BRIGHTENING
LIVES
ANNUAL REPORT &
ACCOUNTS 2019/2020
BRIGHTENING
LIVES
ANNUAL REPORT &
ACCOUNTS 2019/2020
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this document, including any information as to the Group’s strategy, plans or future financial or operating
performance, constitutes ‘‘forward-looking statements’’. These forward-looking statements may be identified 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, financial 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, financial 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. Accordingly, undue reliance should not be placed on these statements.
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 financial information contained in this document, including the financial 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 figures given for that column or row. In addition, certain percentages presented in the tables in this
document reflect 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.
CONTENTS 3
CONTENTS
HIGHLIGHTS
CHAPTER 1 - STRATEGIC REPORT
Chairman’s Statement
Chief Executive’s Report
Financial Review
Principal Risks and Uncertainties
Social Responsibility
Section 172 Statement
CHAPTER 2 - CORPORATE 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 Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Company Information
5
11 - 12
13 - 20
22 - 29
30 - 33
34 - 41
43 - 45
48
49 - 51
52 - 53
54
55 - 71
72 - 74
75
79 - 85
86
86
87
88
89
90 - 120
121
122
123 - 125
127
Company Secretary:
Registered Office:
Nominated Adviser:
Broker:
Corporate PR:
Legal Advisors:
Auditor:
Registrars:
Jonathan William Dargie
Joules Building, The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU
Peel Hunt LLP, Moor House, 120 London Wall, London, EC2Y 5ET
Liberum Capital Limited, Ropemaker Place, Level 12, 25 Ropemaker Street, London, EC2Y 9LY
Hudson Sandler, 25 Charterhouse Square, London, EC1M 6AE
Eversheds LLP, 115 Colmore Row, Birmingham, B3 3AL
Deloitte LLP, Four Brindleyplace, Birmingham, B1 2HZ
Equiniti Limited, Aspect House, Spencer Road, Lancing, BN99 6DA
Joules Group plc - Registered in England and Wales number: 10164829. Website - www.joulesgroup.com
4
HIGHLIGHTS 5
HIGHLIGHTS
Business well positioned to navigate existing and potential COVID-19 challenges:
• Trading performance ahead of management's expectations1 after the first nine weeks of FY21
- E-commerce demand2 up more than 70% on the comparable period in prior year
- All stores now re-opened with overall performance ahead of expectations
- Wholesale performing in line with expectations
• Strong financial position with net cash7 of £5.4 million and liquidity headroom of £54 million at 2 August 2020, significantly ahead of
management’s expectations1
• Continued progress on strategic initiatives:
- ‘Friends of Joules’ digital marketplace providing increased range and choice to Joules’ customers
- UK and US distribution centre transformation initiatives complete, providing improved capacity, service levels and productivity
- New store point of sale platform implemented, further integrating the store experience with our digital channels under our flexible ‘Total
Retail’ model
• Joules brand health3 and engagement scores at record highs with Joules ranked 12th out of 278 consumer brands in KPMG Nunwood’s
2020 Consumer Experience Excellence report
FY20 performance:
• Group revenue decreased by 12.5% to £190.8 million (FY19: £218.0m) adversely impacted by COVID-19 and the previously reported
e-commerce stock availability issue over the Christmas trading period
- Revenue impact of COVID-19 in the final quarter is estimated at c.£31 million4
- E-commerce performed well with Joules’ own e-commerce channel revenue up c.11% for the year
- E-commerce represented nearly 57% of retail sales (FY19: 49.5%). For the first nine months, pre-COVID-19, it represented
nearly 51% of retail sales
-Store revenue declined 21.4% for the year. Over the first 9 months, pre-COVID-19, store sales declined c.8%, reflecting
structural industry trends and reduced promotional activity
- Wholesale revenue declined 25.3%, with the final quarter experiencing a reduction of c.75% as wholesale customers
globally closed their operations in response to COVID-19
• Loss before tax (pre-IFRS16 and exceptional items)5 of £2.0 million (FY19: £12.9m profit)
• Statutory loss before tax of £25.3 million (FY19: £12.9m profit)
- IFRS16 (Leases) net impact £(1.8) million (FY19: na)
- Exceptional costs £(21.5) million (FY19: nil) including £21.0 million non-cash impairment charge
• Group gross margin 50.7%, down 4.1%pts, impacted by sales channel mix and increased promotional activity in the final quarter
• Basic earnings per share loss 22.07 pence (FY19: 11.6 pence)
• 1.43 million active customers6 and record brand awareness and brand health3 metrics achieved during the final quarter of the year
• Net cash7 of £4.5 million (FY19: £5.8m) and liquidity headroom of £53 million at 31 May 2020
Reconciliation to statutory profit/loss before tax:
£MILLION
PBT pre-IFRS16 and exceptional costs5
IFRS16 (net PBT impact)
PBT - before exceptional costs
Exceptional costs
Statutory (loss)/profit before tax
FY20
(2.1)
(1.8)
(3.9)
(21.5)
(25.3)
FY19
12.9
na
12.9
-
12.9
1 Expectations is stated with reference to management's most recent forecast being the ‘base case’ used for the Directors’ assessment of going concern and as the basis for the Group’s FY21 financial year budget
2 Demand is a non-GAAP measure. It states the total sales value (inclusive of sales tax) of customer orders received in the relevant period, excluding any returns received or provision for potential returns
3 Brand Awareness and Brand Health are measured as part of an independent YouGov consumer survey
4 COVID-19 revenue impact is estimated based on management’s revenue forecast for the final quarter prepared just prior to the start of Q4 with consideration to sales run rates, prior year sales, wholesale order book
and planned promotional activity
5 LBT/PBT - pre-IFRS16 and exceptional costs is a non-GAAP measure provided to facilitate comparison across periods, it is stated prior to the impact of IFRS16 (Leases) adopted for the first time in FY20, and prior to
exceptional costs that are primarily related to non-cash asset impairments in the Period
6 Customer registered on our database who has transacted in the last 12 months. Prior years restated to reflect improved database matching (FY19: 1.39 million active customers)
7 ‘Net cash’ represents gross cash & cash equivalents less total borrowings.
6 OUR BRAND VALUES
OUR BRAND VALUES
OUR BRAND VALUES 7
OUR BRAND VALUES
CONTEMPORARY COUNTRY LOVING
We celebrate our rural roots by designing clothing, accessories and
homeware for today’s family lifestyle.
INSPIRED BY NATURE
We take inspiration from all of the flora and fauna that can be found in the
countryside and along the coasts of Britain.
RESPECT THE ENVIRONMENT
As a brand that was established in the countryside, we see it as our
responsibility to look after the world around us.
CONNECT WITH LIFE’S HAPPY FEELINGS
Life is busy. We want to slow down, stop and take pleasure in the simple things
that make us happy.
CLOTHES TO ENABLE YOUR LIFESTYLE
We blend style with practicality to create collections that are built to last.
COLOUR AND PRINT
Our Print Team are experts in colour. All of our prints are hand-drawn or hand-
painted in-house, and the unique way we use colour and print makes us stand
out from the crowd.
CAPTURING THE SEASONS
Spring, summer, autumn and winter. In Britain we’re lucky to have four very
different seasons. We always look to them for inspiration.
FUN
Our upbeat and positive outlook on life can be seen in everything we do -
from the way we use colour and print to our tone of voice and packaging.
ATTENTION TO DETAIL
Our designs capture not only the eye but the imagination. Hidden details are
set to surprise and delight people of all ages.
QUALITY
It can be seen in the way we work and felt in what we create.
AT THE START
The Joules story began in 1989, when Tom Joule started selling clothing
on a stand at a country show in Leicestershire. Tom would constantly brave
the elements in pursuit of delivering traditional clothing with a twist.
The early days, facing driving rain and howling winds, have made us experts
in outwitting the weather and made sure an adventurous spirit
is woven throughout everything we create.
C H A P T E R
Putting it in print1
S T R AT E G I C R E P O RT
10
CHAIRMAN’S STATEMENT 11
CHAIRMAN’S STATEMENT
JOULES GROUP PLC
INTRODUCTION
The Group is publishing its Annual Report for the year ended 31 May 2020
("FY20" or the "Period") at a time when people, communities and economies
around the world continue to face exceptional challenges as a result of the
ongoing COVID-19 pandemic. Since the outbreak of the virus at the beginning
of 2020, our foremost priority has been the safety and wellbeing of the entire
Joules community. In this Strategic Report, Nick Jones, the Group’s CEO,
explains in detail the actions taken and flexibility demonstrated by the Group
in response to the pandemic, however I would like to take this opportunity to
express the Board’s gratitude to our resilient employees, supportive customers
and flexible business partners for their commitment throughout this incredibly
challenging period.
Whilst the outbreak of COVID-19 only impacted the final months of the Group’s
FY20 performance, like many other retailers the pandemic has had a material
effect on our business. From 23 March until after the Period end, the entire
Joules store portfolio was closed alongside the stores of our UK wholesale
partners in accordance with UK Government guidance. Trading conditions
in the brand’s key international markets, Germany and the US, experienced
similarly high levels of disruption.
I am incredibly proud of the decisive actions taken by our leadership team
in order to manage the significant pressures on the Group’s operations and
liquidity as a result of COVID-19-related disruption. With the cooperation
of some of the Group’s key stakeholders including stock suppliers, non-stock
suppliers, landlords and our people, we were quickly able to introduce
several mitigating actions to conserve cash throughout this period of significant
uncertainty. In order to further bolster the Group’s financial flexibility, in April
the Group announced a Placing of 18,750,000 new ordinary shares at a
price of 80 pence per share, raising £15 million gross proceeds. The Board
was delighted with the levels of support shown by our shareholders during this
process. This support was echoed by Barclays Bank PLC who in April provided
a £15 million increase to the Group’s existing Revolving Credit Facility. The
additional liquidity has given the Group important headroom to manage near-
term pressures resulting from the pandemic as well as providing the resources
for Joules to emerge relatively stronger from this unprecedented situation.
FY20 RESULTS OVERVIEW
The Group’s strategic progress in FY20 was delivered against a backdrop
of sustained difficult trading conditions in the brand’s core UK market as well
as the impact of COVID-19 during the final months of the Period. Despite
these headwinds, Joules continued to increase its customer base, expand its
presence internationally and deliver several important strategic initiatives -
including the exciting launch of the 'Friends of Joules' digital marketplace - that
will support the brand’s future growth.
In addition to the external headwinds that the Group faced during the Period,
as previously indicated our financial performance was also impacted by
a stock availability issue through the important end of autumn/winter season
promotional period. Whilst the cause of this issue was quickly identified
and addressed, we were disappointed with our inability to fully satisfy our
customers’ demand through our e-commerce channel during the important
Christmas sale period. Despite this short term and one-off set-back, the Board
remains incredibly encouraged by increasing customer awareness of and
demand for the Joules brand.
Group revenue in the Period of £190.8 million was down 12.5% on the prior
year (FY19: £218.0m). Retail sales were £145.9 million with store sales down
21.4% and e-commerce sales up 5.0% driven by strong sales through the
Group’s owned e-commerce channels (which increased 10.8%). Wholesale
sales, which were significantly impacted by COVID-19 in the final quarter,
were £42.7 million, a reduction of 25.3% in the Period.
The Group recorded a loss before tax, pre-IFRS16 - leases and exceptional
costs, of £2.0 million (FY19: £12.9m profit). The statutory loss before tax for the
Period, including the impact of IFRS16 of £1.4 million and exceptional costs of
£21.5 million, was a loss of £25.3 million (FY19: £12.9m profit).
As announced in March 2020, the Board took the decision to cancel its
proposed interim dividend considering the ongoing impact of the COVID-19
pandemic and subsequent macro-economic uncertainty. The Board believes
it is prudent and in the long-term interests of shareholders to preserve its
available cash resources during these unprecedented times and, consequently,
is not declaring a full year dividend for FY20. The Board does not anticipate
declaring a dividend in the FY21 year but will keep it under review with the
intention to return to the previous progressive dividend policy as soon as it is
financially possible and prudent to do so.
The CEO's Report and Financial Review that follow provide a more in-depth
analysis of the trading performance and financial results of the Group.
BOARD UPDATE
Nick Jones was appointed to the Board as Chief Executive Officer on
30 September 2019, having joined the business on 2 September 2019.
Nick brings a wealth of highly relevant experience to Joules and the Board
is very pleased with the positive impact he has already made on the Group
since joining.
Reflecting Joules’ significant growth into the international lifestyle brand it is
today, the role of Tom Joule, the Group’s Founder and Chief Brand Officer,
has continued to evolve over recent years. Following Nick’s appointment
and as the business moves into its next phase of long-term development, Tom
and the Board have agreed updated terms of reference. These changes, in
effect, formalise the evolution of Tom’s role in the business and, effective from
June 2020, Tom has moved to a more flexible, but reduced, working pattern
anticipated to be a time commitment of aproximately 50%. Going forward, in
addition to his ongoing responsibilities as a Director of the company, which
includes supporting in the development of the business strategy, these changes
will enable Tom to increase his focus on providing guidance to our outstanding
creative team in the product development process and driving new growth
initiatives, such as 'Friends of Joules' and international expansion.
12 CHAIRMAN’S STATEMENT
CHAIRMAN’S STATEMENT
JOULES GROUP PLC
OUTLOOK
The Group demonstrated its resilience and flexibility in managing the initial
impact of the COVID-19 pandemic. We are pleased to report that we have
performed ahead of the Board’s COVID-19 downside scenario since the UK
entered lockdown in terms of both trading and the Group’s liquidity position.
As consumers and businesses begin to emerge from the initial shock of the
pandemic and into the ‘new normal’, we are under no illusions that the impact
of the pandemic on businesses, communities and consumer confidence will be
felt for some time to come.
Despite this, we remain as confident as ever in Joules’ long-term prospects and
potential. The investments we have made over recent years in our infrastructure
to support the flexibility of our operating model means that we are well
positioned to adapt and evolve to meet changing consumer behaviours,
whether these are short-term adjustments or more fundamental and long-
term trends. Since its foundation, Joules has been built as a truly integrated,
multi-channel business with a focus on reaching and serving its customer base
wherever they choose to shop. The Group’s e-commerce channels already
represented half of total retail sales prior to the impacts of COVID-19, and
we anticipate that this will continue to increase in the years ahead. We have
continued to invest in our e-commerce platform to support this anticipated
growth with the addition of new payment methods, improved search
functionality and enhanced product merchandising as well as the seamless
integration of third-party products onto the platform as part of our 'Friends of
Joules' digital marketplace.
On 15 June we were pleased to commence a phased re-opening of stores
after a near three-month period of closure. Whilst it is still early in the process
to fully predict to what extent store footfall and sales will recover, we remain
confident that the Group’s flexible and agile ‘Total Retail’ model puts Joules in
a strong position to be able to adapt to the way customers choose to interact
with our brand going forward. Across our portfolio of 128 stores, a large
proportion are in ‘lifestyle locations’ and more than a third of our portfolio has
a lease event within the next 18 months, with an average lease length of less
than three years. We will continue to review the appropriate shape of our
store portfolio and lease agreements.
Macro-economic uncertainty looks set to continue across the Group’s key
markets over the coming months and this will have an inevitable impact on
consumer confidence and spending. Against this backdrop, the Group intends
to continue to tightly manage its cost base until there is better visibility of
sustained demand recovery across the Group’s channels.
Joules is a very strong, differentiated and highly relevant brand that is well-
positioned to meet consumers’ evolving priorities. In addition, the Group has
a solid financial position, well-invested operations and a clear strategy to
continue to expand both in the UK and internationally, where we will focus
on driving growth through our capital-light wholesale and digital channels.
The Board remains confident in the Group’s ability to adapt and react swiftly
to a range of economic recovery scenarios and capture what the Board
continues to believe are exciting, long-term growth opportunities.
IAN FILBY
Chairman
CHIEF EXECUTIVE’S REPORT 13
CHIEF EXECUTIVE'S REPORT
INTRODUCTION & COVID-19 RESPONSE
INTRODUCTION
I am pleased to provide my first report to Joules’ stakeholders since joining Joules in September 2019. I have been incredibly impressed by the strength of the
brand, the flexibility of our multiple routes to market and the skill and commitment of our teams. I am very excited to have the opportunity to lead this fantastic brand
through the next chapters of its growth.
Before expanding on the Group’s progress in FY20 in more detail it is appropriate to first address the impact of COVID-19 on the business and outline the actions
we have taken in response to the pandemic.
COVID-19 – RESPONSE, MITIGATION AND MOVING FORWARD
First and foremost, it is right to acknowledge the tragic impact that COVID-19
has had on individuals and families across the world, and I would like to
extend my deepest sympathy to those members of the wider Joules community
who have been affected.
The disruption to the retail industry caused by the pandemic has been unlike
anything we have seen before. Against this backdrop, I am incredibly proud
with the decisiveness and speed with which the Joules team has responded
and adapted. This has been made possible by the investments made over
recent years in our infrastructure and IT systems, combined with a culture of
agility which enabled a seamless transition to remote working across the
business in March 2020 and the continuation of operations without disruption.
Since early March 2020, Joules has been focused on managing both the
immediate and longer-term impact of COVID-19 on the business. As a result,
management has taken a series of actions in order to deliver the following five
key COVID-19 priorities:
Keeping our colleagues, customers and communities safe
Our top priority throughout the pandemic has been the health, safety and
wellbeing of our colleagues, customers, business partners and communities:
• During March we temporarily transitioned to remote working and,
between 20-23 March, we closed all our stores ahead of government
guidance in order to protect our colleagues, customers and communities
• We prioritised serving the brand’s existing customers and making sure that
Joules remained available to them
• As a result, we were pleased that e-commerce demand (order value
including sales tax, excluding returns) during the final quarter of the year
was significantly ahead of the Board’s expectations and was more than
40% higher year on year.
Managing liquidity
Given the pandemic’s significant disruption to trading, we took swift action
to strengthen the financial position of the business. These actions - several
of which have involved the valued support of our suppliers, landlords, and
employees – have included:
• Postponing non-critical capital expenditure
• Voluntary salary reductions taken by all of the Board of Directors
as well as other members of the Group’s senior management and all
non-furloughed colleagues
• Working collaboratively with product suppliers to reduce Autumn/Winter
2020 inventory commitments and add greater flexibility to Spring/
Summer 2021 inventory commitments
• Utilising several of the UK Government’s support initiatives including rates
relief for stores, the Job Retention Scheme for furloughed employees, and
deferring some payments due to HMRC
• Cancelling the Group’s proposed Interim Dividend to shareholders, saving
£0.7m of cash
• With our outsourced logistics partner Clipper Logistics we introduced
• Announcing an equity placing on 3 April, from which the Group raised
gross proceeds of £15 million
• Agreeing a £15 million increase to the Group’s Revolving Credit Facility
('RCF') with Barclays Bank PLC, announced on 21 April
• As a result, the Group ended FY20 with net cash of £4.5 million and
headroom of £53 million against committed borrowing facilities, which
was ahead of the Board’s COVID-19-related downside scenario at the
beginning of Q4 2020.
additional hygiene measures in our warehouse and temporarily reduced
capacity in order to better protect our teams and ensure strict compliance
with physical distancing requirements
• We introduced a range of new safeguarding measures as we began a
phased re-opening of stores from 15 June in line with UK Government
regulations. These included managing staffing levels to allow for physical
distancing in our stores, limiting the number of customers in store at any
one time, introducing new signage for customers and employees to
remind them of physical distancing, introducing Perspex screens at points
of sale, providing personal protective equipment for our employees, and
enhancing hygiene including the provision of hand sanitiser for customers
upon entry to stores.
