Gains arising during the period on deferred tax on cash f low hedges Gains arising during the period on deferred tax on share options Total income tax gain recognised in other comprehensive income b) Factors affecting the tax charge for the period There are reconciling items between the expected tax charge and the actual which are shown below: Profit / (loss) before taxation UK corporation tax at the standard rate Effects of: Expenses not deductible for tax purposes and other permanent differences IPO expenses not deductible for tax purposes Depreciation and amortisation on non-qualifying assets Difference in overseas tax rate Effect of adjustment in tax rate Adjustment in respect of prior period Tax expense for the period (note 7a) 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S END ED 29 MAY 2016 £’000 2,563 (347) 21 2,237 366 (50) 15 331 2,568 869 (438) 17 448 225 (142) 82 165 613 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S E ND E D 29 MAY 2016 £’000 112 177 289 15 - 15 5 2W K S EN DED 28 MAY 2017 £’000 5 2W K S E ND E D 29 MAY 2016 £’000 8,911 19.8% 1,767 399 60 287 21 15 19 2,568 (1,180) 20.0% (236) 73 739 151 17 82 (213) 613 72 Note s to the Cons olidat ed Fin an ci al St at em e nt s 7. INCOME TAX (continued) The Finance Act 2015 included provisions to reduce the rate of UK corporation tax to 19% with effect from 1 April 2017. The Finance Act 2016 included provisions to further reduce the rate of UK corporation tax to 17% with effect from 1 April 2020. Deferred taxation is measured at tax rates that are expected to apply in the periods in which temporary timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Accordingly the rate used to calculate deferred tax assets and liabilities is the effective rate at the date the deferred tax is expected to be realised. The UK corporation tax at the standard rate for the year is therefore 19.8% (2016: 20.0%). 8 & 9. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS PROPER TY, PLA N T A N D EQUIPMEN T IN TA NG IBLES LEASEHOLD IMPROVEMENTS £’0 00 FIXT UR ES AN D FITT IN G S £ ’00 0 MOTO R VEHIC L ES £ ’00 0 TOTA L £ ’00 0 IT SY ST EMS £ ’00 0 COST At 31 May 2015 Additions Disposals At 29 May 2016 Additions Disposals At 28 May 2017 ACCUMULATED DEPRECIATION/ AMORTISATION At 31 May 2015 Charge for the period Disposals Impairment At 29 May 2016 Charge for the period Disposals Impairment AT 28 MAY 2017 NET BOOK VALUE At 31 May 2015 At 29 May 2016 At 28 May 2017 155 - (55) 100 - - 100 119 5 (55) - 69 8 - - 77 36 31 23 26,761 4,589 (8,570) 22,780 5,415 - 530 - (404) 126 - - 27,446 4,589 (9,029) 23,006 5,415 - TOTA L £’000 5,929 2,498 5,929 2,498 (674) (674) 7,753 5,284 - 7,753 5,284 - 28,195 126 28,421 13,037 13,037 15,361 4,504 508 7 15,988 4,516 (8,570) (404) (9,029) 380 11,675 4,906 - - - 111 6 - - 380 11,855 4,920 - - 1,513 1,011 (674) - 1,850 1,688 - - 1,513 1,011 (674) - 1,850 1,688 - - 16,581 117 16,775 3,538 3,538 11,400 11,105 11,614 22 15 9 11,458 11,151 11,646 4,416 5,903 9,499 4,416 5,903 9,499 Property, Plant and Equipment and Intangibles During the prior period the Directors conducted a detailed review of the Group’s f ixed assets, as a result of this review £9,703,000 (£9,029,000 of Property, Plant and Equipment and £674,000 of Intangibles) of nil book value items which were no longer in existence or use as at the balance sheet date were identif ied, these were recorded as a disposal in that period. 10. INVENTORIES Goods for resale Goods in transit Note s to the Co nso lidat ed Fin an ci al St at em e nts 73 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 18,768 2,426 21,194 14,594 4,659 19,253 There is no material difference between the balance sheet value of stocks and their replacement cost. The cost of inventories recognised as an expense during the year in respect of continuing operations in the 52 weeks ended 28 May 2017 was £61,851,000 (2016: £51,376,000). The cost of inventories recognised as an expense includes £126,000 for 52 weeks ended 28 May 2017 (2016: £196,000) in respect of write-downs of inventory to net realisable value. During the period £39,000 (2016: £33,000) of stock previously provided for was sold and the provision was therefore released. Product is purchased on a seasonal basis with the intention of selling that stock within 12 months of the balance sheet date. Any aged stock is appropriately provided for. 11. DERIVATIVE FINANCIAL INSTRUMENTS Forward contracts and options The Group enters into forward foreign exchange contracts and options to manage the risk associated with anticipated sale and purchase transactions which are denominated in foreign currencies. As at 28 May 2017, the Group has 136 (2016: 65) forward foreign exchange contracts outstanding. Derivative financial instruments are carried at fair value, further detailed in note 24. Prior year derivatives have been restated to separately disclose the financial derivative gross asset and gross liability as they are not permitted to be settled net. The following table details the USD foreign currency contracts outstanding as at the balance sheet date. AVERAGE EXCHANGE R ATE FOR EIGN C UR REN C Y N OTIO NA L VALUE FA IR VA LUE 201 7 £/$ 201 6 £/$ 2 01 7 $ ’00 0 2 01 6 $ ’00 0 2 01 7 £ ’00 0 2 01 6 £ ’00 0 2 01 7 £ ’00 0 2016 £’000 OUTSTANDIN G CONTRACT S Buy U.S. Dollars Less than 3 months 1.3125 1.5394 25,500 13,500 18,985 8,960 3 to 6 months 1.2819 1.4764 13,500 20,000 10,485 13,524 920 24 6 months and above 1.2734 1.4430 90,700 29,150 71,225 19,908 (1,101) 1.2822 1.4778 129,700 62,650 100,695 42,392 (157) 300 149 25 475 The Company does not hold Euro to GBP forward options (2016: 2 Euro to GBP forward options). The US Dollar spot rate at 28 May 2017 was $1.2791/£1. The fair value of cash flow hedges of the Group as at 28 May 2017 was an asset of £1,345,000 (2016: £962,000) and a liability of £1,502,000 (2016: £488,000) resulting in a net liability of £157,000 (2016: net asset £474,000), further detailed in note 24. 74 Note s to the Conso lida te d Fin a nc ia l State m en ts 12. TRADE AND OTHER RECEIVABLES Trade receivables – gross Allowance for doubtful debts Trade receivables – net Other receivables Prepayments 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 2,852 (405) 2,447 1,984 9,582 2,915 (165) 2,750 824 7,282 Total trade and other receivables 14,013 10,856 Movement in the allowance for doubtful debts Balance at beginning of period Bad debt write off Movement in doubtful debt estimate Balance at end of period 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 (165) 80 (320) (405) (149) 119 (135) (165) AGEING OF PAST DUE TRADE RECEIVABLES GR OSS £’00 0 PR OV ISION £ ’00 0 2 8 MAY 2 01 7 Current 0-30 days overdue 31-60 days overdue >60 days overdue Total trade receivables 1,574 629 283 366 2,852 - (90) (169) (146) (405) N ET £ ’00 0 1,574 539 114 220 2,447 All of the other receivables and prepayment balances above are deemed to be current; the disclosures above relate only to the trade receivables balance. The Directors review the recoverability of trade receivables on a regular basis and calculate the allowance for doubtful debts on both a specif ic, customer by customer basis and a general basis. The Group has no signif icant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Accordingly, the Directors believe that there is no further credit provision risk required in excess of the allowance for doubtful debts. Included within the Group’s trade receivables (gross) balance are debtors with a carrying value of £873,000 (2016: £1,020,000) which are past due at the reporting date for which the Group has not provided as there has not been a signif icant change in credit quality and the amounts are still considered recoverable. 29 MAY 20161,7307063571222,915GROSS£’0001,730679301402,750NET£’000-(27)(56)(82)(165)PROVISION£’000Note s to the Cons olidate d Financia l State m ent s 75 13. TRADE AND OTHER PAYABLES Trade payables Other taxation and social security Other payables Accruals and deferred income 2 8 MAY 2 01 7 £ ’00 0 14,074 1,931 1,888 14,363 32,256 Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the fair value of trade and other payables is not materially different from the carrying value. 14. PROVISIONS Returns provision Dilapidations At 29 May 2016 Additional provision during the period Utilisation of provision At 28 May 2017 Returns provision 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 405 231 636 DIL APIDAT ION S £ ’00 0 R ETU RN S PR OV IS ION £ ’00 0 267 60 (96) 231 506 206 (307) 405 506 267 773 TOTA L £’000 773 266 (403) 636 Present obligations arising under sales returns are recognised and measured as provisions when it is probable that the Group will be required to settle the obligation under sales contracts. Returns provisions in existence at the balance sheet date are expected to be utilised within 12 months, the provision is recalculated at each balance sheet date taking into account recent sales and anticipated levels of returns. Lease dilapidation The Group recognises present obligations arising from lease contracts where it is required to restore leased properties to their pre-lease condition upon the expiry of leases. Lease dilapidations provisions are expected to be utilised between 0-3 years in line with the expiry of the leases. 