Continuing to serve our customers to the best of our ability
Throughout this period of unprecedented disruption in the UK and our targeted
international markets, we have strived to continue to be available to our loyal
customers and satisfy their demand for Joules:
• We kept our UK e-commerce website open to customers throughout the
lockdown period, albeit with constrained warehouse capacity
14 CHIEF EXECUTIVE’S REPORT
CHIEF EXECUTIVE'S REPORT
COVID-19 RESPONSE
Supporting our local communities and partners
The pandemic provided a strong reminder of the responsibilities we have as a
business to continue our commitment to positively contribute to the communities
around us. We identified several ways through which we could support the
fight against the virus by utilising our relationships and resources:
• We leveraged our supplier partnerships to source and donate vital
personal protective equipment to key workers. We delivered 50,000
civilian-grade face masks to key workers in urgent need across the
University of Leicester Hospitals Trust, Hospice UK, and various other
regional key worker end user groups. In addition, we partnered with
the University of Leicester Hospitals Trust to source urgently needed
hospital gowns
• In order to provide support for our valued partners selling through our
‘Friends of Joules' digital marketplace, we waived platform fees for a
period of time to alleviate financial pressure and actively used our social
media channels to promote our partners and support their businesses.
Keeping sight of the bigger picture
Whilst the effects of the pandemic are still being felt and long-term impact on
consumer behaviour and the economy remains uncertain, it has been vital over
recent months that we do not lose sight of the bigger picture and the significant,
long-term opportunities for Joules.
• In March we launched a specially curated ‘Rainbow Edit’ collection
comprising a range of products featuring colourful splashes of bright
rainbows and rainbow colours. All profits from sales of products included
within the edit have been donated to the NHS Charities Together Urgent
COVID-19 Appeal to fund a wide range of initiatives including wellbeing
packs for staff and vital accommodation for frontline workers. To date, the
edit has raised nearly £80,000
We have a distinctive brand and unique products much loved by our
customers; a flexible and integrated ‘Total Retail’ model to adapt to evolving
customer behaviours; and a strong platform for continued international growth
and product extension. We are confident that the actions taken over recent
months to drive digital sales and manage liquidity in combination with the
investments made over recent years in our infrastructure mean that the long-term
future for Joules remains as bright as ever.
CHIEF EXECUTIVE’S REPORT 15
CHIEF EXECUTIVE'S REPORT
STRATEGY & BUSINESS MODEL
GROWTH STRATEGY
We have a consistent and established strategy for the long-term development
of Joules as a premium lifestyle brand, both in the UK and internationally.
I have confidence in the continued relevance of our four proven strategic
growth drivers for the brand, namely: increasing customer value; driving total
UK brand sales; expanding internationally; and carefully extending the brand
into a greater range of product categories.
1. INCREASE CUSTOMER VALUE
Increasing customer value means two things for Joules: firstly, growing our
active customer base and secondly, increasing those customers’ frequency
of interaction and spend with the brand. We do this by providing standout
products and enjoyable experiences for consumers across all channels as well
as communicating with our customers through relevant, authentic and targeted
campaigns and engaging content.
We believe we have significant capacity to further grow the brand’s active
customer base in both our core UK market, where we still have significant
headroom to grow, as well as our target international markets, the US
and Germany.
2. DRIVE TOTAL UK BRAND SALES – ‘TOTAL RETAIL’
Our flexible ‘Total Retail’ model enables Joules to continually adapt to meet
evolving customer expectations and shopping behaviours. Our goal is to
provide a great experience for our customers however they wish to engage
with our brand:
E-commerce - We expect to continue to increase the mix of e-commerce
sales as a proportion of our total retail sales through ongoing
enhancements to our digital platforms
Stores - Joules operates a portfolio of stores across the UK that enables
our customers to shop and interact with the brand. As well as being
important sales channels, our increasingly digitally enabled stores offer
valuable touch points to showcase the brand to both existing and
potential customers
Wholesale - We continue to broaden the reach of the Joules brand
through selected wholesale partners that are closely aligned with our
brand values and product categories - including specialist independents,
department stores, destination lifestyle retailers, subscription services and
online retailers. Wholesale is an important 'capital light' capability that
facilitates our international growth strategy
Country shows and events – Over the past 30 years, Joules has
developed a strong brand presence at a wide range of country shows
and events across the UK. The channel remains an important part of the
Joules brand’s heritage and provides real customer connectivity
Marketplaces & concessions - As well as supporting the more traditional
concession model, we continue to leverage our wholesale capabilities
and relationships to support emerging new retail channels such as online
marketplaces and ‘fulfilled by’ models that provide us with new routes
to reach our target customer base in the UK and internationally.
3. INTERNATIONAL EXPANSION
The Joules brand and products have demonstrated their appeal in our primary
international markets, the US and Germany. We develop our brand presence
in these markets via a proven wholesale model supported by e-commerce. We
leverage the investments made in our central creative and design functions,
supply chain and infrastructure with support from local teams, sales agents and
product showrooms.
4. PRODUCT & BRAND EXTENSION
The strength of the Joules brand means that we can extend into new product
categories that meet our customers’ lifestyle needs. We continue to work with
carefully selected licence partners to create new Joules-branded products and
categories that are complementary to our core ranges.
During FY20 we were proud to launch an exciting brand extension for Joules
in the form of our new digital marketplace, 'Friends of Joules', that offers
everything that our customers need for a contemporary country lifestyle.
Through 'Friends of Joules' we are bringing together and integrating into our
existing e-commerce platform thousands of complementary lifestyle products
from a wide range of carefully curated creative businesses in one easy-to-shop
online marketplace.
UNIQUE BRAND & MULTI-CHANNEL BUSINESS MODEL
Our ability to progress against each of the pillars of this growth strategy is
underpinned by the Group’s flexible, multi-channel business model and our
strong, differentiated brand.
The Joules brand - brightening our customers’ lives with the joy
of the countryside.
The Joules brand takes inspiration from nature and the changing British seasons.
We design and create unique design-led clothing and accessories that reflect
our customers’ lifestyles, come rain or shine. The brand stands out with its
signature uses of colour and distinctive prints that are hand drawn by our
in-house team in Market Harborough.
What has been most striking to me since joining the Group is the relevance of
the Joules brand to our customers’ lifestyles. I believe that this relevance will
only grow stronger over the coming years as we expect a continuing trend
for consumers to feel increasingly loyal and connected to brands that share
their personal values. It is for this reason that our Responsibly Joules ethos is
more important than ever. From the day Joules started with nothing more than
a table in a field, to the brand our customers know and love today, we have
always been conscious of our impact on the environment, the wildlife within it,
the people we work with, and the communities where we operate. We work
hard to make sure that what we do is right and are committed to fighting for the
environment that inspires us. Further details on our Responsibly Joules strategy
and activity during the year can be found on page 34 of this Annual Report.
The strength of the brand was again recognised by being named winner in the
Mainstream Brand of the Year category at the 2019 edition of the prestigious
Drapers awards. Joules picked up the accolade for the third time in four years
with the judges commending the exceptional strength and relevance
of the brand.
Multi-channel business model
Joules has been developed as a truly multi-channel business. We distribute our
products to customers seamlessly across multiple channels, enabling customers
to engage with and shop the brand wherever, whenever and however they
choose. Our flexible and integrated approach balances the Group’s exposure
to any single route to market in what is set to become an even more dynamic,
competitive and increasingly digital-led retail landscape. We continue to
believe the flexibility of our ‘Total Retail’ approach will remain critical to Joules’
ongoing expansion and future success.
16 CHIEF EXECUTIVE’S REPORT
CHIEF EXECUTIVE’S REPORT 17
CHIEF EXECUTIVE'S REPORT
FY20 BUSINESS REVIEW
FY20 BUSINESS REVIEW
Joules delivered a resilient performance in the year to 31 May 2020 ("FY20" or the "Period") despite facing challenging external trading conditions in the UK
throughout the year, which resulted in high levels of promotional activity across the sector, as well as additional COVID-19-related disruption during the final
months of the Period. We made further pleasing progress against our strategic goals including investing to strengthen our flexible ‘Total Retail’ model; enhancing
our UK and US supply chain operations to support our growth plans; and launching an exciting new digital marketplace called 'Friends of Joules' to deepen our
customer relationships.
FY20 STRATEGIC PROGRESS
The Group’s Strategic 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.
The Group’s financial KPIs are covered in the Financial Review of this Annual Report.
STRATEGIC KPIs
Online % of Retail
FY16
FY17
FY18
FY19
FY20
32.1%
34.8%
38.4%
49.5%
Number of stores1
FY16
FY17
FY18
FY19
56.6%
FY20
92
105
119
125
128
Total selling space1 (‘000 Sq. ft.)
International as % of total revenue
FY16
FY17
FY18
FY19
FY20
10.1%
11.5%
13.1%
16.1%
15.5%
FY16
FY17
FY18
FY19
FY20
Active customer numbers2 (‘000)
FY17
FY18
FY19
FY20
107
132
159
175
182
991
1,230
1,394
1,428
1 Joules retail stores only, excludes concessions and franchise stores; 33 concessions operated at May 2020 (33 at May 2019; 5 at May 2018 and previous years) and 3 franchises.
2 Customer registered on our database who has transacted in the last 12 months. Prior years restated to reflect enhanced customer database matching processes.
18 CHIEF EXECUTIVE’S REPORT
CHIEF EXECUTIVE'S REPORT
FY20 BUSINESS REVIEW
Despite the external challenges we faced during FY20, and particularly those encountered during the final months of the year as a result of COVID-19 and the
internal, previously reported, stock availability issue that impacted our e-commerce sales over the Christmas trading period, I am pleased with the significant
progress made by Joules across each pillar of our growth strategy:
INCREASING CUSTOMER VALUE
The Joules brand continued to expand during FY20, with brand awareness*
increasing by 3.1%pt and brand health* achieving its highest ever levels. The
Group’s customer base also continued to increase, with 1.43 million active
customers at the end of the Period (FY19: 1.39 million). At the end of the year
we had more than 560,000 Facebook followers (FY19: 530,000) and more
than 300,000 Instagram followers (FY19: 240,000), with these communities
continuing to demonstrate high levels of monthly engagement. These
encouraging metrics continue to underpin our excitement and confidence in the
significant future growth opportunities for the business.
We have continued to invest in marketing the brand in our own unique way,
with emphasis on digital channels. Before Christmas 2019 we launched our first
ever digital Christmas ad in collaboration with the much-loved duo
Wallace and Gromit who, similarly to Joules, also celebrated their milestone
30th year in 2019. The campaign, titled ‘Christmas at the Click of a Button’,
was incredibly well received by customers.
We continue to innovate new ways to drive customer value and, towards
the end of 2019, we were delighted to launch a significant new customer
initiative in the form of our new digital marketplace, 'Friends of Joules'. Through
'Friends of Joules' we have partnered with hundreds of like-minded creative
people and businesses in order to offer our customers everything they could
ever need for a contemporary country lifestyle. Our digital marketplace aims
to replicate and make accessible to customers the experience of walking
around and exploring a bustling market town from the comfort of their own
home. Customers have responded very positively to the curated ranges that
are now integrated into our online platform and sales have been ahead of our
initial expectations. Moving forward, we will continue to add new sellers to
the platform and anticipate seeing a positive impact on customer acquisition,
retention and value.
DRIVING TOTAL UK BRAND SALES – ‘TOTAL RETAIL’
E-commerce sales, including sales through third party retail concession models,
now represent more than half of all retail sales. E-commerce sales increased
by 5.0% with e-commerce sales through the Group’s own channels increasing
by 10.8%. The growth in our customer base helped to drive traffic to Joules’
e-commerce websites of more than 20% above the prior year.
We made further improvements to our digital customer proposition during the
year including the launch of 'Friends of Joules', extending order cut-off times
for next day delivery, and enhancing our web front end user experience with
improved check-out experience, enhanced search functionality and new
payment methods including ApplePay and Klarna’s 'buy now, pay later' service
to provide more options and flexibility to our customers.
Whilst the Group’s overall online sales performance for the year was
impacted by a one-off stock availability issue through the important end of
Autumn/Winter season sales period, the underlying cause of which has been
addressed, as well as restricted capacity in the final quarter of the year as we
managed the impact of the COVID-19 pandemic, we have been incredibly
encouraged by the strong customer demand through our e-commerce channel
and plan to continue to invest in further driving digital sales in the year ahead.
*Brand Awareness and Brand Health are measured as part of an independent
YouGov consumer survey.
Joules’ stores are in desirable locations and we continue to believe that they
play an important role in the ongoing expansion of the Joules brand in the UK,
as well as in our customers’ digital purchase journeys, with digital transactions
such as click & collect, order-in-store and online returns representing over 20%
of all store transactions in the Period.
We ended the Period with 128 stores, three more than at the start of the Period.
We opened stores on a very selective and targeted basis - considering the role
they play in new customer acquisition and brand awareness alongside flexible
rent arrangements that are better suited to the current retail environment.
We continue to actively manage our store portfolio and successfully
completed several lease renewals on attractive, flexible terms during the
Period. Across the Group’s portfolio of 128 stores, a large proportion are in
‘lifestyle locations’ and over a third of the portfolio has a lease event within the
next 18 months. In the context of our store portfolio management, and rebased
store sales forecasts following the impact of COVID-19, we have booked an
impairment charge of £15.8 million in relation to those stores where their cash
flows through to the next lease break does not support the carrying value of the
store asset. Two-thirds of this impairment relates to 15 of the Group’s stores. If
we cannot achieve suitable rent terms for these stores at the next lease event,
we will relocate or close in these locations.
We will continue to carefully appraise new openings in attractive locations
that are appropriate for our brand and product range and where flexible and
attractive leases can be secured.
Whilst wholesale remains an important distribution channel for the brand,
particularly in our international markets, in FY20 the Group operated a smaller
base of wholesale accounts in the UK reflecting the transition of some of
our larger accounts to the retail concession model in the prior year. Sales
through our UK wholesale partners during the Period were also impacted
by sector-wide trading pressures as a result of lower footfall and subdued
consumer confidence which impacted our smaller, typically high-street located
‘field’ accounts. In addition, our wholesale partners were heavily impacted
by disruption resulting from the COVID-19 pandemic during the final months
of the year. As a result of these factors, wholesale sales in the Period were
approximately £42.7 million, a reduction of 25.3%.
INTERNATIONAL EXPANSION
The Group’s international expansion is focused on establishing and growing the
Joules brand in selected international markets, primarily the US and Germany,
through wholesale partnerships and local currency e-commerce channels.
During the Period, international revenue was £29.5 million (FY19: £35.1m) and
represented 15.5% of Group revenue (FY19: 16.1%).
Our international e-commerce sales were up by 25% in the first three quarters
of the year reflecting our growing customer base and continued positive
responses to our brand and products in the US, Germany and across other
international markets. With the final quarter being heavily impacted by
international distribution restrictions due to COVID-19, the full year increased
by a more modest 11%.
CHIEF EXECUTIVE’S REPORT 19
CHIEF EXECUTIVE'S REPORT
FY20 BUSINESS REVIEW
We also continued to increase our social media and digital marketing activity
in the US resulting in encouraging levels of customer engagement.
International wholesale faced challenging trading conditions through the year
and was heavily impacted by the closure of most of our wholesale partners
retail outlets through the final quarter.
Overall, we remain highly confident in the resonance of our brand in our target
markets of the US and Germany and believe we are well positioned to resume
growth in these markets as the trading environment normalises.
PRODUCT & BRAND EXTENSION
We continue to extend the brand into new product categories that are
complementary to our core clothing ranges and relevant to our customers’
lifestyles. We do this by partnering, typically on a licence basis, with carefully
selected businesses that align to Joules’ values. We continue to take a very
disciplined approach to establishing partnerships with a focus on home and
gifting categories which complement our clothing ranges.
Our existing partnerships performed well during the year. The Joules sofa range
in partnership with DFS has continued to perform particularly well, supported
by the addition of the new Patterdale sofa to positive customer response.
During the year we also launched a men’s formalwear range in partnership
with Next plc, a collection comprising suits, jackets, shirts, ties, pocket squares
and shoes. Each item in the collection features Joules’ distinctive designs,
attention to detail and tailoring, and uses quality British fabrics which reflect the
British countryside roots on which our brand is built. We have been pleased
with the customer reaction so far.
During the year we were delighted to win in two award categories at
the Brand & Lifestyle Licensing Awards (B&LLA), which celebrate the best
performers in product licensing. We were honoured to win in the Best Licensed
Gifting Product category for our stationery and gifting collection created
in partnership with Portico. We were also pleased to have the continued
development of our licensing category recognised when we were named Best
Licensed Fashion or Talent Brand.
Our new 'Friends of Joules' digital marketplace has given us an additional
channel to extend Joules’ reach and customer offering into new product
categories that are relevant to our customers’ lifestyles. In the years ahead we
are aiming to continue to expand the sellers and options available to customers
through 'Friends of Joules' to offer an increasingly broad range of curated and
relevant products to our customer base.
INVESTING IN INFRASTRUCTURE TO SUPPORT LONG TERM GROWTH
To support the Group’s long-term growth plans, we have made further
investments in our e-commerce proposition, stores, infrastructure, systems
and colleagues.
During the second half of the year we began a supply chain modernisation
programme across both our UK and US operations aimed at building future
capacity for growth, enhancing efficiencies and improving customer service
levels. In the UK, we extended the lease for our Corby Joules Distribution
Centre (“JDC”) and completed the outsourcing of our JDC operations to
Clipper Logistics plc. We also commenced an investment programme at the
JDC, which will continue for the remainder of 2020, that will expand capacity
and modernise the facilities to support Joules in its aim to continue to meet
customer demand into the future. In the US, during the second half of the
year we transferred to a new third-party logistics provider in order to add
additional capacity for our future growth and deliver operational efficiencies.
These supply chain initiatives incurred incremental and non-recurring costs
during the transition phase but are expected to deliver significant benefits from
FY22 onwards.
In addition, during FY20 we completed the roll-out of our new point-of-sale
system to the entire store estate which will deliver even greater integration
between channels in our ‘Total Retail’ approach, including enabling
much simpler order-in-store capability and visibility of customer activity
across channels.
We continue to make progress on the development of our new Head Office
in Market Harborough which, following COVID-19-related disruption, we
expect to move in from early 2021. This new environment, which will bring all
Head Office business functions together under one roof, will be an important
driver of our culture, creativity and efficiencies moving forward. Our team's
amazing response - seamlessly adapting to new ways of working - through
the lockdown period demonstrates the benefits of more flexible and remote
working. The new Head Office development layout has been reviewed and
adapted to enable us to continue to maximise the benefits of this including
more touch-down spaces and open collaboration and meeting areas.
Our trade showrooms will also be incorporated into the office with advanced
'digital showrooming' capability.
OUR TEAM & THE JOULES COMMUNITY
Throughout my time with the Group so far, I have been struck by the talent and
commitment of our colleagues, from our store and international teams to our
Head Office. These attributes have been highlighted during the recent period
of COVID-19-related disruption. Our teams have shown fantastic flexibility
during this very challenging period and I would like to thank them for their
continued hard work and dedication.
Throughout recent months, and in order to support the COVID-19 response
discussed above, we have also received fantastic support from our suppliers,
landlords, business partners, financial stakeholders and customers. I would like
to take this opportunity to thank everyone across the Joules community for their
ongoing support for our business and brand.
20 CHIEF EXECUTIVE’S REPORT
CHIEF EXECUTIVE'S REPORT
FY20 BUSINESS REVIEW
LOOKING AHEAD
I remain highly confident in the significant long-term opportunities for Joules.
We have a fantastic brand, a flexible business model and a relevant growth
strategy. Our strategic focus over the coming years will be to build on our
strong foundations for continued growth by delivering the following priorities:
Growing brand presence
We have a loyal customer base and strong customer relationships.
Our priority will be to continue to attract more new customers to the brand
and grow customer numbers both in the UK, where we still have significant
room to increase brand awareness, as well as across our targeted
international markets.
Developing one strong team
We have an incredibly talented and committed team of colleagues across
our business. Our priority is to continue to attract, develop, reward and retain
this talent. We are committed to building on our, already strong, colleague
engagement and firmly believe that committed and highly engaged colleagues
are central to the successful delivery of our growth strategy. The Black Lives
Matter movement has, rightly, shone a light on diversity and inclusion. As a
business, we need to work harder to ensure that diversity is better represented
across many areas of our business including our teams. The Joules leadership
team with support from colleagues across the business is actively working on a
range of activities so that we can listen, understand, learn and do better.
Being increasingly digitally led
To further build our customer base, we will need to be increasingly digitally led
in our marketing and sales focus. The investments made in recent years into our
digital channels have driven e-commerce sales to represent half of our retail
sales and I strongly believe that we now have a great opportunity to build
on this platform and ramp-up our e-commerce market penetration. We will
continue to consider the appropriate shape and size of our retail store estate,
including renegotiating leases where appropriate to ensure that our store estate
remains highly relevant to our customers and contributes to our
'Total Retail' model.
Taking international to the next level
We know that the brand resonates well with customers in the US and Germany.
We believe that we have a fantastic opportunity to leverage our differentiated
core rainwear and outerwear products as a real point of difference in these
international markets so that we can extend our wholesale reach and build
customer awareness. This will be supported by investment in a digital,
direct-to-consumer approach to driving sales.
Delivering product with purpose
Joules is loved by its customers for its unique prints, use of colour and product
quality. We must build on this by ensuring that our products and collections
always have a clear purpose. This means being design and not fashion led,
being innovative in our market so that our core products stand-out with our
trademark details that surprise and delight customers and ensuring that our
products are responsibly sourced.
Protecting our financial position
As detailed above, we have taken several actions to preserve cash resources
over recent months in response to the severely disrupted trading patterns
seen across our global markets. Going forward we will maintain our firm
focus on liquidity and reducing net debt, including those payments that have
been deferred.
Driving fit and focussed business operations
I have been incredibly proud of the efficiency and flexibility shown by the
Group during the COVID-19 related lockdown. We have a great team
and culture, but there are ways that we can work smarter and more efficiently
through streamlined decision making, removing complexity and enhancing
our communications across teams. The transition to increased remote working
and the move to our new, more collaborative Head Office environment gives
us a great opportunity and catalyst to be an even more efficient,
nimble organisation.
In addition, we will focus on investing and deploying our resources into areas
of the business that will drive our long-term development.
At the core of the above is our Responsibly Joules approach to sustainability
and social responsibility. Responsibly Joules sets out the framework and
principles that underpin ‘how we do things’ and ‘what we do’. These principles,
that have been central to the Joules brand since we started in the fields of
Great Britain over 30 years ago, have never been more important that they are
now and, in the years, ahead.
NICK JONES
Chief Executive Officer
21
22 FINANCIAL REVIEW
FINANCIAL REVIEW
JOULES GROUP PLC
The challenges faced in the final quarter of the Period, as the impact of the COVID-19 global pandemic fully and rapidly materialised are unprecedented in
modern times and certainly not experienced since Joules started trading more than thirty years ago. Despite a material impact upon revenue and profitability in the
Period, the Group’s response, as we entered the crisis, and positioning, as we emerged out of the UK lockdown, highlight many of Joules’ strengths and its ability to
navigate potential further disruption and volatility as well as capitalise on the growth opportunities.
These include:
• Brand strength and momentum, with increasingly relevant products and a loyal customer base
• Flexible and agile business model with over half of revenue from digital platforms prior to COVID-19
• Well invested infrastructure to support the business model, with further enhancements to the Group’s logistics capabilities completed in the second half of
the year
• Supportive shareholders, lenders and suppliers
• Experienced, capable and decisive leadership team
Following a robust first half trading performance across the business, the second half of the year started with a stock availability issue that impacted our e-commerce
performance over the important Christmas trading period and closed with the COVID-19 pandemic materially impacting our final quarter (March to May).
COVID-19 - IMPACT ON THE GROUP’S FINANCIAL
POSITION AND RESULTS FOR THE PERIOD
The CEO's Report provides detail on the impact of COVID-19 on the Group’s
sales channels and operations together with the actions taken to reduce costs,
preserve cash and strengthen the Group’s financial position. The financial
impact in the Period is summarised below, with more detail, where appropriate
included in the relevant section of this Financial Review.
Impact on business operations and sales channels
• The Group’s stores experienced materially lower footfall and sales from
early March, and were all closed from the weekend of 21/22 March
through the rest of the Period with phased re-openings commencing from
15 June
• No country shows or events were attended since mid-March onwards
• Wholesale despatches slowed to effectively nil through the final quarter as
our wholesale partners across the world closed their own retail locations
• The Group’s UK e-commerce channel remained open through the
lockdown period, initially operating at a reduced capacity due to
warehouse constraints, but quickly recovering to deliver very strong growth
across the last seven weeks of the Period
• Group revenue for the final two months of the year, although materially
down on the comparable prior year period, was significantly ahead of
management's COVID-19 base forecast that was prepared in March
2020, driven by UK e-commerce performance.
Actions taken to reduce costs
• Variable costs: including turnover rents, merchant fees, distribution costs
and, to a lesser extent, utilities and travel & expenses that naturally reduced
with declining sales activity
• Payroll costs: The Government’s Coronavirus Job Retention Scheme
(‘CJRS’) subsidised a large proportion of payroll costs for store colleagues,
all furloughed from 23 March, and for approximately a third of Head
Office colleagues furloughed from 1 April. In addition, from 1 April all
non-furloughed colleagues agreed to a voluntary pay reduction for a
four-month period.
Actions taken to preserve cash and enhance the Group’s financial position
and liquidity
• Inventory purchase commitments were reduced and rephased – in
collaboration with our suppliers
• Capital expenditure projects, including the Head Office development,
were paused
• Rent deferral arrangements were agreed with the majority of the
Group’s landlords
• Agreements were reached with HMRC to defer VAT and PAYE
• In April the Group raised gross proceeds of £15.0 million from an
equity placing and agreed a £15.0 million increase to its Revolving
Credit Facility.
Financial position, liquidity and going concern
At 31 May 2020, the Group had net cash of £4.5 million, comprising cash
of £26.2 million and total borrowings of £21.7 million. The Group had
£52.5 million total liquidity headroom at 31 May 2020, comprising cash of
£26.2 million and £26.3 million of undrawn committed financing facilities.
The cash and liquidity headroom position were both significantly ahead
of management's COVID-19 base case and downside case projections
prepared in late March.
The Directors’ have concluded that it is appropriate to prepare the financial
statements on the going concern basis. Further detail on financial position,
liquidity and going concern assessment is provided later within this
Financial Review, the Directors Report and note 1 of the Consolidated Financial
Statements.
FINANCIAL REVIEW
JOULES GROUP PLC
SUMMARY INCOME STATEMENT
PERIOD ENDED
£MILLION
Revenue
Gross profit
Operating expenses
Share-based compensation
EBITDA - before exceptional cost
Depreciation & amortisation
Operating profit – before exceptional costs
Net finance costs
PBT - before exceptional costs
Reconciliation to reported result:
Operating profit – before exceptional costs
Exceptional costs
Operating profit
Net finance costs
Statutory PBT
FINANCIAL REVIEW 23
MAY 2020
MAY 2019
PRE-IFRS 16
IFRS 16
REPORTED IFRS 16
REPORTED IAS 17
190.8
96.8
(92.0)
0.4
5.1
(6.8)
(1.7)
(0.4)
(2.0)
-
-
12.2
-
12.2
(12.6)
(0.4)
(1.4)
(1.8)
190.8
96.8
(79.8)
0.4
17.4
(19.5)
(2.1)
(1.8)
(3.9)
(2.1)
(21.5)
(23.6)
(1.8)
(25.3)
218.0
119.4
(95.9)
(2.6)
20.9
(7.8)
13.1
(0.3)
12.9
13.1
-
13.1
(0.3)
12.9
PROFIT/(LOSS) BEFORE TAX (‘PBT’)
PBT before exceptional costs and the impact of IFRS16 - Leases was a loss of £2.0 million (FY19: £12.9m profit). The transition to IFRS16 had a net impact on
PBT – before exceptional costs of £1.8 million (FY19: nil), resulting in a £3.9 million loss before tax and exceptional cost for the Period. This result reflects the impact
of COVID-19 on the final quarter of the Period - that is estimated to have negatively impacted PBT by £12.5 million in the Period*, the previously reported stock
availability issue over the Christmas trading period and includes non-recurring costs of £2.4 million as detailed further below.
In prior Periods, Underlying PBT was reported as the Group’s primary non-GAAP metric. Underlying PBT is stated before share-based compensation, the
impact of IFRS 16 (Leases) and exceptional costs. From FY20 onwards, share-based compensation charges are reported ‘above the line’ so an Underlying PBT
measure is no longer considered relevant. For comparison with last year Underlying PBT would be a loss of £2.4m (FY19: £15.5m profit).
Statutory PBT, which includes an exceptional impairment charge of £21.5 million in the Period, was a loss of £25.3 million (FY19: £12.9m profit). The non-cash
exceptional impairment charge is detailed further on the next page.
*COVID-19 PBT impact estimated with reference to the revenue impact over the impacted period at the channel average gross margin rate, adjusting for variable cost savings,
government support (rates relief, CJRS), management’s cost actions and the impact of wholesale customer returns, discounts or receivables write-off.
24 FINANCIAL REVIEW
FINANCIAL REVIEW
JOULES GROUP PLC
FACTORS IMPACTING GROUP RESULTS
Our reported results for the period were impacted by the following:
IFRS16 - LEASES
The Group adopted IFRS16 – Leases from the start of the Period, applying the
modified retrospective approach with no restatement of the prior year. On
transition at the end of FY19, qualifying lease commitments have been brought
onto the balance sheet, as both a ‘Right-of-use’ asset and a corresponding
lease liability. On adoption, the Group recognised a 'Right-of-use' asset of
£58.7 million and a lease liability of £56.4 million. The 'Right-of-use' asset at
the end of the Period was £32.0 million, the movement in the year comprising:
net additions, disposals and modifications of £2.7 million; impairment of
£(16.7) million; and depreciaition of £(12.6) million. The net impact on PBT
before exceptional costs for the Period was £(1.8) million, comprising £12.2
million add back of rent expense, £(12.6) million depreciation of the right of
use asset and, £(1.4) million interest expense on the lease liability.
Further detail on the impact of IFRS16 is provided in the Consolidated
Financial Statements.
SHARE-BASED COMPENSATION
Share-based compensation reflects the IFRS2 accounting standard treatment
for the non-cash expense in relation to employee share plans. These include
long-term incentive plans, deferred bonus awards and, Save-as-you-Earn
(“SAYE”) plans as detailed in the Consolidated Financial Statements and the
Directors’ Remuneration Report. In the Period an income of £0.4 million was
recognised (FY19: £(2.6)m expense) following a revision to the projected
achievement of the current share plans’ performance targets.
NON-RECURRING COSTS
During the Period the Group incurred non-recurring costs of £2.4 million (FY19:
£nil). These relate to:
• Distribution centre (DC) transformation programme costs of £1.7 million.
This programme commenced and completed in the Period and included
the outsourcing of the UK DC to Clipper Logistics plc and the transition of
our US DC to a new third-party partner. £1.3 million of the cost was in
operating costs and £0.4 million in cost of goods sold
• COVID-19 impacts on our wholesale sales channel has resulted in a non-
cash write-down of £0.7 million in relation to certain wholesale customer
receivable balances. The write-down reflects management’s assessment,
based on historic trading patterns, of the incremental expense relative to
normal trading.
The UK Financial Reporting Council (FRC) issued guidance on 20 May 2020
on reporting for the treatment of incremental costs in relation to COVID-19.
In accordance with this guidance, the non-recurring costs of £0.7 million in
relation to wholesale receivables has not been treated as exceptional costs or
adjusted for in a non-GAAP measure.
EXCEPTIONAL COSTS
The Group regularly conducts a review of its assets to identify if there is any
impairment to the carrying value of the assets. This review incorporates the
impact of IFRS16 - Leases, where property leases are now capitalised as a
‘Right-of-use’ asset on the balance sheet.
An exceptional impairment charge of £21.5 million (FY19: £nil) has been made
in the Period. £21.0 million of the charge is non-cash in nature, as detailed
below, and £0.5 million is restructuring costs incurred in the Period.
Stores impairment £15.8 million: An impairment assessment has been
undertaken for each individual store on assumptions consistent with
management’s COVID-19 base case as used for the Group’s going concern
assessment. For stores where the value-in-use (discounted future cash flows to
the lease break) was below the carrying value (IFRS16 ‘Right-of-use’ asset and
net book value of store fixed assets) an impairment charge has been made.
Five stores make up one third of the impairment charge, with a further ten stores
making up another third. We anticipate that we will relocate or close these
stores at the lease break if we are not able to agree economically viable lease
renewal terms.
Head Office & showroom lease impairment £3.8 million: As previously
communicated, we are relocating our Head Office to a newly developed
freehold site in Market Harborough that also enables consolidation of existing
rented showroom space. A non-cash exceptional impairment charge has
been made against the ‘Right-of-use’ asset for the current rented offices and
showrooms, assuming a 30-month period of vacancy until the leases expire or
are assigned. Fixed assets that will not be moved to the new location have also
been impaired.
Other assets impairment £1.4 million: mainly includes the impairment of certain
fixed assets no longer in use following our distribution centre transformation
programme.
FINANCIAL REVIEW
JOULES GROUP PLC
FINANCIAL REVIEW 25
GROUP PERFORMANCE IN THE PERIOD
REVENUE
Group revenue decreased by 12.5% to £190.8 million (FY19: £218.0m).
Revenue for each of our reporting segments is summarised below.
£million
RETAIL
E-commerce
Stores
WHOLESALE
OTHER
GROUP
FY20
145.9
82.7
59.6
42.7
2.2
FY19
159.1
78.7
75.9
57.1
1.8
Variance
-8.3%
5.0%
-21.4%
-25.3%
24.1%
190.8
218.0
-12.5%
The impact of COVID-19 on the final quarter of the Period is an approximate
£31 million reduction in revenue. With an £18 million adverse impact on Retail
sales and a £13 million adverse impact on Wholesale sales. This estimate is
based on management’s forecast for the period, sales run rates just prior to the
final quarter and sales in the comparable period last year.
RETAIL
Retail revenue decreased by 8.3% to £145.9 million. For the first half, the
Group reported retail revenue growth of 3.1% (adjusted for Black Friday
timing1). On the same basis, the second half of the year, impacted by
COVID-19 and the stock availability issue over the Christmas period, saw a
year-on-year reduction of 22.4%.
versus the comparable period. Traffic growth was up by more than 40% in
the same period, with improved conversion rates also experienced. Overall
e-commerce revenue growth was held back by the closure of our international
and 3rd Party e-commerce channels for a large part of the period.
E-commerce now represents 56.6% of all retail sales (FY19: 49.5%). For
the first nine months of the Period, prior to stores being closed, e-commerce
represented 50.9% of retail sales.
Stores
Stores declined by 21.4% in the Period. For the first three-quarters of the year,
store sales declined by approximately 8%, reflecting structural industry trends
and reduced promotional stance in the first half of the year. Notwithstanding
their temporary closure through most of the final quarter, stores are an
important part of our flexible ‘Total Retail’ model. At the end of the Period,
the Group operated 128 owned stores, in addition to 33 concessions and
three franchises.
WHOLESALE
Wholesale revenue decreased by 25.3% to £42.7 million, compared to
underlying growth of 22% in the prior year (adjusting for the conversion of two
large wholesale accounts to retail concessions in FY18). In the first half of the
year, wholesale revenue declined by 5.1% reflecting the timing of wholesale
despatches and a softer EU wholesale market. In the second half, wholesale
revenues declined by approximately 50% as nearly all wholesale partners
globally closed or contracted their operations in response to COVID-19.
The adverse impact of COVID-19 was partly mitigated by the Group’s flexible
‘Total Retail’ model. This enabled us to continue to trade our e-commerce
channel effectively through the period of COVID-19.
International wholesale now represents half of total wholesale sales
(FY19: 48%).
E-commerce
E-commerce performed well, with growth of 5.0% in the Period, building
on very strong growth in recent years. Our owned e-commerce channels
performed particularly well, with growth of nearly 11% in the Period, supported
by increased website traffic, driven by effective digital marketing activities
and improved conversion, driven by ongoing enhancements to the customer
experience and digital platforms that make it easier for our customer to shop.
During the period of the UK lockdown, from 23 March 2020, e-commerce
sales via the Group’s own UK website were particularly strong, with demand
sales (sales including sales tax, excluding returns) growth of more than 50%
OTHER
Other revenue increased by 24.1% to £2.2 million (FY19: £1.8m).
Other revenue includes royalties, from the sale of Joules branded products
produced and sold under licence with a partner, including toiletries & gifting in
partnership with Boots and the Joules sofa collections in partnership with DFS.
Commission from the sale of third-party products on the new ‘Friends of Joules’
digital marketplace are also included in Other revenue.
1 Revenue growth for a comparable 27-week period to include the important Black
Friday retail sales period into both the current period and prior periods.
26 FINANCIAL REVIEW
FINANCIAL REVIEW
JOULES GROUP PLC
INTERNATIONAL REVENUE
Total international revenue decreased by 15.8% and now represents 15.5% of total Group revenue (FY19: 16.1%), with disappointing performance in the second
half of the year reversing the growth delivered in the first half.
The appeal of the Joules brand in our target international markets remains strong. E-commerce sales in the US and Germany continued to deliver encouraging
growth despite our websites being closed to customer orders in these markets for a large part of the final quarter, due to COVID-19 restricting operations
of our fulfilment partners. Following the easing of these restrictions international e-commerce sales have returned to the growth levels experienced in the
first nine months of the year. International wholesale decreased by 21.3% (22.8% in constant currency), with many of our international wholesale partners closing
stores in response to COVID-19 earlier than in the UK and adjusting their purchasing accordingly.
£MILLION
UK
International
TOTAL
PERIOD ENDED
SHARE OF GROUP REVENUE
31 MAY 2020
26 MAY 2019
£161.3
£29.5
£190.8
£182.9
£35.1
£218.0
INCREASE/
(DECREASE)
(11.7)%
(15.8)%
(12.5)%
FY20
84.5%
15.5%
FY19
83.9%
16.1%
100.0%
100.0%
GROSS MARGIN
Gross margin at 50.7% was 4.1% points lower than the prior year, impacted by an increased mix of e-commerce and US wholesale sales and a higher than usual
level of Q4 promotional activity and wholesale discounts.
Retail gross margin of 56.9% was 3.7% points lower than the prior year, impacted by the increased mix of e-commerce sales (with stores closed for most of Q4),
which have a lower gross margin than store sales. There was a higher level of promotional activity to drive customer demand in the final quarter and, as reported
at the half year, we also saw an increased level of customer participation in core annual promotional events.