29 MAY 2016£’00015,3531,0691,15910,33827,91976 Notes to the Consolidat ed Fin ancia l State m en t s 15. BORROWINGS Bank loans Finance loans Borrowings are repayable as follows: Bank loans Within one year Finance loans Within one year Between one and two years Between two and five years Total borrowings Between one and two years Between two and five years After five years Financing costs capitalised On demand or within one year 2 8 MAY 2 01 7 £ ’00 0 - 627 627 - 333 210 84 627 210 84 - - 294 333 627 Summary of borrowing arrangements The bank loan is a Revolving Credit Facility in which amounts drawn down are generally repayable within three months. The facility matures in July 2021 following an amendment and extension that was completed after the year end in July 2017. The f inance loans are secured against the assets to which they relate. Interest is paid at varying rates above base rate. The weighted average interest rates paid during the period were as follows: Finance loans Bank loans 5 2 W K S EN DED 2 8 MAY 2 01 7 % 5 2 W K S END ED 2 9 MAY 2016 % 7.7 2.1 7.4 3.0 29 MAY 2016£’0005,0091,0796,0885,0094523332941,079333294--6275,4616,088Note s to the Cons olidate d Financia l State m ent s 77 16. FINANCIAL COMMITMENTS Operating lease commitments At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: LAND & BUILDINGS Leases expiring: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years OTHER Leases expiring: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 10,394 34,669 20,061 65,124 8,040 27,881 17,550 53,471 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 483 772 151 1,406 333 359 - 692 17. DEFERRED TAXATION The following is the analysis of deferred tax assets/(liabilities) presented in the consolidated statement of f inancial position: Difference between depreciation and capital allowances Balance brought forward (Charge)/credit to income statement Balance at end of period Other short term timing differences Balance brought forward Credit/(charge) to income statement Credit due to cash f low hedges Credit due to share options Balance at end of period Total deferred tax asset at end of period Movement Balance brought forward Charge to income statement (note 7) Credit to other comprehensive income (note 7) Balance at end of period There is no unprovided deferred tax in the current period for the Group (2016: £nil). The deferred tax asset recognised in the current period is expected to be utilised against future taxable prof its. 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 704 (444) 260 (51) 113 112 177 351 612 653 (331) 289 612 535 169 704 268 (334) 15 - (51) 653 803 (165) 15 653 78 Note s to the Conso lida te d Fin a nc ia l State m en ts 18. CALLED UP SHARE CAPITAL Allotted and issued 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 87,500,690 Ordinary shares of £0.01 each (2016: 87,499,796) 875 875 The company was incorporated on 1 May 2016. The acquisition of Joules Investments Holdings Limited by Joules Group plc on 26 May 2016 has been accounted for using reverse acquisition accounting principles. The effect of using reverse acquisition accounting principles on share capital and reserves of the Group is that the capital that existed as at the point Joules Group plc legally acquired Joules Investments Holdings Limited is accounted for as if it had been in existence as at the comparative period end date of the company’s f irst accounting period end (31 May 2015) and as at the opening balance sheet date of the period end (25 May 2014). Share capital and reserves of the company are therefore a result of the following transactions: The company was incorporated on 1 May 2016, upon incorporation the company issued 1 Ordinary B share of £827.22 at par. On 26 May 2016 the shareholders of Joules Investments Holdings Limited transferred their shares to Joules Group plc in exchange for new shares issued by Joules Group plc, the new shares issued by Joules Group plc mirrored the shares transferred by the previous shareholders of Joules Investments Holdings Limited. The share capital issued as part of this share for share exchange consisted of 138,188 shares of varying classes with a nominal value of £91,508,871. The varying classes were then converted to a single class of ordinary share in Joules Group plc. The company then had a share capital of 57,193,545 ordinary £1.60 shares, with a nominal value £91,509,672. The movements in the 52 week period to 29 May 2016, which are not accounted for using the reverse acquisition accounting principles, are as follows: As part of this share for share exchange, certain shareholders of Joules Investments Holdings Limited ultimately received cash for their shareholdings in Joules Investments Holdings Limited, rather than receiving shares in Joules Group plc, these shares equated to 90,980 ordinary £1.60 shares with a par value, and settlement value of £145,568. This is adjusted through the merger reserve as it is considered part of the consideration paid by Joules Group plc to acquire Joules Investments Holdings Limited. On 26 May 2016 Joules Group plc issued 23,130,400 ordinary £1.60 shares, with a total nominal value of £37,008,644. The shares were issued in order to settle the loan notes which existed at the time and had a book and fair value of £37,008,644 excluding accrued interest. On 26 May 2016 Joules Group plc (when legally still ‘Joules Group Limited’) entered into a capital reduction, converting the 80,323,945 ordinary £1.60 shares into 80,323,945 ordinary £0.01 shares. The reduction in share capital of £127,715,102 was transferred to retained earnings. On 26 May 2016 in an initial public offering Joules Group plc issued 