Wholesale gross margin of 27.1% was 10.0% points lower than the prior year, resulting from an increased mix of US wholesale as a proportion of total wholesale
sales and the provision for a higher than usual level of returns and customer discounts in the final quarter of the year.
ADMINISTRATIVE EXPENSES
Total administrative expenses before exceptional costs decreased by 6.9% to £98.9 million (FY19: £106.3m).
Prior to the impact of IFRS16 – Leases, operating expenses (being administrative expenses excluding share-based compensation and depreciation & amortisation)
decreased by 4.0% to £92.0 million (FY19: £95.9m).
The final quarter of the Period benefitted from lower costs related to COVID-19, including: management’s cost reduction actions; lower variable costs linked to
reduced sales activity; and, UK Government support initiatives, including business rates relief and the Coronavirus Job Retention Scheme (CJRS). These government
support initiatives improved Q4 costs by approximately £3.0 million.
As referenced above, the Group incurred non-recurring costs of £2.4 million in relation to the UK and US distribution centre transformation programmes and the
write-off of wholesale receivables due to COVID-19. Of the total non-recurring cost £2.0 million is within operating costs and £0.4 million in Cost of Sales.
FINANCIAL REVIEW
JOULES GROUP PLC
FINANCIAL REVIEW 27
£MILLION
Operating expenses
Share-based compensation
Depreciation & amortisation
Administrative expenses (before exceptional costs)
Exceptional costs
Administrative expenses
FY20
FY19
PRE-IFRS16
IFRS16 IMPACT
REPORTED
REPORTED
92.0
(0.4)
6.8
98.5
(12.2)
-
12.6
0.4
79.8
(0.4)
19.5
98.9
21.5
120.4
95.9
2.6
7.8
106.3
-
106.3
Sales costs decreased by 8.2% to £12.2 million (FY19: £13.3m). Sales costs
reflect commissions due to third-party retail concession partners and wholesale
sales agents. The decline in the year is a result of lower third-party retail sales
in the final quarter.
Marketing costs decreased by 2.7% to £9.3 million (FY19: £9.5m). For the
first three-quarters of the year, we increased digital marketing investment by
nearly 30%, focused on new customer acquisition, customer retention and
social media in the UK and target international markets, the results of which
are reflected in the strong e-commerce performance and customer and brand
metrics. In the final quarter, we reduced all channel marketing and new
customer acquisition spend.
Store costs decreased by 11.7% in the year to £27.9 million (FY19: £31.6m).
For the first three quarters of the year store costs were broadly level with the
prior year, reflecting strong cost control and the initial benefit of reduced store
rents realised through our ongoing store portfolio management programme. In
the final two months of the Period, a large proportion of store costs were offset
by the CJRS and business rates relief.
Distribution costs increased by 19.1 % in the year to £9.9 million (FY19:
£8.4m). Excluding non-recurring costs, distribution costs were level with the
prior year, with the growth in UK e-commerce being offset by the reduction in
activity to support other sales channels through the final quarter of the year.
In the second half of the Period we completed the outsourcing of our UK
distribution centre to Clipper Logistics plc and, in the US, we moved our
wholesale distribution centre from a third-party in New Jersey, to a new
provider based in Georgia. These initiatives incurred non-recurring costs
of £1.3 million in the Period. The completion of the distribution centre
transformation initiatives in the UK and the US will provide the Group with
a robust, well invested and efficient logistics platform that is anticipated to
support future growth over, at least the next five years, with both improved
service levels and unit cost economics.
Head Office costs decreased by 1.1% in the year to £32.7 million (FY19:
£33.1m). In the first three quarters of the year, costs increased by 4.1% against
the comparable period, a slower rate of growth relative to prior years as we
realised benefits from historic investments in Head Office functions and teams
whilst continuing to invest in areas of strategic growth including creative,
design, digital and e-commerce. The final two months of the year saw a
significant temporary reduction in Head Office costs following management‘s
COVID-19 actions and the benefit from the UK Government CJRS.
Depreciation and amortisation (excluding IFRS16) decreased to £6.8
million (FY19: £7.8m), with higher amortisation charge due to the ERP platform
completed in the prior period and a new store point-of-sale solution completed
in the Period being more than offset by several stores being fully depreciated
and lower levels of capital expenditure. Depreciation of IFRS16 right-of-use
asset was £12.6 million in the period.
IFRS16 – Leases net impact on administrative expenses of £0.4 million
(FY19: na) comprising of the right of use asset depreciation charge of £12.6
million partly offset by the exclusion of rent expense of £12.2 million in
the Period.
NET FINANCE COSTS
Net finance costs were £1.8 million (FY19: £0.3m). Net finance costs
comprise interest on lease liabilities £1.4 million (FY19: £nil) following the
Group’s adoption of IFRS16 - Leases, and interest and facility charges of
£0.4 million (FY19: £0.3m) on the Group’s Revolving Credit Facility and term
loan with Barclays Bank PLC.
TAXATION
The Group recognised a tax credit of £4.6 million in the Period (FY19: £2.7m
charge) reflecting the Group’s loss in the Period. The effective tax rate for the
Period was 17.8% (FY19: 21.0%), which was lower than the applicable UK
corporation tax rate largely due to the net deduction in respect of share-
based compensation and the impact of recalculating deferred tax balances
(following the UK tax rate being maintained at 19%, reversing the previously
enacted change from 19% to 17% from April 2020) net of non-deductible
expenditure and fixed asset timing differences.
EARNINGS PER SHARE
Statutory basic earnings per share for the Period, were (22.07) pence
(FY19: 11.6 pence).
The weighted number of shares in the Period were 93.8 million (FY19: 87.7
million). The increase in the Period resulting from shares issued to employees of
the Group as share plans vested and the equity placing completed in the final
quarter of the Period.
28 FINANCIAL REVIEW
FINANCIAL REVIEW
JOULES GROUP PLC
EQUITY PLACING
On 3 April 2020 the Company announced the completion of an equity
placing, conducted by way of an accelerated bookbuild, to provide the
Company with additional liquidity in response to the impact of COVID-19.
a collaborative working environment and facilitate remote working to a
significantly greater degree than our current offices. On completion the
Group will vacate all leased Head Office space in Market Harborough and
consolidate its separately leased showroom space.
A total of 18,750,000 new ordinary shares of 1 pence each were placed at a
price of 80 pence per share, raising £15.0 million gross proceeds. Following
admission of the placing shares, the Company's issued and fully paid share
capital consisted of 108,135,920 ordinary shares.
CASH FLOW
Free cash flow, excluding expenditure on the new Head Office development,
was £5.0 million inflow in the period (FY19: £8.6m inflow).
£MILLION
EBITDA pre-exceptional costs*
Share-based compensation
Net working capital - change
Cash exceptional costs
Bank interest paid
Lease interest paid (IFRS16)
Tax paid
Cash from operating activities
Capital expenditure - core
Free cash flow (core capex)
Capital expenditure - new Head Office
Free cash flow
Net cash from financing
Net cash flow
FY20
17.4
(0.4)
(2.4)
(0.5)
14.1
(0.4)
(1.4)
(0.9)
11.4
(6.4)
5.0
(7.3)
(2.3)
12.4
10.1
FY19
20.9
2.6
(1.2)
-
22.3
(0.3)
-
(2.9)
19.1
(10.5)
8.6
(1.0)
7.6
(0.4)
7.2
Memo: Total Capital Expenditure
(13.7)
(11.5)
*See sumary Income Statement above for reconcilliation of the non-GAAP measure
CAPITAL EXPENDITURE
Core capital expenditure in the Period was £6.4 million (FY19: £10.5m).
Major areas of capital expenditure included the new store point-of-
sale system, the development and launch of the ‘Friends of Joules’ digital
marketplace and developments to our e-commerce platform.
The Group’s new Head Office development incurred spend of £7.3 million
in the Period (FY19: £1.0m) with cumulative spend to date of £13.8 million,
including £4.4 million for the purchase of the land. The timing for completion
has been extended to early 2021 and the total investment reduced following
actions undertaken to respond to COVID-19. The new building will enable
INVENTORY
Inventory at the end of the Period was £35.3 million (FY19: £35.9m).
In response to COVID-19, the Group, working collaboratively with its suppliers,
took actions to reduce and rephase stock purchase commitments for the current
season (Spring/Summer 20) and the subsequent season (Autumn/Winter 20).
These actions, combined with better than anticipated trading in the final quarter
of the year, relative to management’s COVID-19 downside scenario, enabled
the Group to end the Period with a lower than anticipated inventory balance.
DIVIDEND
Following the actions taken to preserve cash in the light of COVID-19, that
included the deferral of payments due to HMRC and landlords, and with
continued uncertainty on the speed of recovery for many of the Group’s sales
channels, the Board is not proposing a dividend for FY20 (FY19: 2.1 pence
per share). The Board will keep the position under review.
FINANCING FACILITIES AND LIQUIDITY
At the end of the Period the Group had total available facilities of £48.0 million
of which £21.7 million was drawn.
FACILITY
(£MILLION)
Revolving Credit Facility
(RCF1)
Duty bond
(linked to RCF1)
Revolving Credit Facility
(RCF2)
AVAILABLE
FACILITY
31 MAY 2020
DRAWN
FACILITY
31 MAY 2020
MATURITY
£25.0
£12.7
July
2022
£(1.0)
£15.0
-
-
April
2021
December
2023
Term Loan
£9.0
£9.0
Total facilities /
borrowings
£48.0
£21.7
The Group has a £25 million Revolving Credit Facility (RCF1) provided by
Barclays Bank PLC (‘Barclays’) to fund seasonal working capital requirements.
This facility matures in July 2022. In April 2020, the Group established another
Revolving Credit Facility (RCF2), also with Barclays, to provide additional
financial headroom through to April 2021.
The development of the Group’s new Head Office is being funded, in part,
by way of a £9.5 million loan from Barclays. The loan is repayable by way
of quarterly payments of £264,000 and a final bullet payment in December
2023. In April 2020, the Group agreed the deferral of the subsequent
four quarterly repayments, with the deferred amounts added to the final
bullet payment.
FINANCIAL REVIEW 29
that over half of the Group’s retail sales are via e-commerce, that e-commerce
sales have performed strongly during the lockdown period, and that the Group
has diversity in its revenue streams, operating in both owned and third-party
channels across several channels and geographic markets, plus newer income
streams of brand licensing and the Group’s digital marketplace.
Finally, the Directors have noted the support from the Group’s shareholders
and bank, evidenced in the successful equity placing and financing facility
extension completed during the early stages of the UK lockdown plus the extent
and willingness of the UK Government to support good businesses through this
challenging period with support initiatives including business rates relief and the
Coronavirus Job Retention Scheme (CJRS).
In making their assessment the Directors have reviewed management’s forecasts
based on the following trading scenarios:
• Base plan - gradual sales recovery post-COVID-19, reflecting
management estimates for the speed and extent of recovery across
different sales channels and markets. It reflects phased store re-openings
from mid-June 2020 with stores initially trading significantly below prior
years and improving to circa 75-80% of prior year sales by the end of
FY21, with modest growth thereafter. Third-party wholesale channels are
assumed to follow a similar trajectory.
• Downside scenario - the ‘Base plan’ adjusted to reflect a slower recovery
of the Group’s stores channel and a further deterioration in the total
wholesale channel receipts.
The Base plan and Downside scenario indicate that the Group will remain
within its available committed borrowing facilities and in compliance with
covenants throughout the forthcoming 12-month period. Under the Downside
scenario, the Group has more than £25 million available liquidity headroom
through-out the period under consideration and has EBITDA headroom of
£2.9 million against its first covenant test arising in the period with headroom
increasing further for the second covenant test arising in the period. Further
detail on the going concern review can be found in the Director’s Report and
note 1 of the Consolidated Financial Statements.
Taking the above considerations into account, the Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence throughout the forthcoming 12-month period. Therefore,
the Directors continue to adopt the going concern basis of accounting in
preparing the consolidated financial statements.
FINANCIAL REVIEW
JOULES GROUP PLC
NET CASH/(DEBT) AND LIQUIDITY
Net cash at the end of the Period was £4.5 million (FY19: £5.8m).
Cash balances were £26.2 million (FY19: £16.0m) and Group borrowings
were £21.7 million (FY19: £10.2m).
The Group’s total liquidity headroom at 31 May 2020 was £52.5 million,
comprising of £26.2 million cash balances and £26.3 million undrawn
committed financing facilities.
To preserve cash and improve the short-term liquidity position in response to
COVID-19, the Group agreed the deferral of certain liabilities falling due in the
final quarter of the financial year with HMRC and with landlords. At 31 May
2020 the total amount deferred under these arrangements was £6.7 million
(FY19: £nil). The Directors anticipate that these amounts will be repaid over the
period to May 2021.
BREXIT
The Group is preparing for a ‘hard Brexit’ scenario as the UK leaves the
European Union’s single market and customs union at the end of 2020. The
Group’s Brexit task force has been established and several steps have been
taken to mitigate the potential for adverse impact on the Group including AEO
certification and establishing the primary UK logistics facility as a bonded
warehouse. Notwithstanding these mitigating actions, the Group’s wholesale
and e-commerce sales into the European Union could face a period of
operational disruption and potentially increased costs as a consequence of a
hard Brexit.
GOING CONCERN
As for many businesses in the retail sector, the Group has been significantly
impacted by COVID-19. The impact and management’s initial response is set-
out in detail within the CEO’s Report and this Financial Review. Considering the
significant uncertainties faced by the retail sector, the Directors have undertaken
a comprehensive assessment to consider the Group’s ability to trade as a
going concern over the following 12 months.
The Directors have considered the Group’s financial position, it’s committed
borrowing facilities as well as alternative sources of financing (including sale &
leaseback of freehold property and asset financing) that might reasonably be
assumed to be available, as well as the Group’s financial commitments, noting
the relatively short lease commitments, of less than three years on average,
for the store portfolio together with recent progress on renewing leases on
favourable terms.
More broadly, the Directors have considered the strength of the Joules brand,
demonstrated in active customer growth, brand awareness and brand health
metrics, and the flexibility and agility of the Group’s business model, noting
30 PRINCIPAL RISKS AND UNCERTAINTIES
PRINCIPAL RISKS AND UNCERTAINTIES
JOULES GROUP PLC
Set out below are the principal risks and uncertainties that the Directors consider could impact the business. The Board regularly reviews the potential risks facing
the Group and the controls in place to mitigate any potential adverse impacts. The Board also recognises that the nature and scope of risks can change and that
there may be other risks to which the Group is exposed and so the list is not intended to be exhaustive.
The Corporate Governance Report includes an overview of our approach to risk management and internal control systems and processes.
EXTERNAL RISKS
External risks reflect those risks where we are unable to influence the likelihood of the risk arising and therefore focus is on minimising the impact should
the risk arise.
RISK AND IMPACT
MITIGATING FACTORS
Global / Regional Pandemic (i.e. COVID-19)
As the current global pandemic COVID-19 has shown, the implications of such
an event are extreme, sudden and are challenging to mitigate. The impacts of
a global (or regional) pandemic include:
• Supply chain disruption – supplier factory closures and freight disruption
• Customer demand reduction - general consumer mobility restrictions
exacerbated by enforced store closures and/or in-store restrictions
• Supplier impact – increased risks of failure of key suppliers
• Employee – health and wellbeing implications plus restrictions on ability to
Our response to mitigate the immediate and longer-term impacts of COVID-19
are detailed within the CEO's Report and Financial Review.
As evidenced by COVID-19, mitigation of the impacts of a global pandemic
is very challenging. To navigate the challenges and mitigate the potential
adverse impacts on the Group, we have the following established:
• Business Continuity task force, with delegated decision-making authority,
established to rapidly respond to crisis situations
• Well invested, modern IT infrastructure to support remote and agile
undertake day to day operations
working
• Management decision making – potential to be impacted if several
• Short lease terms across store portfolio mitigating adverse financial impact
members of the senior leadership team were to become incapacitated.
of customer demand reduction
• Outsourced UK distribution centre operations to Clipper Logistics plc
providing access to their disaster recovery capability and capacity
The following elements are in progress or under evaluation to provide potential
further mitigation:
• Geographic diversification of product supplier base.
As a premium lifestyle brand with a strong e-commerce channel, a
geographically disperse retail store portfolio and long-standing wholesale
customer accounts, the Directors consider that the UK business would be less
affected by a reduction in consumer expenditure than many other clothing
retailers.
In addition, the property portfolio has short lease terms, providing relative
flexibility to close or relocate stores should this become necessary.
Joules differentiates from competitors through its strong brand and products
that are known for their quality, details, colour and prints. Our large customer
database allows the Group to communicate effectively with customers,
developing customer engagement and loyalty.
The Group’s Treasury Policy sets out the parameters and procedures relating to
foreign currency hedging. We currently seek to hedge a material proportion of
forecasted US Dollar requirement 12-24 months ahead using forward contracts.
The Group’s US wholesale business generates US Dollar cash flows which
provide a degree of natural hedging.
Economy
The majority of the Group’s revenue is generated from sales in the UK to UK
customers. A deterioration in the UK economy may adversely impact consumer
confidence and spending on discretionary items. A reduction in consumer
expenditure could materially and adversely affect the Group’s financial
condition, operations and business prospects.
Two current factors, COVID-19 and Brexit, are increasing the likelihood and
impact of this risk
Competitor actions
New competitors or existing clothing retailers or lifestyle brands may target
our segment of the market. Existing competitors may increase their level of
discounting or promotions and/or expand their presence in new channels.
These actions could adversely impact our sales and profits.
Foreign Exchange
The Group purchases the majority of its product inventory from overseas and is
therefore exposed to foreign currency risk, primarily the US Dollar.
Without mitigation, input costs may fluctuate in the short term, creating
uncertainty as to profits and cash flows.
Brexit has increased volatility in this area that may be sustained or worsen
going forward.
PRINCIPAL RISKS AND UNCERTAINTIES 31
PRINCIPAL RISKS AND UNCERTAINTIES
JOULES GROUP PLC
RISK AND IMPACT
MITIGATING FACTORS
Regulatory and Political
New regulations or compliance requirements may be introduced from time
to time. These may have a material impact on the cost base or operational
complexity of the business. Non-compliance with the regulation could result in
financial penalties.
Recent and on-going US/China trade negotiations with the threat of additional
US tariffs on China manufactured products, as well as the continuing uncertainty
surrounding Brexit, have increased the risk and uncertainty in this area.
Brexit
The on-going potential exit of the UK from the EU adds complexity and
uncertainty across many areas of the Group’s operations that could impact
on our ability to get products to customers in a timely manner and on product
profit margins.
A so-called “no deal” Brexit, whereby there is no free trade agreement
between the UK and the EU, is likely to exacerbate potential impacts on
the Group.
The Group has processes in place to monitor and report to the Board on new
regulations and compliance requirements that could have an impact on the
business. The impact of any new regulation is evaluated and reflected in the
Group’s financial forecasts and planning.
The Group is carefully monitoring the development of US/China trade
negotiations and plans for alternative sourcing strategies are being reviewed
to mitigate against increases in US tariffs on China manufactured products.
The continuing lack of clarity on the nature and timing of the post-Brexit
arrangements make it challenging to plan mitigation strategies effectively.
A Brexit ‘task force’ has been established to monitor and evaluate the potential
impacts of different scenarios and to implement mitigations. Contingency
planning by the task force has been focussed on preparing for a “no deal”
Brexit with input from external advisors as appropriate.
Specific risk areas that could be impacted by Brexit are as follows:
• Political uncertainty: The level of economic and consumer uncertainty has
increased due to the lack of clarity around the UK’s exit from the EU
Mitigating steps taken:
• Political uncertainty: A detailed review of the business has highlighted
areas that would most likely be impacted by Brexit
• Changes in customs duty and VAT regimes: It is likely that goods being
imported to and exported from the EU will be subject to a different duty
and VAT regime, which may result in increased costs to the Group.
Additional paperwork and administration are likely to be required in order
to move product in to and out of both the UK and the EU
• Changes in customs duty and VAT regimes: An assessment of the Group’s
operations has been undertaken to identify additional costs.
Paperwork (e.g. commercial invoices) has been automated to improve
efficiency where possible
• Supply chain delays: Additional customs procedures may result in delays
to both inbound and outbound movements of goods, particularly if the
UK withdraws from the EU with no free trade agreement. This could
adversely affect our supply chain and our ability to supply our wholesale
customer base
• Supply chain delays: In the short term, we are seeking to expedite delivery
of products into the EU ahead of the UK’s withdrawal. The business has
achieved Authorised Economic Operator status and implemented Customs
bonded status for the Group’s main UK distribution centre which would
further mitigate adverse duty impacts and supply chain delays
• Employment of EU nationals: EU nationals living in the UK may no longer
have automatic rights to remain working in the UK. This could restrict the
Group’s ability to retain and recruit appropriate talent
• Employment of EU nationals: All EU nationals working for the Group have
been consulted on the implications of Brexit and support with applying for
settled status has been provided
• Foreign exchange fluctuations: The Group’s exposure to fluctuations in
foreign exchange rates, in particular the strength of Sterling relative to the
US Dollar, is increased as a result of the impact of Brexit
• Foreign exchange fluctuations: As noted above the Group seeks to hedge
a material proportion of forecasted US Dollar requirement 12-24 months
ahead using forward contracts
• Regulation and compliance: The regulatory regime applicable to the
manufacture and sale of products may increase in complexity if the UK
adopts a different framework from the current EU based legislation
• Contractual and procurement arrangements: Commercial terms and
contractual arrangements may be adversely impacted by Brexit.
• Regulation and compliance: On-going legal advice is being taken in this
area to ensure continued compliance with relevant UK and EU regulations
• Contractual and procurement arrangements: A detailed review of all
relevant key contracts and service agreements has been undertaken to
ensure the Group’s commercial exposure is mitigated. Where appropriate
new contracts are incorporating Brexit clauses.
32
PRINCIPAL RISKS AND UNCERTAINTIES 33
PRINCIPAL RISKS AND UNCERTAINTIES
JOULES GROUP PLC
INTERNAL RISKS
Internal risks reflect those where we can influence the likelihood of the risk arising and the impact should the risk arise.
RISK AND IMPACT
MITIGATING FACTORS
Brand and reputation
The strength of our brand and its reputation are very important to the success
of the Group.
Failure to protect and manage this could reduce the confidence and trust
that customers place in the business, which could have a detrimental impact
on sales, profits and business prospects. Our brand may be undermined or
damaged by our actions or those of our partners or through infringement
of our intellectual property ('IP').
Product sourcing
The Group’s products are predominantly manufactured overseas. Failure
to carry out sufficient due diligence and to act in the event of any negative
findings, especially in relation to ethical or quality related issues, could
adversely impact our brand and reputation.
Design
As with all clothing and lifestyle brands there is a risk that our offer will not
satisfy the needs of our customers or that we fail to correctly identify trends that
are important to our customer base. These outcomes may result in lower sales,
excess inventories and/or higher markdowns.
Key management
Our business performance is linked to the performance of our people and
to the leadership of key individuals. The loss of a key individual whether at
management level or within a specialist skill set could have a detrimental effect
on our operations and, in some cases, the creative vision for the brand.
IT security and systems availability
Non-availability of the Group’s IT systems, including the e-commerce websites,
for a prolonged period could result in business disruption, loss of sales and
reputational damage.
Malicious attacks, data breaches or viruses could lead to business interruption
and reputational damage.
Supply chain
The disruption to any material element of the Group’s supply chain, in particular
the UK central distribution centre (DC), could impact sales and impact on our
ability to supply our consumers, stores and wholesale customers.
Brand and reputation are monitored closely by senior management and the
Board. The Group’s public relations are actively managed and customer
feedback, both direct and indirect, is carefully monitored.
We carefully consider each new trade customer with whom we do business
and monitor on an ongoing basis.
We actively monitor for potential IP infringements and have a process
to determine the appropriate course of action to protect our brand and
IP vigorously.
The Group has a policy and process for the selection of new suppliers.
This includes a review of compliance with laws and regulations and that
suppliers meet generally accepted standards of good practice. In addition,
suppliers are required to sign up to the Joules code of conduct.
The Group operates a programme of ethical audits across the product supply
base supported by a third-party agency.
Joules has a long established in-house creative and design team who have
a high level of awareness and understanding of our target customer segment.
A large proportion of our product range is anchored in classic products that are
evolved season to season.
Early feedback from our trade customers can allow us to further refine our
product range ahead of significant purchase commitments.
The Group’s remuneration policy, which includes a long-term incentive
scheme and performance-related pay, is designed to attract and retain key
management. The Group operates learning and development programmes to
increase the opportunities for internal succession.
The Board’s approach to the recruitment of Nick Jones as Chief Executive
Officer and transition in the run up to Colin Porter’s retirement illustrates the
procedures the Board has in place for ensuring continuity of key personnel.
A business continuity plan exists to minimise the impact of a loss of key systems
and to recover the use of the system and associated data.
A regular assessment of vulnerability to malicious attacks is performed and any
weaknesses rectified. All Group employees are made aware of the Group’s IT
security policies and we deploy a suite of tools (email filtering, antivirus etc.)
to protect against such events.
The Group outsourced its UK DC operations to Clipper Logistics plc (Clipper)
in the Period, this provide access to Clippers business continuity arrangements
in the event of the loss of the UK distribution centre. In addition, the Group
maintains insurance cover at an appropriate level to protect against the impact
of such an interruption.
34 SOCIAL RESPONSIBILIT Y
SOCIAL RESPONSIBILIT Y 35
SOCIAL RESPONSIBILITY
RESPONSIBLY JOULES
From the day we started with nothing more than a table in a field, to the Joules you know and love today, we’ve always been conscious of our impact on the
environment, the wildlife within it and the people we work with. That’s why we’re committed to protecting, respecting and giving back — because we wouldn’t
be us without them.
YOURS RESPONSIBLY
OUR APPROACH
Our Responsibly Joules strategy sets out our approach to Corporate Social Responsibility (CSR), defining how we want our business to operate; fairly, responsibly,
and sustainably. We work hard to make sure that what we do is right – not just for us, but also for the people we work with, the communities we’re based in, and
the world around us.
We manage and report our progress under four pillars that align with our business operations and key stakeholder groups;
SUSTAINABLE
SOURCING
RESPECTING THE
ENVIRONMENT
CHARITABLY
JOULES
OUR JOULES
FAMILY
Partnering with our
suppliers to create distinctive
products made with care,
consideration and respect
Managing and reducing
our impact on the envionment
and protecting it for
future generations
Championing the causes close
to our heart by inspiring and
generating positive change
to make a real difference
Creating a vibrant and
supportive team that live
and breathe our values
every day
During the year, we have reviewed each of the United Nation’s Sustainable Development Goals (SDGs) and aligned our Responsibly Joules strategy against nine
of the SDGs that we believe have the most relevance to our business model and operations. The nine SDGs are listed below, with more information available on
the Responsibly Joules section of our Group website.
GOVERNANCE
Our Responsibly Joules strategy is driven by our Steering Group, comprising;
• Our dedicated Responsibly Joules team
• Directors and stakeholders from across the business.
It is chaired by our Chief Financial Officer and reports directly into our senior leadership team and the Group PLC Board. This structure ensures that our
Responsibly Joules strategy aligns with our broader corporate strategy and is disseminated through the business so that it is at the heart of everything that we do.
36 SOCIAL RESPONSIBILIT Y
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RESPONSIBLY JOULES
HIGHLIGHTS OVER THE LAST YEAR
Key highlights from the last year include:
• We are on track to meet our commitment of sourcing 100% of our cotton as more sustainable cotton by 2022
• Our Green PE mailbags have achieved a cumulative carbon saving in excess of 350 metric tons of CO2eq* in calendar year 2019
• We are on our way to achieving our commitment of planting 250,000 trees with the Woodland Trust by 2022
• Proud to have supported the NHS Charities Together Urgent Covid-19 Appeal, raising nearly £80,000 to date
• Joined the fight against COVID-19, leveraging supplier partnerships to source and donate vital personal protective equipment to key workers in Leicester
Hospitals Trust and Hospice UK
• Annual sales of our Woodland Trust Jute bags have saved over 2.4 million plastic bags going to landfill
• Introduced in-store recycling in partnership with Oxfam into every store
• Raised a total of £120,000 for charity in the year.
SUSTAINABLE SOURCING
As our business grows, we recognise the importance of developing our
sourcing strategy to use more sustainable approaches to source materials
and work with our supply base. With growth comes increased challenges
to overcome, we know we have a lot still to do, but we are committed to
proactively identifying ways to reduce our environmental and social impacts,
through improving the sustainability of the materials we use in our products and
packaging and the transportation of products through the supply chain.
Achievements this Year include:
• We are on track to meet our goal of sourcing 100% of our cotton as more
sustainable cotton by 2022, including Better Cotton Initiative (BCI) and
certified organic
• 100% of our Tier 1 suppliers were independently audited by a third party
using SMETA or BSCI standards
• Launched mens and boys recycled swim shorts diverting 106,000 plastic
bottles (approx. 2.4 tonnes) from landfill or contributing plastics in our
waterways and oceans.
Focus areas for the year ahead:
• Increase the level of sustainable cotton across our product ranges as
we work towards our target of sourcing 100% of our cotton as more
sustainable cotton by 2022
• Continuing to work towards our goal of sourcing 100% of our leather
accessories and footwear from Leather Working Group certified tanneries
by the end of 2020
• Launch of recycled wadding in selected padded outerwear styles across
our womens, mens and childrenswear ranges, from autumn 2020
• We will continue to investigate opportunities to bring more sustainable
and innovative new materials into our product range
• We will continue to strengthen our relationships with industry bodies and
be an active and pro-active member, collaborating with others in the
industry to drive positive change.
OUR PROMISE – 100% SUSTAINABLE COTTON BY 2022
Our goal is to source 100% of our cotton as more sustainable cotton by 2022,
which means sourcing cotton through either certified organic routes or cotton
through the Better Cotton Initiative. Joules are proud members of the Better
Cotton Initiative (BCI) which is a non-profit organisation which exists to make
global cotton production better for the people who produce it, better for the
environment it grows in, and better for the sector’s future.
We have already made big steps in sourcing more sustainable cotton across
our womens, mens, kids and babywear ranges. In the first year we have hit our
target of sourcing 20% of our cotton as more sustainable cotton and are on
track to meet our target of 100% by 2022.
SUPPLIER RELATIONSHIPS
We believe that developing and maintaining strong relationships with trusted
suppliers that share our values and principles are essential to our success.
All our factories go through strict procedures to ensure that they are compliant
and meet, or exceed our standards. Our ‘Code of Conduct’ supplier manual
sets out the procedures that all our suppliers must comply with. These include
standards in relation to work and labour practices, environmental performance,
raw materials and restricted substances, and animal welfare practices.
During the year all of our Tier 1 suppliers – those who produce product directly
for Joules – were independently audited using SMETA (Sedex Members
Ethical Trade Audit) or BSCI (Business Social Compliance Initiative) audit
process, to ensure they comply with our ethical and social standards, covering
the following key areas;
• Prison / forced labour / Modern slavery
• Freedom of association
• Health and safety
• Child labour
• Wages & benefits
• Working hours
• Discrimination
• Regular employment
• Disciplinary practices
• Environmental behaviour.
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We also run a supplier training programme, to support our suppliers in the
delivery of ongoing improvements. This includes our third-party compliance
partner providing a training session on some of the more challenging areas of
compliance and showing our suppliers how to achieve them.
We are members of the Ethical Trading Initiative (ETI) an alliance of companies
and voluntary organisations working to improve the lives of workers in the
supply chain. Ethical trade means that along with our suppliers we take
responsibility for improving the working conditions of the people who make
the products we sell. Through the ETI we regularly participate in discussions
and projects to help support our supply base. Like many businesses, we have
been significantly impacted by the global pandemic, COVID-19. Facing into a
period of operational disruption and lower sales, we implemented cost saving
and cash preservation measures across the Group. Through this period, we
worked collaboratively with our product supplier base to reduce and rephase
our seasonal product supply requirements balancing the Group’s need to
preserve cash and reduce orders for the current spring/summer and following
autumn/winter season with our suppliers’ financial position and commitments.
Maintaining our long term ‘partnership’ approach with our product supplier base.
Achievements this year include:
• We launched our Woodland Trust ‘Buy a Pair, plant a Tree’ campaign with
an aim of planting 250,000 trees in the UK by 2022
• For over 10 years, Joules have pioneered 'Beach Cleans' up and down
the country. In May 2019, Joules hosted six beach cleans, resulting in the
collection of over 6,300 pieces of rubbish
• We launched our ‘Don’t Let Good Taste go to Waste’ campaign in
partnership with Oxfam, supporting customers to recycle their unwanted
clothing in our stores
• From 2019 we began consolidating our large and eclectic suite of
packaging and labelling, enabling us to be more efficient and invest in
innovative plant-based and recycled plastics along with sustainable FSC
certified paper and recycled yarn
• Our ‘Jute Bag for Life’ is a combination of jute and cotton with £1 from the
sale of every bag donated to The Woodland Trust. Over the last year it’s
prevented over 2.4 million plastic bags from going to landfill
• Our Green PE mailbags have achieved an accumulative carbon savings
in excess of 350 metric tonnes of CO2eq* in 2019.
In April, we were proud to become signatories to the International Labour
Organization’s (ILO) COVID-19: Action in the Global Garment Industry. This
call to action commits the signatories to take action to protect garment workers’
income, health and employment and support employers to survive during the
COVID-19 crisis, and to work together to establish sustainable systems of
social protection for a more just and resilient garment industry.
MATERIAL INNOVATION
From SS20 our mens and boys swim shorts were made from ‘Global Recycling
Standard’ certified recycled material, produced from post-consumer, plastic
bottle waste. It takes on average six plastic bottles to produce each pair,
which means we saved approximately 106,000 plastic bottles from heading to
landfill or ending up in the ocean.
Going forward from SS21 we are working towards all of our own brand
swimwear being made using recycled materials.
Focus areas for the year ahead:
• Through our partnership with the Woodland Trust we’ll continue to combat
the effects of climate change and protect the flora and fauna that inspires us
• Launch of our new fully recyclable welly boxes, made from FSC certified
card and cotton tape handles. Design and size rationalisation will reduce
unnecessary waste
• We will continue to innovate, working towards our commitment for 100%
of our packaging being sustainable, recyclable, compostable or re-
usable materials
• Our new Head Office, due for completion in 2020, provides both a
significantly more energy efficient building with many energy saving
measures and facilities for modern ways of remote working that generate
less travel and the related emissions. The facility also provides an
opportunity for teams to share knowledge and lessons on the activities
and initiatives to support our commitment of fighting for the environment
that inspires us.
FIGHTING FOR OUR ENVIRONMENT
A love of the countryside is, and always has been, at the heart of the Joules
brand and respecting, considering and fighting for the environment that we
constantly draw inspiration from is fundamental to our business.
INNOVATING IN PACKAGING - GREEN PE MAILBAGS
In partnership with Duo UK, we introduced GreenPE mailbags for our
e-commerce customer orders. These bags are made from sugarcane, using
no virgin plastic in their production and are recyclable.
We are proud that Joules clothes are known for their high durability and
quality, providing many years of use and often being passed-on or handed-
down. This is particularly relevant when some reports suggest that nearly two-
thirds of clothing created by the industry overall end up in incinerators
or landfill within a year of purchase.
We invest time to identify our environmental impact across our business
operations and work to identify potential actions to reduce them. It is a
challenging journey and we know that we have far to go, but we are proud of
our progress so far and are committed to continuing to drive positive change.
Our charity and community partnerships, as discussed in more detail below,
are increasingly aligned with our purpose – fighting for the environment that
inspires us.
What started as a small trial in 2018 has led to us making our colourful
and distinctive “Hello Sugar” GreenPE sugar-cane mail bags our primary
packaging for all consumer e-commerce orders. This achieved a cumulative
carbon saving in excess of 374MT CO2eq* in 2019.
* Based on volume of GreenPE packaging products delivered by Duo UK to Joules
in calendar year 2019.
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SOCIAL RESPONSIBILITY
RESPONSIBLY JOULES
SOCIAL RESPONSIBILIT Y 39
During the year, our reported UK GHG emissions were impacted by
the following:
• COVID-19 – with our stores closed for most of the final quarter and most
colleagues working from home, our direct business operations were
materially reduced resulting in a significant reduction in our Green House
Gas emission across this period
• UK distribution centre outsourcing - In the final quarter of FY20, we
transferred the operational management of our UK distribution centre to
Clipper Logistics plc. From the date of transfer going forwards the related
GHG emissions will be reported by Clipper
• New stores – during the year we opened five new stores and closed two.
SOCIAL RESPONSIBILITY
RESPONSIBLY JOULES
GREENHOUSE GAS EMISSIONS
The Group reports on all the Greenhouse Gas (GHG) emission sources
as required under the Streamlined Energy and Carbon Reporting
(SECR) legislation.
The methodology used to calculate our emissions is the GHG Protocol
Corporate Accounting and Reporting Standard (revised edition), based on
the operational control approach i.e. where the Group operates the facility
or asset. Data has been calculated using BEIS 2019 emission factors for all
carbon streams. All emission and energy usage reported is UK based which
comply with the requirements for large unquoted companies.
UK GHG EMISSIONS DATA1
FY20
Scope 1 (tonnes CO2e)²
Combustion of fuel and operation of facilities, refrigeration
200
Scope 2 (tonnes CO2e)³
Electricity, heat, steam and cooling purchased for own use
1,061
Total Scope 1 and Scope 2 emissions
1,261
Intensity metric (tonnes of CO2e per £million of
retail revenue)
8.6
1 Figures represent a 12-month period ending at or around the financial year end.
FY20 is the first year that the Group has reported under SECR legislation therefore no
comparative information is presented.
2 Scope 1: Emissions associated with our direct activities, such as heating our stores,
offices, warehouses and company cars.
3 Scope 2: Emissions from the electricity we purchase.
40 SOCIAL RESPONSIBILIT Y
SOCIAL RESPONSIBILITY
RESPONSIBLY JOULES
CHARITABLY JOULES
Our Joules stores sit at the heart of many communities and as such, we believe
that we have an important role to play in supporting them. Through our
Charitably Joules programme, we support charities which play crucial roles in
the lives of children, young adults and families across the country, as well as
charities that share our purpose of fighting for the environment.
This year we also saw the urgent need to support our customers and
communities in the fight against COVID-19 - raising vital funds to support front
line workers and donating much needed personal protection equipment.
Through our Charitably Joules work, we are proud to have long-term
partnerships with the following five charities:
• The Princes Trust
• Hospice UK
• Farms for City Children
• Nuzzlets
• The Woodland Trust.