7,175,851 ordinary £0.01 shares at a price of £1.60, resulting in an increase in share capital of £71,758 and share premium of £11,409,603. All ordinary shares carry equal rights. Note s to the Co nso lidat ed Fin an ci al St at em e nts 79 19. OTHER RESERVES Share premium The share premium reserve contains the premium arising on the issue of equity shares, net of issue expenses incurred by the company. On 26 May 2016 in an initial public offering Joules Group plc issued 7,175,851 ordinary £0.01 shares at a price of £1.60, resulting in share premium of £11,409,603. Balance at 29 May 2016 Balance at 28 May 2017 Retained earnings £ ’00 0 11,410 11,410 The movement on retained earnings is as set out in the consolidated statement of changes in equity. Retained earnings represent cumulative prof its or losses, net of dividends and other adjustments. Merger reserve The movement on the merger reserve is as set out in the consolidated statement of changes in equity. The effect of reverse acquisition accounting on the merger reserve is that the share capital, share premium and other distributable reserves that existed in Joules Group plc (the company) as at the point Joules Group plc legally acquired Joules Investments Holdings Limited is accounted for as if it had been in existence as at the comparative period end (31 May 2015) and as at the opening balance sheet date (25 May 2014). The corresponding entry being the merger reserve so the overall net assets as at the comparative dates are not affected. The movement on the merger reserve during the 52 weeks ended 29 May 2016 period arose due to certain shareholders of Joules Investment Holdings Limited transferring their shares to Joules Group plc in exchange for cash, with a settlement value, of £145,568. This is adjusted through the merger reserve as it is considered part of the consideration paid by Joules Group plc to acquire Joules Investments Holding Limited. 20. HEDGING AND TRANSLATION RESERVE GROUP Balance as at 29 May 2016 Other comprehensive income for the period Losses arising during the period on deferred tax on cash f low hedges Balance as at 28 May 2017 Hedging reserve HEDG IN G R ESER V E £ ’00 0 T RA N SLATI ON R ES ER VE £’000 389 (640) 112 (139) (72) 11 - (61) The reserve represents the cumulative gains and losses on hedging instruments in cash f low hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in prof it or loss only when the hedge transaction impacts the prof it or loss or is included as a basis adjustment to the non-f inancial hedged item, consistent with the applicable accounting policy. Translation reserve Exchange differences relating to the translation of the net asset of the Group’s foreign operations which relate to subsidiaries only, from their functional currency into the Group’s presentational currency being Sterling, are recognised directly to the translation reserve. 80 Note s to the Cons olidat ed Fin an ci al St at em e nt s 21. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash in the period Effect of foreign exchange rate changes Cash f low from movement in debt Change in net debt resulting from cash f lows Non cash interest on loan notes Non cash movement on amortised deal fees Non cash settlement of loan notes Net funds/(debt) at start of the year Net funds at end of year 22. CASH AND CASH EQUIVALENTS Cash and cash at bank 23. ANALYSIS OF NET CASH/(DEBT) Cash at bank and in hand Bank loans Finance loans Total 2 8 MAY 2 01 7 £ ’00 0 (2,325) 11 5,461 3,147 - - - 3,190 6,337 2 8 MAY 2 01 7 £ ’00 0 6,964 2 9 MAY 2 01 6 £ ’00 0 N ON - C A SH C HA NG ES £ 00 0 C AS H FLOW £ ’00 0 2 8 MAY 2017 £’000 9,278 (5,009) (1,079) 3,190 - - - - (2,314) 5,009 452 3,147 6,964 - (627) 6,337 29 MAY 2016£’00029 MAY 2016£’0007,205(48)13,91321,070(4,676)(878)37,009(49,335)3,1909,27824. FINANCIAL INSTRUMENTS FAIR VALUES Categories of financial instruments Carrying value of financial assets: Cash and cash equivalents Trade and other receivables Cash f low hedges Total financial assets Carrying value of financial liabilities: Trade creditors Other payables Borrowings Cash f low hedges Total financial liabilities Note s to the Cons olidate d Financia l State m en ts 81 NOTE 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 22 12 11 13 13 15 11 6,964 14,013 20,977 1,345 22,322 (14,074) (18,182) (627) 9,278 10,856 20,134 962 21,096 - (15,353) (12,566) (6,088) (32,883) (34,007) (1,502) (488) (34,385) (34,495) Interest rate sensitivity analysis If interest rates on all borrowings had been 1% higher/lower and all other variables were held constant, the Group’s prof it for the period ended 52 weeks to 28 May 2017 would decrease/ increase by £41,000 (2016: £57,000). This has been calculated by applying the amended interest rate to the weighted average rate of borrowings for the period to 28 May 2017, other than borrowings which are held at a f ixed interest rate as those borrowings are not sensitive to external variables, such as movement in interest rates. Foreign