Achievements this year include:
• We’ve raised £120,000 throughout the year … including £35,000 during
Joules Charity Week
• Nearly £80,000 raised to date for the NHS Charities Together Urgent
COVID-19 Appeal
• 350 colleagues took part in the Prince’s Trust annual ‘Future Steps
Challenge’ - walking over 107 million steps to raise awareness and fund
for our charity partner
• 30 Joules colleagues volunteered their time for a Woodland Trust tree
planting day, with 1,000 trees planted.
Focus areas for the year ahead:
• Plant over 80,000 trees through our partnership with the Woodland Trust,
to reach our target of 250,000 trees by 2022
• Further align Charitably Joules activities and partnerships with our purpose
of ‘brightening lives with the joy of the countryside and fighting for the
environment that inspires us’
• Supporting our customers, colleagues, communities and charity partners
as we emerge from the COVID-19 global pandemic
• Launch a charitable donation option for our customers to donate to a
Joules partner charity alongside their purchases
• Challenging ourselves to thing bolder and bigger about the positive and
impactful role we can play as a business and collective of committed and
passionate individuals.
PLANTING ROOTS WITH THE WOODLAND TRUST
Our partnership with the Woodland Trust continues to grow, and in March
we launched our new commitment to plant 250,000 trees in three years, to
support vital conservation efforts.
We know that trees are one of the best ways to fight climate change, and by
planting more we're helping to secure the future of the woodlands that inspire
us, and the future of our planet.
To launch our commitment the Joules team took to the fields with the Woodland
Trust, planting 1,000 trees towards our tree pledge. We also provided the
opportunity for customers to be a part of the commitment, and for every pair of
wellies sold in March and April we will plant a tree.
SUPPORTING THE NHS
COVID-19 has had an impact on all our lives as we found ourselves in a
situation that none of us imagined. Our Joules community is at the heart
of everything we do – this includes our customers, colleagues and the
communities around us all – and we knew we needed to support them
however we could during this challenging time.
We wanted to show our gratitude to the thousands of dedicated, caring and
compassionate healthcare staff and volunteers working around the clock to
keep us all safe.
Across the UK, people were sharing pictures of rainbows to show their support
and solidarity with the NHS and key workers. At Joules we love a pop of
colour, and lots of our clothes and accessories were already splashed with all
the colours of the rainbow. We thought it would be nice for these rainbows to
do some good, taking the decision to bring these products together to create
the ‘Rainbow Edit’ with all profits being donated to the NHS Charities Together
Covid-19 Urgent Appeal.
With nearly £80,000 raised so far, this money will contribute towards funding
much needed items, from well-being packs for staff to vital accommodation for
front line workers.
SOCIAL RESPONSIBILIT Y 41
SOCIAL RESPONSIBILITY
RESPONSIBLY JOULES
OUR JOULES FAMILY
As our Joules family expands further, we have been working hard to build
on the progress we made last year in focusing on recruiting, retaining
and developing the best people. Our plans to enhance the working
environment are well underway and our culture continues to strengthen
supported by the introduction of a new learning platform and enhanced
internal communications.
From a pay perspective we continue to pay our all colleagues above National
Living Wage and are pleased to report that our Gender Pay Gap has again
improved year on year.
Focus has been given to supporting our colleagues both financially, practically
and emotionally during the COVID-19 lockdown period.
We were proactive in our decision making both in terms of moving to remote
working and closing our stores before the government-imposed lockdown.
We topped up all furloughed colleagues pay to 90%, increased the frequency
of our business-wide communications both using video conferencing; team
cascade meetings and regular email updates as well as providing guidance
for team leaders to help them support and keep in touch with their teams,
including furloughed employees. We increased our support resources on our
learning platform, and we made sure we still celebrated long service awards
and new births with cards, flowers and in some cases an on-line celebration.
Achievements this year include:
Learning support
• We launched a company-wide learning platform creating more
opportunities for learning, sharing, career development and collaboration
• We launched apprenticeships programmes (L3 and L5)
• We created digital onboarding and induction learning plans to support
newcomers to our business during the lockdown period
• As part of our desire to help young people transition into the workplace
we have been reaching out to local schools and colleges to improve
students’ business knowledge and support to develop a range of skills
including presentation and interviewing skills. This provides development
for both our colleagues and the students.
Wellbeing
• We ran mental health first-aid training sessions with 60 colleagues
• During the first month of lockdown we had nearly 1600 views of our
Mental Health & Wellbeing content
• We had 350 colleagues team up for the Princes Trust Future Steps
challenge and collectively they notched up 107million steps. The Joules
Team came 3rd out of 102 organisations who took part
• We provided access to the Retail Trust wellbeing portal to all colleagues.
Communication and Engagement
• We followed up last year’s employee engagement survey with a pulse
survey conducted during the lockdown period
• We have monthly company updates from our CEO and members of the
senior leadership team to all colleagues around the world, increased to
twice a month during lock down
• We are in the process of setting up a Colleague Forum
• We run regular engagement activities on our digital learning platform
ranging from a Friday pub quiz to ‘knit & natter’ sessions.
Focus areas for the year ahead:
• Build on the new flexible ways of working which we have achieved during
lockdown and maximising the use of our technology and collaboration
tools to support remote working
• Transitioning to our newly developed head office in early 2021, ensuring it
facilitates and supports the new flexible ways of working
• Automation of our internal recruitment process and enabling online
candidate interviewing
• Further enhancing our digital onboarding, induction and on-going
learning plans
• Extending our early careers support
• Fully embedding our new Colleague Forum
• Formalising our ‘Inclusively Joules’ charter and taking any required actions
and measures to ensure that ensure that Joules is inclusive for all, across
every aspect of our business and, were appropriate establish appropriate
targets and measures to ensure we demonstrate it.
42
SECTION 172 STATEMENT
JOULES GROUP PLC
SECTION 172 STATEMENT 43
SECTION 172 STATEMENT
JOULES GROUP PLC
INTRODUCTION
The Board is mindful of all stakeholders when making decisions of strategic importance. Stakeholder engagement is central to the formulation and execution of
our strategy and is critical in achieving long-term sustainable success. The needs of our different stakeholders as well as the consequences of any decision on the
long term are well considered by the Board. It is not always possible to provide positive outcomes for all stakeholders and the Board sometimes has to make
decisions based on the competing priorities of stakeholders. Our stakeholder engagement processes enable our Board to understand what matters to stakeholders
and carefully consider all the relevant factors and select the course of action that best leads to the high standards of business conduct and success of Joules in the
long term.
KEY STAKEHOLDERS
The Board considers its key stakeholders to be its employees, customers, suppliers, the communities in which it operates, the environment, Governments and industry
bodies and its shareholders.
the likely consequences of any decision in the long-term
the interests of the Company’s employees
S172 (1) Statement:
In accordance with Section 172(1) of the Companies Act 2006, a Director of a company must act in the way he or she considers, in good faith, would be most
likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard, amongst other matters, to:
a.
b.
c. the need to foster the Company’s business relationships with customers
d.
e.
f. the need to act fairly between members of the Company.
The following disclosure describes how the Directors of the Group have taken account of the matters set out in section 172(1) (a) to (f) and forms the Directors’
statement required under section 172 of the Companies Act 2006.
the impact of the Company’s operations on the community and the environment
the desirability of the Company maintaining a reputation for high standards of business conduct
44 SECTION 172 STATEMENT
SECTION 172 STATEMENT
JOULES GROUP PLC
How the Group engages with its key stakeholders:
STAKEHOLDER
ENGAGEMENT EXAMPLES AND FURTHER REFERENCES WITHIN THIS ANNUAL REPORT
Employees
Customers
• Comprehensive digital onboarding and induction plans for new joiners
• Companywide digital learning & development platform for learning, sharing, career development and collaboration
• Annual company-wide and independently analysed employee engagement survey
• Regular company-wide colleague updates (currently twice a month)
• Annual retail store manager conference to enhance communication and share best practice
• A colleague forum is being established to cover areas including inclusivity, feedback and improvement suggestions.
See also: Our Joules Family within the Responsibly Joules section of this annual report.
• Regular customer feedback forums and focus groups are conducted to provide customer insight
• Product feedback requests for online purchases
• Interaction with customers in stores on a daily basis and through targeted in-store customer engagement events
• Relevant targeted marketing campaigns, engaging social media content and a Joules customer facing blog
• Customer service support function assists with all customer queries with follow up on customer satisfaction on the
resolution of their query.
See also: CEO’s Report section of this annual report.
Shareholders
• Individual meetings with institutional shareholders throughout the year and particularly following interim and full
year results
• Shareholders are invited to submit questions to the Board at the Group’s Annual General Meeting
• Investor information and company financial reports and updates published via the Group’s corporate website.
• With Tom Joule as a founder shareholder commited to the future of the business, we maintain a relationship with all of
our shareholders to allow us to take a long-term view in the management of the business. This involvement is central to
ensuring we act fairly in considering the needs of all shareholders, along with other stakeholders.
See also: Governance Framework section of this annual report.
Communities & Environment
• Charitably Joules programme in place supporting the local communities where our stores are based and the
surrounding environment
• The following charitable partnerships are in place:
• The Princes Trust
• Hospice UK
• Farms for City Children
• Nuzzlets
• The Woodland Trust
• Various environmental initiatives including beach cleans, tree planting projects, Green packaging alternatives and
sustainable product sourcing
• Curation of a Joules “Rainbow Edit” of products which included a selection of rainbow themed products, the profits from
sales of which were donated to NHS COVID-19 support charities with nearly £80,000 raised to date.
See also: Responsibly Joules section of this annual report.
Partners & Suppliers
• Comprehensive assessment and onboarding process for all new Joules product suppliers
• On-going supplier training programme including more challenging compliance areas, delivered by our third-party
supplier audit partner
• Annual independent compliance audits for product suppliers using the SMETA or BSCI audit process
• Regular account management meetings are held with senior representatives from our larger non-product suppliers
• Periodic supplier surveys covering topical matters, for example Brexit readiness, COVID-19 impacts.
See also: Sustainable Sourcing section within the Responsibly Joules section of this annual report.
Governments (and tax
authorities) & Industry bodies
• The Group has processes in place to monitor new regulations and compliance requirements that may impact the
business – including for example product regulations, financial accounting and reporting updates and tax accounting
and reporting compliance
• Group management engage regularly with industry bodies including the British Retail Consortium, The Retail Trust, Better
Cotton Initiatives, Ethical Trade Initiatives.
See also: Principal Risks & Uncertainties section of this annual report.
SECTION 172 STATEMENT 45
SECTION 172 STATEMENT
JOULES GROUP PLC
Key Board decisions in FY20:
BOARD DECISION
CONSIDERATIONS
The Board reviewed the Group’s financing facilities in light of the impact of
COVID-19 on the business’ operations and cash flow and agreed:
1. a £15 million equity raise that was successfully completed in the year
2. a £15 million increase in the existing Revolving Credit Facility with Barclays
The requirement for additional funding due to the impact of COVID-19 on the
Group’s trading and cash flow as a result of lockdown and the closure of stores
from March onwards and the requirement to protect the future viability of the
business.
Bank PLC.
The Board took the decision to cancel the FY20 interim dividend in light of the
impact of COVID-19 on the Group’s operations.
The Board reviewed the response of the business to the impact of COVID-19 on
key stakeholders and approved the following actions:
• Colleague welfare: closure of stores and offices in advance of the UK
Government lock down, top up of the Government’s 80% furlough pay
to 90% for the duration of furlough status, comprehensive support for
colleagues whilst working remotely from home including financial support,
enhanced and extended flexible working arrangements for all colleagues,
access to IT equipment and work station set-up advice and tools and
support to assist with mental health challenges
• Customers: increased engagement via website and social media
platforms, extended product returns policy up to 365 days and
comprehensive risk assessments and social distancing operations in re-
opened stores
• Suppliers/Partners: collaborative and fair rescheduling of stock purchases
and payment terms, which included the waiving of platform fees for our
'Friends of Joules' partner sales during the period of lockdown.
• The agreement of fair and appropriate settlements with store landlords.
The requirement to preserve short term cash flow in light of the impact of
COVID-19 on the Group’s operations and therefore ensure long term viability
of the business.
The requirement to prioritise the welfare and health & safety of all colleagues
and customers, whilst taking in to account the impact of lockdown on childcare
arrangements, work / life balance and mental health.
The requirement to support suppliers and partners, in particular small and local
businesses, through lockdown and the financial impact on trading, whilst taking
in to account the need to have strong and stable suppliers to support the long-
term viability of the business.
The Board reviewed the results of the recent employee engagement pulse
survey and agreed a number of initiatives to be carried out by the senior
leadership team.
Consideration of the feedback provided by employees who completed the
survey. Taking appropriate actions is critical for employees to engage in the
process and for positive changes to be implemented.
Outsourcing of the UK distribution centre to Clipper Logistics plc.
Lease extension for the UK distribution centre premises in Corby.
The Board confirmed the appointment of a new Chief Executive Officer.
Consideration of the long-term growth plans of the business and the need to
have increased and cost-efficient distribution capacity, in particular to support
the on-going growth of on-line sales. The decision supports the long-term
strategy of the business to drive total UK brand sales.
Consideration of the impact on existing Corby based colleagues of a potential
re-location of the distribution centre to an alternative location in the UK
balanced with the requirement to effectively support the Group’s various sales
channels.
The need to recruit an appropriately experienced and talented individual who
was the right fit for the culture of the business and understood the values of the
Joules Brand, as well as the strategic growth aspirations of the Board and the
requirements of shareholders and the market. The need to also consider long-
term succession planning in terms of future Board development.
This statement was reviewed and approved by the Board on 5 August 2020.
BEHIND THE DESIGN
When designing a garment, we constantly think about our customers
- where will the item be worn, when and with what? After shapes and
colours, we will consider what functional features and details will add
practicality whilst not compromising the style.
C H A P T E R
C H A P T E R
2
leaps and bounds2
let’s have a look
C O R P O R AT E G OV E R N A N C E
C O R P O R AT E G OV E R N A N C E
48 BOARD OF DIRECTORS
BOARD OF DIRECTORS
JOULES GROUP PLC
IAN FILBY
Non-Executive Chairman
Ian joined Joules in 2018 following
almost eight years as Chief Executive
Officer at DFS Furniture plc. He
is a member of the British Retail
Consortium Board and Chairman of
the British Retail Consortium Policy
Board, Trustee of Pennies charity
and Director of IFF Life and Business
Solutions Ltd. Ian has more than 38
TOM JOULE
Founder & Chief Brand Officer
Tom founded Joules in 1989 selling
practical, high-quality garments at
shows and events around the UK.
Tom’s entrepreneurial spirit, and flair
in giving products personality to
match Joules’ customers’ colourful
and uplifting outlook, has been
central to the brand’s continued
success and expansion. Now a
years of retail experience, largely at Alliance Boots, where his most recent
roles were Retail Brand Development Director and Trading Director. He has
also held the roles of Chairman of Sofology, Interim Chief Executive Officer of
Nectar and Non-Executive Chairman of Shoe Zone plc.
global lifestyle brand, in his current role, Tom is focused on connecting with the
Joules customer and category product direction. Since 2010, Tom has featured
regularly in Drapers 100 Most Influential People in Fashion Retail. In 2015 he
was a finalist in the Fashion Entrepreneur of the Year category at the Great
British Entrepreneur Awards.
NICK JONES
Chief Executive Officer
Nick was appointed CEO of Joules
in 2019. Prior to joining the business,
he was SVP-Commercial at Asda
and a member of the Executive
Board, having previously held roles
as Managing Director of George,
and as Commercial Director.
During his time at Asda, Nick was
responsible for the performance of
the grocer’s trading divisions across food, general merchandise and clothing,
and helped drive significant innovation and digital transformation across the
business. Nick has over 25 years’ experience in developing retail brands
and strategy, and also previously held a number of senior and director roles
at leading British retailer Marks & Spencer. Nick is an alumnus of Harvard
University, having recently completed a Personal Leadership and Development
course at Harvard Business School.
DAVID STEAD
Senior Independent Non-Executive
Director
David joined the Board in April
2016. David is currently on the board
of Card Factory plc and Naked
Wines plc as an Independent
Non-Executive Director. He has
many years’ experience as a
Director of companies in the UK
retail sector. David was the CFO of
Dunelm Group plc for 12 years from 2003 to 2015. Prior to this, David served
as Finance Director for Boots The Chemists and Boots Healthcare International
between 1991 and 2003. David is a chartered accountant, having spent the
early part of his career with KPMG.
MARC DENCH
Chief Financial Officer
Marc joined Joules in 2015 from
Walgreens Boots Alliance, where
he was Chief Financial Officer of
its International Retail & Global
Consumer Brands division. Marc
has previously held a number of
senior financial and corporate
development positions at Alliance
Boots, Homeserve, Experian and
Freeserve plc. Whilst at Freeserve, he was involved in the successful IPO
process and the subsequent merger with Wanadoo. Marc is a chartered
accountant and has an MBA from Sauder Business School. Marc is also a
Trustee of the Drinkaware Trust.
JILL LITTLE
Independent Non-Executive
Director
Jill joined the Board in April 2016.
Jill was previously the Non-
Executive Director of Shaftesbury
plc and chaired their remuneration
committee, and was on the board
of Nobia AB as a Non-Executive
Director. Jill has spent the majority of
her career in the retail industry, firstly
at Simpsons of Piccadilly and then at the John Lewis Partnership (1975 to 2012).
Jill became Merchandise Director on the board of John Lewis, moving roles
to become the Strategy and International Director where she was responsible
for developing the long-term strategy and international expansion of John
Lewis. Thereafter Jill became Business Development Director of the John Lewis
Partnership. Jill is also Chairman of the National Trust Commercial Advisory
Group and a Non-Executive Director of Loungers plc.
GOVERNANCE FRAMEWORK 49
GOVERNANCE FRAMEWORK
JOULES GROUP PLC
CHAIRMAN’S INTRODUCTION
I have pleasure in introducing the Joules Group plc Corporate Governance
Statement. The Board is committed to supporting high standards of corporate
governance and during the Period the Board continued to adopt the QCA
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’).
The Board is committed to a strong ethical corporate culture and ensuring the
culture within the business is consistent with Joules’ strategic objectives and
business model. The board achieves this by:
• Encouraging diversity, inclusion and equal opportunities for all employees,
as outlined in the Responsibly Joules section of this report
• Investment in training and development
• Regular communication with employees e.g. weekly internal
communications emails, regular updates from the Board and an annual
conference for store managers and the wider business
• Appropriate induction for new employees
• Investment in a new head office, which will provide a vibrant and creative
environment consistent with the Group’s values.
The Board monitors and assesses the culture in the business through an
externally managed employee engagement survey that was introduced during
the prior period. The results of this survey are reviewed by the Board and
senior management to identify areas of focus – either to maintain and improve
on strengths or to develop actions and initiatives to address any areas
of concern.
IAN FILBY
Non-Executive Chairman
BOARD SIZE AND COMPOSITION
For the financial year ended 31 May 2020, 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.
an independent view of the Group’s business and to constructively challenge
management and help develop proposals on strategy. The Board as a whole
reviews all strategic issues and key strategic decisions on a regular basis.
Control over the performance of the Group is maintained through evaluation
of financial information; the monitoring of performance against key budgetary
targets; and by monitoring the return on strategic investments.
The Chairman takes responsibility for ensuring that the Directors receive
accurate, timely and clear information.
Directors are aware of their right to have any concerns recorded in the
Board minutes.
The Board is satisfied that all Directors are able to allocate sufficient 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 the 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 benefits (for the Executive Directors)
• 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 thirteen 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, finance, legal & risk matters
• Updates on significant business initiatives
• Proposals on any major items of capital expenditure
• Health and safety
• Compliance with banking covenants and cash flow forecast.
HOW THE BOARD OPERATES
The Executive Directors are responsible for business operations and for
ensuring that the necessary financial and human resources are in place to carry
out the Group’s strategic aims. The Non-Executive Directors’ role is to provide
The Board receives reports from the Executive Directors to enable it to be
informed of and supervise the matters within its remit. The Board considers at
least annually the Group’s strategic plan and, on a regular rolling basis, the
Board receives presentations from management on key areas of the
50 GOVERNANCE FRAMEWORK
GOVERNANCE FRAMEWORK
JOULES GROUP PLC
Group’s operations.
The following table shows Directors’ attendance at scheduled Board and Committee meetings in the period under review -
Ian Filby
Tom Joule
Colin Porter*
Nick Jones*
Marc Dench
David Stead
Jill Little
BOARD
13/13
13/13
4/4
9/9
13/13
13/13
13/13
AUDIT
3/3
-
-
-
-
3/3
3/3
REMUNERATION
NOMINATION**
4/4
-
-
-
-
4/4
4/4
-
-
-
-
-
-
-
* Colin Porter retired as CEO, and Nick Jones was appointed as CEO, on 30 September 2019.
** The recruitment of Nick Jones was concluded in the year ended 26 May 2019.
BOARD DECISIONS AND ACTIVITY DURING THE YEAR
The Board has a schedule of regular business, financial and operational
matters, and each Board Committee has compiled a schedule of work, to
ensure that all areas for which the Board has responsibility are addressed and
reviewed during the course of the year. The Chairman, aided by the Company
Secretary, is responsible for ensuring that the Directors receive accurate and
timely information to enable the Board to discharge its duties. The Company
Secretary compiles the Board and Committee papers which are circulated
to Directors at least 48 hours prior to meetings. The Company Secretary
also ensures that any feedback or suggestions for improvement on Board
papers are 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.
BOARD COMMITTEES
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 upon 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
reflect 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
in the Board of Directors section of this Annual Report. The experience and
knowledge of each of the Directors gives them the ability to constructively
challenge strategy and to scrutinise performance.
SEPARATION OF DUTIES
There is a clear division of responsibilities between the Chairman and Chief
Executive Officer. Ian Filby, the Chairman, leads the Board and is responsible
for its effectiveness and governance. He sets the Board agenda and ensures
that sufficient time is allocated to important matters, in particular, strategic
issues. Nick Jones, the Chief Executive Officer is responsible for the day-to-day
management of Joules’ operations and the recommendation of strategy to the
Board. Nick is then responsible for implementing that strategy supported by the
wider management team.
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.
INDUCTION OF NEW DIRECTORS
Nick Jones joined Joules on 2 September 2019, and was appointed as
Chief Executive Officer on 30 September 2019. There were no other new
Directors appointed during the year. On joining the Board, new directors
undergo an induction programme which is 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 is responsible for this process,
supported by the Company Secretary.
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.
GOVERNANCE FRAMEWORK 51
GOVERNANCE FRAMEWORK
JOULES GROUP PLC
EVALUATION
Following the changes to the composition of the Board in the year and the
Board’s focus on supporting the company through the challenges of COVID-19
in the final quarter of the Period, a formal board review has not been
completed in the Period. A board review will be completed in the coming year.
A thorough and formal Board review, which was led by the Chairman, was
conducted in the prior period. No major changes to the function and focus of
the Board arose from this evaluation.
The Chairman will continue to meet regularly with the Non-Executive Directors
without the Executive Directors being present and the Senior Independent
Non-Executive Director will also meet with his fellow Non-Executive
Director, at least annually, and also on such other occasions as are deemed
appropriate, to appraise the Chairman’s performance.
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 conflict 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’ conflicts of interest. The
Company’s Articles of Association (‘Articles’) provide for the Board to authorise
any actual or potential conflicts 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 advising the Board on corporate
governance matters.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company has purchased directors’ and officers’ liability insurance during
the year as allowed by the Company’s Articles.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board has ultimate responsibility for the Group’s system of internal control
and for reviewing its effectiveness. However, any such system of internal
control can provide only reasonable, but not absolute, assurance against
material misstatement or loss. The Board considers that the internal controls in
place are appropriate for the size, complexity and risk profile of the Group.
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
• Preparation of a detailed annual budget including an integrated profit and
loss, balance sheet and cash flow. 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. In normal years, all
shareholders are invited to attend the Annual General Meeting at which the
Group’s activities will be considered and questions answered. In 2020,
due to the COVID-19 situation, the AGM will be held as a closed meeting
and shareholders will be unable to attend the AGM as usual but will be
invited to submit questions to the Executive Directors in advance of the AGM.
Answers to questions submitted will be published on the Group’s website
(www.joulesgroup.com) as soon as practicable after the AGM.
The Senior Independent Director is available to shareholders if they have
concerns which contact through the normal channels of Chairman, Chief
Executive or other Executive Directors fails to resolve or for which such contact
is inappropriate.
ELECTION OF DIRECTORS
In accordance with the Code, all Directors will offer themselves for election at
each Annual General Meeting (‘AGM’).
ANNUAL GENERAL MEETING
The Company’s AGM will take place on 23 September 2020. The Annual
Report and Accounts and Notice of the AGM will be sent to shareholders at
least 20 working days prior to this date.
52 AUDIT COMMIT TEE REPORT
AUDIT COMMITTEE REPORT
JOULES GROUP PLC
On behalf of the Board, I am pleased to present the Audit Committee report for the period ended 31 May 2020.
The Audit Committee has responsibility for, amongst other things, the monitoring
of the financial integrity of the financial statements of the Group and the
involvement of the Group’s external 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 Committee also provides advice to the Board as to
whether the Annual Report and Accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for stakeholders to
assess the Company’s position and performance, business model and strategy.
MEMBERS OF THE AUDIT COMMITTEE
The Committee consists of three Non-Executive Directors: David Stead (Chair),
Ian Filby and Jill Little. The external Auditor (Deloitte LLP), the Chief Executive
Officer, Founder & Chief Brand Officer and Chief Financial Officer also attend
Committee meetings by invitation. The Committee has met three times since
22 July 2019 being the date the Group’s last Annual Report was approved.
The Board is satisfied that I, as Chairman of the Committee, have recent and
relevant financial experience. I am a chartered accountant and I have served
as Finance Director in a number of companies including Dunelm Group plc.
I report formally to the Board, as appropriate, on issues discussed by the Audit
Committee and I present the Committee’s recommendations.
The Committee also takes time to meet with the external auditors without any
Executive Directors or senior management present.
DUTIES
The duties of the Audit Committee are set out in its Terms of Reference, which
are available on the Company website (www.joulesgroup.com) and are also
available on request from the Company Secretary.
The Committee meets a minimum of twice per year.
The main focus areas and items of business considered by the Audit Committee
during the year have included:
• Review of the impact of COVID-19 on the business
• Review of the key areas of judgment and estimations which have been
used by management in preparing the financial statements, in conjunction
with input from the external auditors
• Review of the Consolidated Financial Statements and the Annual Report
• Consideration of the external audit report and management
representation letter
• Review of the risk management and internal control systems, and the
Company’s risk register
• Review of the need for an internal audit function
• Review of Taxation matters for the Group
• Consideration of whistle-blowing reports, the results of which are
reviewed by the Committee and formally reported to the Board via
Committee minutes, a minimum of twice a year
• Review of the implications of forthcoming updates or changes to
accounting standards.
ROLE OF THE EXTERNAL AUDITOR
The Audit Committee monitors the Company’s relationship with the external
auditor, Deloitte LLP, to ensure that external auditor independence and
objectivity are maintained. As part of its review the Committee monitors the
provision of non-audit services by the external auditor. The breakdown of fees
between audit and non-audit services is provided in note 6 of the Group’s
financial statements. The non-audit fees related to Remuneration Committee
advice and other advisory services. The Committee concluded in the Period
that the external auditors will not be permitted to perform any non-audit
services for the Company for the year ending May 2021. The Committee also
assesses the external auditor’s performance. Having reviewed the external
auditor’s independence and performance, the Audit Committee recommends
that Deloitte LLP be re-appointed as the Company’s external auditor at the next
AGM. The Committee noted that the Deloitte audit partner will be rotating for
the year ending May 2021 and that appropriate transition arrangements are
in place.
AUDIT PROCESS
The external auditor prepares an audit plan that sets out the scope of the audit,
key areas of audit focus, audit materiality and the audit timetable for audit
work. This plan is reviewed and agreed in advance by the Audit Committee.
Following the completion of its work, the external auditor presents its findings to
the Audit Committee for discussion.
INTERNAL AUDIT
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.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Group has a framework of risk management and internal control systems,
policies and procedures. The Audit Committee is responsible for reviewing the
risk management and internal control framework and ensuring that it operates
effectively. The Committee has reviewed the framework and is satisfied that the
internal control systems in place are currently operating effectively.
Key areas assessed during the Period via the risk management framework
include:
• Risk around potential data breaches, including IT and cyber security and
GDPR requirements
• Ethical sourcing arrangements
• Potential disruption to supply chain and distribution network
• Health and safety arrangements.
The Committee is also satisfied that the risk management systems and internal
control procedures are sufficiently robust to be able to adapt to the impact
of COVID-19.
AUDIT COMMIT TEE REPORT 53
AUDIT COMMITTEE REPORT
JOULES GROUP PLC
WHISTLEBLOWING
The Group has a whistleblowing policy in place which sets out the formal
process by which an employee of the Group may, in confidence, raise
concerns about possible improprieties in financial 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.
GOING CONCERN
The Directors have prepared a detailed financial forecast with a supporting
business plan covering the medium-term future. Further detail on the going
concern review is provided in the Directors’ Report section of this Annual
Report. The forecast indicates that the Group will remain in compliance with
covenants throughout the forecast period. As such, the Directors have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. For
this reason, they continue to adopt the going concern basis in preparing
financial statements.
DAVID STEAD
Audit Committee Chairman
54 NOMINATION COMMIT TEE REPORT
NOMINATION COMMITTEE REPORT
JOULES GROUP PLC
On behalf of the Board I am pleased to present the Nomination Committee Report for the period ended 31 May 2020 (FY20).
Looking ahead, the Committee intends to focus its work in the forthcoming year
on the following areas:
• Reviewing the structure and composition of the Board and its Committees
• Succession planning for the Board and the Joules senior leadership team.
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.
IAN FILBY
Nomination Committee Chairman
MEMBERS OF THE NOMINATION COMMITTEE
The Nomination Committee consists of three Non-Executive Directors; Ian Filby
(Chair), David Stead and Jill Little. Executive Directors attend by invitation.
DUTIES
In carrying out its duties, the Nomination Committee is primarily responsible for:
• Identifying and nominating candidates to fill 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 (www.joulesgroup.com).
ACTIVITY DURING THE YEAR
The recruitment of Nick Jones as CEO of the Group was concluded prior to the
start of FY20 and therefore, as there was no necessity for changes to Board
composition during the year, there were no formal meetings of the Committee.
However, the members of the Committee spoke informally on a number of
occasions, primarily with regard to two matters.
• The planned evolution in Tom Joule’s role as Chief Brand Officer, as
detailed in the Chairman’s Statement, to formalise that, in addition to his
role as a Director, his principle focus will be on providing guidance to the
product development process and supporting new growth initiatives and
international expansion. As a result, Tom will move to a reduced working
pattern, anticipated to be approximately half that of prior periods
• Contingency planning. With the outbreak of COVID-19 and the shift
to working from home for all head office teams, the Committee was
concerned to ensure that contingency plans were in place in the event that
any member of the leadership team, including the CEO and CFO, should
become indisposed. Thankfully, such plans have proved unnecessary
to date.
DIRECTORS’ REMUNERATION REPORT 55
DIRECTORS’ REMUNERATION REPORT
STATEMENT FROM THE CHAIR OF THE REMUNERATION COMMITTEE
Dear Shareholders
On behalf of the Board, I am pleased to present the Directors’ Remuneration
Report for the 53 weeks ended 31 May 2020 (FY20). Although not subject to
the reporting regulations of fully listed companies in the UK, the Remuneration
Committee has taken account of these regulations in the preparation of the
FY20 Directors’ Remuneration Report as a matter of best practice. Therefore,
this report is presented as:
• A Directors’ Remuneration Policy Report – setting out the parameters within
which the remuneration arrangements for Directors operate; and
• An Annual Report on Remuneration – setting out the remuneration earned
by Directors in respect of FY20 and how we intend to apply the policy
for FY21.
OUR APPROACH TO REMUNERATION – KEY PRINCIPLES
Our policy on executive remuneration is designed to:
• 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;
• Promote the long-term success of the Group, in line with our strategy and
focus on profitability and growth; and
• Provide appropriate alignment between the interests of shareholders and
executives, which is further enhanced through shareholding guidelines and
the deferral of a proportion of the annual bonus as shares.
During the course of FY20 the Committee reviewed the Directors’ Remuneration
Policy in light of the Company’s strategy and developments in corporate
governance. While the Committee’s view was that the Policy remained fit for
purpose and supported the delivery of the Company’s strategy, a small number
of amendments have been proposed and are included in the Policy in this
report, as follows.
• Reduction in maximum pension: In our previous Policy (which has
applied during FY20), the maximum pension contribution was 10%
of salary, although in practice contributions had not exceeded 5% of
salary. Furthermore, Nick Jones’ contribution was set at 3% of salary
on appointment. In the new Policy, the maximum pension contribution is
capped at 5% of salary for Tom Joule and Marc Dench and 3% of salary
for Nick Jones and any Executive Director appointed in the future, a level
aligned with that available to the wider workforce (currently 3% of salary)
• Exceptional LTIP opportunity: We have introduced the ability to grant
LTIP awards of up to 300% of salary for Executive Directors in exceptional
circumstances, providing the Committee with greater flexibility to attract,
retain and motivate Executive Directors. The Remuneration Committee is
considering utilising this increased exceptional maximum for FY21 awards,
and plans to engage with major shareholders as part of this process.
However, the normal Policy maximum grant level will remain at 150% of
salary. See section entitled “Remuneration for the year commencing 1 June
2020”, on page 57 for further details.
• Varying formulaic LTIP outturns: Although the UK Corporate
Governance Code does not apply to the Company, in line with its terms
the Committee will have discretion to vary the formulaic vesting output
applying to LTIP awards granted in respect of FY21 and future years.
• Enhancing recovery provisions: In line with the UK Corporate
Governance Code, we have also enhanced the malus and clawback
provisions with effect from FY21, which will be capable of operation in the
event of reputational damage
• Enhancing shareholder alignment: In the new Policy we have confirmed
that Executive Directors’ share awards will be settled in cash only in
exceptional circumstances.
This Directors’ Remuneration Report will be put to an advisory shareholder vote
at the forthcoming annual general meeting on 23 September 2020.
FY20 PERFORMANCE AND ANNUAL BONUS AND
LTIP OUTCOME
Based on FY20 Underlying PBT of £(2.4)m (pre-IFRS16 and excluding share-
based compensation and exceptional costs), the Executive Directors will not
receive a bonus in respect of FY20. Further details are set out herein.
The Company’s second long-term incentive awards were granted under the
LTIP in August 2017 (‘FY18 LTIP’) with vesting based on performance assessed
over the period of three financial years ended on 31 May 2020. As the
threshold targets were not met, the FY18 LTIP did not vest.
EXECUTIVE DIRECTOR SALARIES
Given the current economic uncertainty as a result of COVID-19, the decision
was taken not to review Executive Directors’ base salaries in April 2020. The
next salary review for all employees (including the Executive Directors) will
take place in April 2021. Therefore the base salaries for Nick Jones and Marc
Dench remain at £420,000 and £270,300 respectively.
Tom Joule’s full time equivalent base salary remains at £341,700, however,
as detailed in the Chairman’s Statement, Tom and the Board have agreed
updated terms of reference and, with effect from the start of FY21, Tom has
moved to a more flexible, but reduced, working pattern anticipated to be
a time commitment of aproximately 50%. The calculation of all of Tom’s pay
and benefits will be prorated accordingly. Tom’s base salary for FY21 is
therefore £170,850.
As part of the measures taken by the Group to preserve cash during the
COVID-19 crisis, Tom Joule agreed to forgo his salary for the months of
April and May 2020. Marc Dench and Nick Jones agreed to take a salary
reduction of 30% from April – July 2020 (inclusive), with a corresponding
reduction in pension contributions. To reflect the salary reductions, Nick Jones
and Marc Dench were granted options over ordinary shares in Joules, and
similar arrangements were entered into by all other members of the senior
management team. Details of the options granted are included on page 68,
and their value is included in the single total figure of remuneration for FY20
on page 64.
56
DIRECTORS’ REMUNERATION REPORT 57
DIRECTORS’ REMUNERATION REPORT
STATEMENT FROM THE CHAIR OF THE REMUNERATION COMMITTEE
BOARD CHANGES DURING THE YEAR
Colin Porter retired as Chief Executive Officer on 30 September 2019 and
was succeeded by Nick Jones. Details of both Nick and Colin’s remuneration
arrangements during FY20 are further detailed in this report.
In determining remuneration packages and arrangements the Remuneration
Committee adopts the principles set out in the QCA Corporate Governance
Code and evolving best practice.
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
REMUNERATION FOR THE YEAR COMMENCING
1 JUNE 2020
A summary of the proposed application of our Remuneration Policy for FY21 is
set out below:
• It is intended that Executive Directors’ base salaries will be reviewed in
April 2021 in line with usual pay reviews
• The maximum annual bonus opportunity for FY21 will be 100% of salary
for Tom Joule and Marc Dench, and 150% of salary for Nick Jones. The
targets for the FY21 annual bonus have not yet been finalised, but will be
disclosed in the FY21 Directors’ Remuneration Report.
• The fifth awards under the LTIP (‘FY21 LTIP’) will be granted in FY21. The
Committee is mindful of the unprecedented COVID-19 situation and the
uncertainty as to how long the effects will be felt. However, the Committee
also recognises that this is a critical time for Joules and there is a need
to retain and motivate the Executive Directors and Operating Board
to deliver strong performance during this period. Given the ongoing
uncertainty, the Committee is currently finalising the details of its plans
for the FY21 LTIP. In particular, the Committee is considering utilising the
new exceptional LTIP limit by introducing an additional performance
condition linked to any grant value above the normal LTIP limit, such as
share price. This additional performance condition would only apply if the
performance condition(s) on the “normal” award is at the maximum level;
below this level, the additional shares granted above the normal LTIP limit
would lapse. Details will be included in the regulatory announcement that
accompanies the awards and will be fully disclosed in the FY21 Directors’
Remuneration Report.
58 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
EXECUTIVE DIRECTORS’ REMUNERATION - AT A GLANCE
We take a rigorous and disciplined approach to ensure that the remuneration package for Executive Directors rewards the delivery of both short and long-term
financial and strategic business goals, that are consistent with the creation of shareholder value. The table below provides a summary of the key elements of the
policy and its application for FY20 and FY21.
BASE SALARY
Base salary and benefits are set at a level that is competitive with reference to the market and companies of a similar size and level
of complexity.
PENSION
ANNUAL BONUS
Pension contribution rate of 5% of salary for Executive Directors other than Nick Jones, who is entitled to contributions of 3%
of salary.
The company contribution rate for the all-employee defined contribution pension scheme is 3% of salary.