currency sensitivity analysis The Group is mainly exposed to f luctuations in the US $, which is used for stock purchases. If the US $ exchange rate, on average through the period, weakened/strengthened by 10 percent and all other variables were held constant, the Group’s prof it for the period ended 52 weeks to 28 May 2017 would increase/decrease by £82,000 and £101,000 respectively (2016: £369,000 and £451,000). This has been calculated by applying the amended currency rate to the US $ value of f inancial assets and f inancial liabilities held at the period end, an amended rate has not been applied to US $ purchases in the period as they have been effectively hedged against currency f luctuations via forward contracts. Maturity of financial liabilities The maturity of borrowings is included in note 15. All other f inancial liabilities are expected to mature within six months of the year-end. Carrying value of financial assets The Directors have assessed that, on the basis of the net assets of the owing companies, the intercompany receivables are fully recoverable. As noted in note 12 the Directors do not believe any of the trade receivables to be impaired. A signif icant decrease in the net assets and trade of the owing company or a decline in the f inancial position of customers would trigger an impairment review. 82 Notes to the Consolidat ed Fin anci al St at em e nts 24. FINANCIAL INSTRUMENTS (continued) Credit risk In the opinion of the Directors, the only f inancial instrument that is subject to credit risk is the trade receivables. The directors believe that the bad debt provision as disclosed in note 12 represents the Directors’ best estimate of the maximum exposure to credit risk at period-end. Fair value of financial instruments Financial instruments are measured in accordance with the accounting policy set out in note 1. All Financial instruments are considered to be Level 3 with the exception of foreign currency forward contracts and options which are considered Level 2. In the opinion of the Directors, the fair value of the f inancial assets and liabilities are equal to their book values. Liquidity risk management The Directors believe that the receivables are not impaired and that the owing companies have suff icient net assets to repay the balances. Therefore the Directors believe that liquidity risk is minimal. Capital risk management The Directors maintain detailed cash forecasts which are frequently revised to actuals to ensure that the Group has suff icient liquid resources to meet its requirements. Foreign currency financial assets and liabilities Included within the above table are £4,667,000 (2016: £4,116,000) of assets and £984,000 (2016: £1,903,000) of liabilities relating to the overseas subsidiaries which have been translated in the consolidation at the period-end rate. These balances are subject to movements in exchange rates, as shown in the statement of changes in equity. The Directors do not believe the risk is signif icant enough to warrant hedging against the investments in overseas companies. Also included within the above table are foreign currency denominated external trade payables and receivables of £613,681 (2016: £1,300,565) and £1,114,357 (2016: £903,916) respectively, relating to foreign entities. The Group mitigates a signif icant amount of the exchange rate risk via purchases of forward foreign currency contracts. 25. RELATED PARTY TRANSACTIONS Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation. The remuneration of the Directors, who are the key management personnel of the Group, is disclosed in note 4 and the Directors’ Remuneration Report. In addition, Directors and key management participate in share schemes, further details of which can be found in note 27. The Directors control 31,171,782 shares (2016: 31,011,102 shares) in Joules Group plc, which represents 35.6% (2016: 35.4%) of the issued share capital. 26. EARNINGS PER SHARE Basic and diluted earnings per share are calculated by dividing prof it or loss attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the period. The acquisition of Joules Investments Holdings Limited by Joules Group plc on 26 May 2016 has been accounted for using reverse acquisition accounting principles. Note s to the Cons olidate d Financia l State m ent s 83 26. EARNINGS PER SHARE (continued) The weighted average number of shares in issue for the current and prior year has therefore been stated to ref lect the post-IPO share capital structure, this adjustment assumes the total shares issued during the IPO were in issue throughout the whole of the current and previous period presented. For the calculation of diluted earnings per share, the weighted average number of shares in issue is further adjusted to assume conversion of all potentially dilutive ordinary shares. The Company has one category of potentially dilutive ordinary shares, being management shares not yet vested. Basic earnings/(loss) per share (pence) Diluted earnings/(loss) per share (pence) The calculation of basic and diluted earnings per share is based on the following data: Earnings 5 2 W EEK S EN DED 2 8 MAY 2 01 7 7.25 7.22 5 2 W EEK S EN DED 2 8 MAY 2 01 7 £’0 00 Earnings/(loss) for the purpose of basic and diluted earnings per share 6,343 Number of shares 5 2 W EEK S EN DED 2 8 MAY 2 01 7 Weighted number of ordinary shares for the purpose of basic earnings per share 87,500,690 Potentially dilutive share awards 294,295 Weighted number of ordinary shares for the purpose of diluted earnings per share 87,794,985 27. SHARE BASED PAYMENTS Summary of movement in awards: Number of shares Oustanding at 29 May 2016 Granted during the year Lapsed during the year Exercised during the year Outstanding at 28 May 2017 Exercisable at 28 May 2017 ESOP 446,875 LT IP - SAY E TOTA L - 446,875 268,164 1,896,938 377,757 2,542,859 - - - - (37,110) (894) (37,110) (894) 715,039 1,896,938 339,753 2,951,730 - - - All share options were valued using the Black-Scholes model. Expected volatility was determined by management, using comparator volatility as a basis. The expected life of the options was determined based on management’s best estimate. The expected dividend yield was based on the anticipated dividend policy of the Company over the expected life of the options. The risk free rate of return input into the model was a zero coupon government bonds with a life in line with the expected life of the options. 52 WEEKS ENDED 29 MAY 201652 WEEKS ENDED 29 MAY 2016 £’00052 WEEKS ENDED 29 MAY 2016(2.04)(2.04)(1,793)87,499,7962,43187,502,227Note s to the Co nso lidat ed Fin an ci al St at em e nts 85 27. SHARE BASED PAYMENTS (continued) The fair value of the total shares issued during the period, and measured as at issue date is £5,314,000. The inputs into the model were as follows: Weighted average share price Weighted average exercise price No. of employees Shares under option Expected volatility Expected life (Years) Risk-free rate Possibility of ceasing employment before vesting Expectations of meeting performance criteria Expected dividend yields ES OP 1.83 1.32 10 LT IP 1.77 Nil - 0.01 80 SAYE 1.67 1.34 202 715,039 1,896,938 377,577 28.0% 3-10 0.06% 28.0% 2.8-3 0.08% 0% 0%-10% 100% 60%-100% 1.9% 1.9% 28.0% 3 0.08% 10% 100% 1.9% The Group recognised a total expense of £829,000 during the year (2016: Nil) relating to equity-settled share based payments, including employer’s National Insurance contributions of £92,000 (2016: Nil). Executive Share Option Plan (“ESOP”) The Group operated a share option scheme during the period for certain employees under the Executive Share Option Plan (“ESOP”). The different options vest between two years and three years and have an exercise life between three and ten years from grant date. All option schemes are subject to continued employment over the vesting period. Long Term Incentive Plan (“LTIP”) The Board approved Long Term Incentive Plan 2016 (‘LTIP 2016’) allows the grant of options to executive directors and senior management of the Group in the form of nil-cost options over ordinary shares in Joules Group plc. The options are exercisable three years after the date of grant subject to achieving certain stretching targets. For the Executive directors and members of the operating board, the target is based on an EPS target in the f inal year of the plan, ending May 2019. For other senior management awards the target is based on the cumulative PBT over the three years to May 2019. The calculation includes an assumption that 10% of senior managers on the scheme would cease employment before vesting. Save As You Earn Scheme (“SAYE”) Under the terms of the SAYE scheme, the Board grants options to purchase ordinary shares in the company to employees who enter into the HMRC-approved SAYE scheme for a term of three years. Options are granted at up to 20% discount to the market price of the shares on the day proceeding the date of offer and are exercisable for a period of six months after completion of the SAYE contract. 28. DIVIDENDS In the period an interim dividend of 0.60 pence per share was paid with a total value of £525,001. No dividends were declared or paid in the prior period. The directors are proposing a f inal dividend of 1.20 pence per share with a total value of £1,050,008. This dividend has not been accrued in the consolidated statement of f inancial position and will be put for approval at the AGM on 27 September 2017. This would bring total dividends for the period to 1.8 pence per share with a total value of £1,575,009. 88 Notes to the Company Fina nc ia l St at e me n ts C O M P A N Y B A L A N C E S H E E T J O U L E S G R O U P P L C NON-CUR RENT ASSETS Invest ments CU RRENT A SSETS Ot he r debt ors Cas h at ban k and in hand T OTA L CURRENT ASSETS T OTA L ASSETS LIA BILI TIES CU RRENT L IA BILITIES Ot he r payables NET A SSETS CA PITAL A ND RESERVES Called up s hare capital S hare premium Lo ss for th e period Prof it and los s account SHA REHOLDERS’ FUNDS 28 MAY 2017 29 MAY 2016 NOTE £’000 £’000 30 31 32 33 34 139,980 139,980 5 11 16 1 - 1 139,996 139,981 (906) - 139,090 139,981 875 11,410 (366) 127,171 139,090 875 11,410 (19) 127,698 139,981 The parent company loss for the period was £(366,000), (2016: loss of £(19,000)). These financial statements of Joules Group plc (Company Registration Number 10164829) were approved by the Board of Directors and authorised for issue on 25 July 2017 and were signed on behalf of the Board of Directors by - MARC DENCH Chief Financial Officer 25 July 2017 Note s to the Co mpan y Financial St at em e nts 89 C O M P A N Y S T A T E M E N T O F C H A N G E S I N E Q U I T Y J O U L E S G R O U P P L C NOTE 33 33 33 33 33/34 Upon incorporation Share issue Share issue Share issue Capital reduction Share issue Loss for the period Balance at 29 May 2016 Dividend paid 35 Loss for the year and total comprehensive income Balance at 28 May 2017 SHAR E C APITAL £ ’00 0 - 1 91,509 37,009 (127,715) 71 - 875 - - SHAR E PR EMI UM £ ’00 0 R ETAIN ED EAR N IN GS £ ’00 0 TOTA L EQUI TY £’000 - 1 91,509 37,009 - 11,481 (19) - - - - 127,715 - (19) 127,696 139,981 (525) (366) (525) (366) - - - - - 11,410 - 11,410 - - 875 11,410 126,805 139,090 90 Notes to the Company Fina nc ia l S tatem ent s N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S J O U L E S G R O U P P L C 29. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The Company was incorporated on 1 May 2016, the f irst period of account was therefore, the 29 days ending 29 May 2016. These separate f inancial statements of Joules Group plc were prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure Framework (FRS 101). The Company’s f inancial statements are presented in GBP. In preparing these f inancial statements the company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these f inancial statements do not include: • • • • • income statement a statement of cash f lows the effect of future accounting standards not yet adopted the disclosure of the remuneration of key management personnel; and disclosure of related party transactions with wholly owned fellow group companies In addition, and in accordance with FRS 101 further disclosure exemptions have been adopted because equivalent disclosures are included in the consolidated f inancial statements of Joules Group plc. These f inancial statements do not include certain disclosures in respect of: • • • • share based payments business combinations f inancial instruments (other than certain disclosures required as a result of recording f inancial instruments at fair value) fair value measurement (other than certain disclosures required as a result of recording f inancial instruments at fair value) As permitted by section 408 of the Companies Act 2006, the prof it and loss account is not presented. The loss for the year amounted to £(366,000) (2016: loss of £(19,000)). The f inancial statements have been prepared under the historical cost convention. The principal accounting policies adopted are the same as those set out in note 1 to the consolidated f inancial statements except as set out below. Investments Fixed asset investments are stated at cost less provisions for diminution in value. Going concern Going concern for the company has been considered along with the Group by the Directors. The consideration is set out in note 1 of the consolidated f inancial statements. 30. INVESTMENTS Cost and Net Book Value At 29 May 2016 At 28 May 2017 £ ’00 0 139,980 139,980 On 26 May 2016 Joules Group plc acquired the entire share capital of Joules Investments Holdings Limited. Note s to the Company Financ ial State m ent s 91 30. INVESTMENTS (continued) Joules Group plc acquired Joules Investments Holdings Limited as set out below: • On 26 May 2016 certain shareholders of Joules Investments Holdings Limited transferred their shares to Joules Group plc in exchange for 57,193,545 ordinary £1.60 shares, with a nominal value £91,509,672 • On 26 May 2016 certain shareholders of Joules Investments Holdings Limited transferred their shares to Joules Group plc in exchange for cash, with a settlement value, of £145,568 • On 26 May 2016 Joules Group plc issued 23,130,400 ordinary £1.60 shares, with a total nominal value of £37,008,644. The shares were issued in order to settle the existing loan notes which had a book and fair value of £37,008,644. In substance, this forms part of the cost of the investment in Joules Investments Holdings Limited, free of shareholder loan note debt • On 26 May 2016 Joules Group plc used the funds generated from the initial public offering to settle the shareholder loan note debt in Joules Group plc of £11,316,364. In substance, this is part of the cost of the investment in Joules Investments Holdings Limited, free of shareholder loan note debt The company subsidiaries, as at the period end are shown in the table below. All subsidiaries have been in existence for the whole of the reporting period. Subsidiaries As at the period-end the Group has the following subsidiaries, those marked with * being indirect holdings: SUBSIDIARY NAME NATURE OF BUSINESS PLACE OF INCORPORATION AND OPERATION REGISTERED ADDRESS PROPORTION OF OWNERSHIP INTEREST PROPORTION OF VOTING POWER HELD Joules Investments Holding company England and Joules Building, 16 The Point, Rockingham 100% 100% Holdings Limited Wales Road, Market Harborough, LE16 7QU Joules Limited* Retailer England and Joules Building, 16 The Point, Rockingham 100% 100% Wales Road, Market Harborough, LE16 7QU Joules Hong Kong Overseas trading Hong Kong 18/F, United Centre, 95 Queensway, 100% 100% Limited* entity Admiralty, Hong Kong Joules Clothing Shanghai Overseas office China Room 1401-1404, No.432 West Huaihai 100% 100% Company Limited* Road, Changning district, Shanghai, China Joules USA Inc.* Overseas trading USA entity 103 Foulk Road, Suite 202, Wilmington, DE19803, USA 100% 100% On 26 May 2016, the company acquired 100% of the issued share capital of Joules Investments Holdings Limited. All the other entities detailed above have been in existence for the whole of the reporting period. 31. OTHER DEBTORS Prepayments and accrued income 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 5 5 1 1 92 Note s to the Compa ny F ina nc ia l St at em e nt s 32. OTHER PAYABLES Trade creditors Payables due to subsidiary Taxation and social security Accruals 2 8 MAY 2 01 7 £ ’00 0 2 9 MAY 2016 £’000 11 862 5 28 906 - - - - - The payables due to subsidiary relates to administrative expenses incurred by Joules Limited on behalf of Joules Group Plc. The terms of this intercompany payable is at nil interest, payable on demand. 33. CALLED UP SHARE CAPITAL Allotted and issued 2 8 MAY 2 01 7 £ ’00 0 87,500,690 Ordinary shares of £0.01 each (2016: 87,499,796) 875 The company was incorporated on 1 May 2016, upon incorporation the company issued 1 Ordinary B share of £827.22 at par. On 26 May 2016 the shareholders of Joules Investments Holdings Limited transferred their shares to Joules Group plc in exchange for new shares issued by Joules Group plc, the new shares issued by Joules Group plc mirrored the shares transferred by the previous shareholders of Joules Investments Holdings Limited. The share capital issued as part of this share for share exchange consisted of 138,188 shares of varying classes with a nominal value of £91,508,871. The varying classes were then converted to a single class of ordinary share in Joules Group plc. The Company then had a share capital of 57,193,545 ordinary £1.60 shares, with a nominal value £91,509,672. On 26 May 2016 Joules Group plc issued 23,130,400 ordinary £1.60 shares, with a total nominal value of £37,008,644. The shares were issued in order to settle the existing loan notes which had a book and fair value of £37,008,644. On 26 May 2016 Joules Group plc (when legally still Joules Group Limited) entered into a capital reduction, converting the 80,323,945 ordinary £1.60 shares into 80,323,945 ordinary £0.01 shares. The reduction in share capital of £127,715,102 was transferred to other reserves. On 26 May 2016 in an initial public offering Joules Group plc issued 7,175,851 ordinary £0.01 shares at a price of £1.60, resulting in an increase in share capital of £71,758 and share premium of £11,409,603. All ordinary shares carry equal rights. 34. SHARE PREMIUM The share premium reserve contains the premium arising on the issue of equity shares, net of issue expenses incurred by the company. On 26 May 2016 in an initial public offering Joules Group plc issued 7,175,851 ordinary £0.01 shares at a price of £1.60, resulting in share premium of £11,409,603. Balance at 29 May 2016 Balance at 28 May 2017 35. DIVIDEND £ ’00 0 11,410 11,410 Details of the dividend paid is shown in note 28 of the consolidated f inancial statements. 36. RELATED PARTY TRANSACTIONS The Company has taken advantage of the disclosure of related party transactions with wholly owned fellow group companies. Related party transactions with key management personnel (including Directors) are shown in note 25 of the Consolidated Financial Statements. 87529 MAY 2016£’000C O M P A N Y I N F O R M A T I O N J O U L E S G R O U P P L C Comp an y In format ion 93 JOULES GROUP plc NOMINATED ADVISER & BROKER Registered in England and Wales number: 10164829 Peel Hunt LLP, Moor House, COMPANY SECRETARY Jonathan William Dargie REGISTERED OFFICE Joules Building, The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU WEBSITE w w w.joulesgroup.com 120 London Wall, London, EC2Y 5ET BROKER Liberum Capital Limited Ropemaker Place, Level 12, 25 Ropemaker Street, London, EC2Y 9LY CORPOR ATE PR Hudson Sandler 29 Cloth Fair, London, EC1A 7NN LEGAL ADVISORS TO THE COMPANY Eversheds LLP, 115 Colmore Row, Birmingham, B3 3AL AUDITOR Deloitte LLP, 1 Woodborough Road, Nottingham, NG1 3FG REGISTR ARS Equiniti Limited, Aspect House, Spencer Road, Lancing, BN99 6DA 

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