In the new Policy, we have removed the flexibility to pay a pension contribution for Executive Directors of up to 10% of salary.
Maximum opportunity of 100% of salary for Executive Directors other than Nick Jones, whose annual bonus opportunity is 150%
of salary.
For the FY20 annual bonus, underlying profit before tax (PBT) target selected to best represent alignment with shareholders.
Underlying PBT targets for the FY20 award were: Threshold (25% pay-out) £16.7m; Target (50% pay-out) £17.2m; Maximum
(100% pay-out) £18.1m. The maximum payout target represented a year-on-year underlying PBT growth rate of 17.0%.
The FY21 annual bonus will be made half in cash and half deferred into shares (vesting after a further three years). Due to ongoing
uncertainty as a result of COVID-19, the performance targets have not yet been finalised but will be disclosed in the FY21 report.
The Committee will have full discretion over the award and, in particular, will consider any payment in the context of overall
business performance.
ANNUAL BONUS
DEFERRAL
Based on FY20 Underlying PBT of £(2.4)m (pre-IFRS16 and excluding share-based compensation and exceptional costs),
Executive Directors will not receive a bonus in respect of FY20.
Ordinarily, half of the annual bonus award is paid in the form of shares, deferred over three years.
LTIP
The LTIP is designed to encourage sustainable development of the Group and creation of significant shareholder value.
The normal maximum LTIP opportunity is 100% of salary for Tom Joule, 125% of salary for Marc Dench and 150% of salary for Nick
Jones vesting over a three-year period. In exceptional circumstances, awards of up to 300% of salary may be granted.
The FY18 LTIP award will not vest as the threshold performance conditions were not met.
The terms of the FY21 LTIP award have not been finalised, however:
• Details will be included in the regulatory announcement that accompanies the awards and will be fully disclosed in the FY21
Directors’ Remuneration Report.
• Pay-out levels: below Threshold no pay-out; at Threshold 25% pay-out; at Maximum 100% pay-out, with straight-line vesting
in between
• The vesting of the awards will also be subject to a further underpin, that the vesting reflects the underlying financial
performance of the Group over the performance period. In line with the new Policy, the Committee will have discretion to vary
formulaic vesting output applying to the LTIP awards.
SHAREHOLDER
ALIGNMENT
AND RISK
A shareholding requirement of 200% of salary.
Malus and clawback provisions on awards granted under the deferred bonus and LTIP.
59
60 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION POLICY REPORT
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 of the strategy 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 for each element
and any applicable performance measures.
FIXED REMUNERATION
ELEMENT, PURPOSE
AND STRATEGIC LINK
OPERATION
MAXIMUM OPPORTUNITY
BASIC SALARY
To provide a competitive base salary
for the markets 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.
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.
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. Executive
Directors may be permitted to take the benefit as cash
in lieu of pension contributions.
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.
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,
considering market practice and individual circumstances.
In the case of any Executive Director appointed before 27
May 2019 (currently Tom Joule and Marc Dench), the Group
contributes up to 5% of salary.
In the case of any external appointments as Executive Director
on or after 27 May 2019 (currently Nick Jones), the Group
contributes up to a percentage of salary not exceeding the
retirement benefit provision for the wider workforce (currently
3% of salary).
DIRECTORS’ REMUNERATION REPORT 61
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION POLICY REPORT
VARIABLE REMUNERATION
ELEMENT, PURPOSE
AND STRATEGIC LINK
ANNUAL BONUS
Rewards performance against targets
which support the strategic direction of
the Group.
OPERATION
MAXIMUM OPPORTUNITY
AND PERFORMANCE METRICS
Awards are based on performance (typically
measured over one year) against targets determined
by the Committee at the start of the period.
Overall maximum is up to 150% of base salary under
the Policy.
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.
Normal maximum is up to 150% of base salary under
the Policy. In exceptional circumstances, awards of up to
300% of salary may be granted.
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, reflecting 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 the threshold,
the award will not vest.
Deferral provides a retention element
through share ownership and direct
alignment to shareholders’ interests.
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 reflect their
assessment of performance.
LONG-TERM INCENTIVE PLAN
(‘LTIP’)
To create alignment between the
interests of Executive Directors and
shareholders through the delivery of
performance-based awards in
Group shares.
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. Deferred share awards may
include dividend equivalents earned between the
grant and vesting date.
Awards can be made in the form of conditional share
awards or nil cost options over shares. Vesting is
subject to the achievement of specified performance
conditions normally over three years.
The Committee has discretion to vary the formulaic
vesting output applying to any LTIP award granted
from FY20 onwards where it believes the outcome
does not reflect the Committee’s overall assessment
of business performance or is not appropriate in the
context of circumstances that were unexpected or
unforeseen at the date of grant. This discretion does
not apply to any tax-qualifying options granted as
part of a Qualifying LTIP award as described below
where such discretion would not be permitted in
accordance with the applicable tax legislation.
Awards may include dividend equivalents earned
between the grant and vesting date.
Awards may be structured as Qualifying LTIP awards
comprising of an 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.
62 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION POLICY REPORT
FURTHER INFORMATION IN RELATION TO THE
EXECUTIVE DIRECTORS’ REMUNERATION POLICY
Explanation of performance measures chosen for elements of remuneration
Performance measures are selected for the annual bonus and long-term
incentive to reflect the Group’s strategy. Stretching performance targets are set
each year by the Committee, considering several different factors.
Due to a review of the Remuneration Policy, and ongoing uncertainty as a
result of COVID-19, the Committee has not yet finalised the performance
measure(s) for the FY21 annual bonus and FY21 LTIP grant. However, the
Committee will disclose details of the targets in full in the FY21 Directors’
Remuneration Report and, in the case of the FY21 LTIP, in the regulatory
announcement that accompanies the awards. Consistent with previous awards,
the vesting of the FY21 LTIP will also be subject to a further underpin (in
addition to the applicable performance target(s)), that the vesting reflects the
underlying financial performance of the Group over the performance period.
The Committee retains the discretion to adjust or set different performance
measures or targets where it considers it appropriate to do so (for example,
to reflect 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 defered bonus plan (DBP) and LTIP.
Application of malus and clawback
The malus and clawback provisions described below relate to awards in
respect of FY21 and future years. The malus and clawback provisions which
apply to prior years’ awards are set out in earlier Directors’ Remuneration
Reports.
The ‘Clawback Period’ is: i) in respect of the LTIP: A period of two years after
the vesting of an LTIP Award, and ii) in respect of the Annual Bonus: up to three
years following the payment of the cash element, and until the vesting date for
any defered share award. During the Clawback Period, the Committee may
require the repayment of all or some of the award if there is corporate failure,
a material error or misstatement of the financial results, gross misconduct,
reputational damage, a material failure of risk management or if information
comes to light which, had it been known, would have affected a decision as to
the extent to which an award would have vested. The same provisions apply
for the application of malus.
Operation of share plans
The Committee may operate the Company’s share plans in accordance with
their terms. This includes the ability to amend the terms of awards and options
under those plans in accordance with the plan rules in the event of a variation
of share capital, and to settle awards, in whole or in part, in cash or grant
awards as cash equivalents (although the Committee would only settle or grant
an Executive Director’s award in cash in exceptional circumstances such as
where there was a regulatory restriction on the delivery of shares).
Shareholding guidelines
To promote further alignment with 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. Until this guideline is met
Executive Directors will be required to retain half of any shares which vest
under the deferred bonus or LTIP (after sales to cover tax).
Legacy remuneration
The Committee has the right to settle remuneration arrangements that were put
in place prior to this Policy coming into effect and in respect of remuneration
awarded to individuals prior to becoming an Executive Director (and which
was not awarded in anticipation of becoming an Executive Director).
NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY
The remuneration policy for the Chairman and Non-Executive Directors is to pay fees necessary to attract the 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
• 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.
BASIS OF FEES
• 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.
OTHER
• Non-Executive Directors may be eligible to receive benefits such as travel, the use of secretarial support and other
expenses relevant to the performance of their roles
• Neither the Chairman nor any of the Non-Executive Directors are eligible to participate in any of the Group’s
incentive arrangements.
DIRECTORS’ REMUNERATION REPORT 63
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION POLICY REPORT
APPROACH TO RECRUITMENT REMUNERATION
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 Group and not to
pay more than is appropriate. The Committee will take into consideration
relevant factors, which may include the calibre of the individual, their existing
remuneration package, and their specific circumstances, including the
jurisdiction from which they are recruited.
PAYMENTS FOR LOSS OF OFFICE
Payments for loss of office will be in line with the provisions of the Executive
Directors’ service contracts and the rules of the share plans. In general,
“good leaver” provisions will apply in circumstances of death, injury, ill-health,
disability, change of control or for any other reason at the Committee’s
discretion, taking into account performance (in the case of long-term incentive
awards) and the proportion of the vesting period served. Where a payment is
made then the leaver provisions would be determined at the time of the award.
In appropriate circumstances, payments may also be made in respect of
accrued holiday, outplacement, legal fees and under the terms of the SAYE
plan. The Committee 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 of any claim arising in connection with the
termination of the Director’s office or employment.
Where the Committee retains discretion, it will be used to provide flexibility in
certain situations, considering the 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.
CONSULTATION WITH SHAREHOLDERS
The Committee will consider shareholder feedback received on remuneration
matters. The Committee will seek to engage directly with major shareholders
and their representative bodies should any material changes be made to
the Policy.
The Committee will typically seek to align the 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 remuneration package for a newly appointed Chairman or Non-Executive
Director will normally be in line with the structure set out in the Non-Executive
Directors’ Remuneration Policy.
SERVICE CONTRACTS
Each of the Executive Directors has a service contract with the Group. The
notice period of Executive Directors’ service will not exceed 12 months. All
Non-Executive Directors have fixed term agreements with the Group for no
more than three years which may be extended at the Board’s discretion and
subject to re-election by shareholders at the AGM. Details of the Directors’
current service contracts are set out below:
COMMENCEMENT
NOTICE PERIOD
NAME
Tom Joule
20 May 2016
Nick Jones
2 September 2019
Marc Dench
20 May 2016
Ian Filby
Jill Little
1 August 2018
22 May 2019
David Stead
11 April 2019
12 months
12 months
6 months
3 months
1 month
1 month
64 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION
SINGLE TOTAL FIGURE OF REMUNERATION
The table below details the total remuneration earned by each Director in respect of FY20 and FY19.
£000
SALARIES/
FEES
TAXABLE
BENEFITS
PENSION6
ANNUAL BONUS
(INCLUDING
DEFERRED BONUS)
LTIP3
ONE-OFF
AWARDS4
TOTAL
REMUNERATION
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
EXECUTIVE DIRECTORS
Tom Joule
284.8
338.3
21.0
22.9
17.1
Colin Porter1
146.6
348.0
12.6
22.2
Nick Jones1
294.0
-
12.6
-
7.3
9.5
15.8
17.4
-
Marc Dench
256.8
267.7
16.7
16.4
12.8
13.4
NON-EXECUTIVE DIRECTORS5
Ian Filby2
120.0
100.0
Jill Little
50.0
50.0
David Stead
45.8
55.0
Neil
McCausland2
-
13.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
188.1
193.8
-
148.9
-
-
-
-
-
-
-
-
-
-
-
-
497.5
512.4
-
-
-
223.1
490.1
33.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
322.9
1,062.6
166.5
1,093.8
539.2
-
320.1
936.5
120.0
100.0
50.0
45.8
50.0
55.0
-
13.3
TOTAL
1,198.0 1,172.3
62.9
61.5
46.7
46.6
0
530.8
0
1,500.0
256.9
0
1,564.5 3,311.2
1Colin Porter retired as CEO, and Nick Jones was appointed as CEO, with effect from 30 September 2019. Nick Jones’ remuneration in the table above reflects his remuneration from
2 September 2019, the date on which he joined the Company. Colin Porter’s remuneration in the table above reflects his remuneration to his last day of employment with the Company,
which was 31 October 2019.
2Neil McCausland retired as Non-Executive Chairman on 31 July 2018. Ian Filby was appointed as Non-Executive Chairman commencing on 1 August 2018.
3In the FY19 Directors’ Remuneration Report, the LTIP values were determined by reference to a share price of £2.635, being the three-month weighted average share price up to 18 July
2019 - less the exercise price of £0.01. In the table above, these values have been updated to reflect the share price of £2.55 on 22 July 2019, the date on which the awards vested, less
the exercise price of £0.01, plus cash value dividend equivalents received by the individuals.
4The one-off awards reflect one-off share awards granted in FY20, as further described below. The award to both Nick Jones and Marc Dench, in respect of their waived salary, was
based on a share price of £0.80. The joining award for Nick Jones was based on a share price of £1.3264
5The Non-Executive Directors deferred or waived the payment of a proportion of their fees for the last 2 months of FY20. The figure above represents the total figure payable in respect of
the financial year (including any deferred sums).
6Includes sums paid into the Group pension plan and/or pension allowance.
DIRECTORS’ REMUNERATION REPORT 65
DIRECTORS’ REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION
EXPLANATORY NOTES TO THE SINGLE TOTAL FIGURE OF REMUNERATION TABLE
BASE SALARIES
The base salaries for the Executive Directors are normally reviewed in April
each year. However, as a result of the unprecedented COVID-19 situation, no
salary review took place in FY20. Accordingly, each Executive Director’s rate
of salary with effect from 1 April 2020 will remain the same as at 1 April 2019
as set out in the following table.
ANNUAL BONUS
For FY20 the maximum annual bonus opportunity for the Executive Directors
was 100% of base salary for Tom Joule, Colin Porter and Marc Dench and
150% of base salary for Nick Jones, subject to the achievement of stretching
PBT performance targets. Nick Jones’ and Colin Porter’s bonuses are pro-
rated to reflect their respective periods of service during FY20.
EXECUTIVE
DIRECTOR
Tom Joule
Nick Jones
Marc Dench
BASE SALARY AT
1 APRIL 2020
BASE SALARY AT
1 APRIL 2019
£341,700
£420,000
£270,300
£341,700
£420,000
£270,300
Each of the Executive Directors agreed to take a pay reduction to assist the
business with cash flow during the COVID-19 crisis. Tom Joule took a 100%
pay reduction for the months of April and May 2020. Nick Jones and Marc
Dench each took a 30% pay reduction for the months of April – July 2020
(inclusive). In the single total figure of remuneration table, salaries for FY20
are stated after the effect of these reductions. Further details on the alternative
arrangements for this period are set out on page 68.
TAXABLE BENEFITS
The taxable benefits for the Executive Directors included a company car or car
allowance, private fuel, clothing allowance and private medical insurance.
The structure and targets for the FY20 annual bonus, established at the start
of the year, are set out in the following table. Below the Threshold level,
no annual bonus is payable, between each level the annual bonus award
percentage increases on a linear basis.
LEVEL
THRESHOLD
TARGET
MAXIMUM
% of maximum award
25%
50%
100%
Underlying PBT
£16.7 million
17.2 million
£18.1 million
Based on FY20 Underlying PBT of £(2.4)m (pre-IFRS16 and excluding share-
based compensation and exceptional costs), the Executive Directors will not
receive a bonus in respect of FY20.
66 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION
LONG-TERM INCENTIVES
Long-term incentives vesting in respect of performance in FY20
Each Executive Director (save for Nick Jones) was granted an award under the Joules 2016 Long Term Incentive Plan on 17 August 2017. Each award was subject
to a performance condition based on i) the Company’s earnings per share (EPS) and ii) international revenue, in the financial year ended 31 May 2020, being the
final financial year of a three-year performance period in accordance with the following table.
MEASURE WEIGHTING
PERCENTAGE OF THE AWARD THAT WILL VEST
EPS for FY20
80%
14.0 pence
Greater than 14.0 pence but less than
18.0 pence
18.0 pence or greater
25%
Determined on a straight-line basis
between 25% and 100%
100%
International
Revenue for
FY20
20%
£36m
Greater than £36m but less than £46m
£46m or greater
25%
Determined on a straight-line basis
between 25% and 100%
100%
Based on the performance outcomes, the awards will lapse in full.
PERFORMANCE
OUTCOME
VESTING OUTCOME
(22.07) pence
£29.5m
0
0
67
68 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION
ONE-OFF AWARDS GRANTED DURING FY20
As noted above, as part of measures taken by the Group to preserve cash
during the COVID-19 crisis, Tom Joule agreed to forgo his salary for the months
of April and May 2020. Marc Dench and Nick Jones agreed to take a pay
reduction of 30% from April – July 2020 (inclusive). Nick Jones and Marc
Dench were granted options on 6 April 2020 over ordinary shares in Joules
as set out below. No such award was granted to Tom Joule.
SHARES
SUBJECT TO
AWARD
VALUE OF
SHARES1
42,234
£33,787
65,625
£52,500
Marc
Dench
Nick
Jones
VESTING DATE
50% 30 September 2020
50% 30 April 2021
1 The value of the shares is determined by reference to the share price of £0.80 at which
shareholders subscribed for new shares in the Placing at the time at which the awards
were granted.
As noted in the FY19 Directors’ Remuneration Report, we agreed to grant
Nick Jones an award over Joules shares with a value of £170,599 as part
compensation for share awards which would have vested had he remained
with his former employer. This award was granted on 6 April 2020 over
128,618 shares determined by reference to the share price of £1.3264, being
the 60 day volume weighted average share price up to the date of grant in
line with the agreement entered into with Nick Jones. The award is subject
to a 3 year holding period from Nick’s first day of employment with Joules
(2 September 2019).
NON-EXECUTIVE DIRECTOR FEES
The Non-Executive Directors agreed to waive or defer all or part of their
fee to assist the business with cash flow during the COVID-19 crisis for the
months of April – July 2020 (inclusive). The intention is that any deferred sums
will be paid during FY21. The FY20 fees stated in the single total figure of
remuneration table, include deferred amounts but exclude any amounts which
were waived.
PAYMENTS MADE TO FORMER DIRECTORS AND
PAYMENTS FOR LOSS OF OFFICE DURING THE YEAR
Colin Porter was an Executive Director until 30 September 2019 and his last
day of employment with the Company was 31 October 2019. The single total
figure of remuneration for FY20 on page 64 includes all remuneration earned
by him in respect of FY20.
No other payments were made in the year to any former Director of the Group
and no payments were made in the year for loss of office.
LONG-TERM INCENTIVE AWARDS GRANTED DURING
FY20
In FY20, the Committee granted LTIP awards as set out in the table below. The
share price used to calculate the awards was £2.40, being the closing share
price on the day immediately preceding the grant of the awards to Tom Joule
and Marc Dench. The grant of the LTIP award for Nick Jones was delayed
until he had joined the business but, to ensure alignment with the other awards
granted to the other Executive Directors, the same share price was used to
calculate the awards for Nick Jones.
FY20 LTIP
DATE OF GRANT % OF SALARY
Tom Joule
25 July 2019
Marc Dench
25 July 2019
Nick Jones
6 November 2019
100%
125%
150%
NUMBER OF
SHARES
142,375
140,781
262,500
Vesting of the awards will be based upon achievement against four targets, to
be delivered in the final year of the performance period (FY22). 60% of the
awards will be subject to underlying diluted EPS, 15% subject to US revenue,
15% subject to UK digital sales and 10% subject to the level of employee
engagement (as measured by an industry recognised, third party, anonymous
survey e.g. Best Companies (“BCI”)). Vesting is determined on a straight-line
basis between the target ranges. The target ranges are summarised below.
TARGET
ELEMENTS
% OF
AWARD
THRESHOLD
25% vesting
of award
MAXIMUM
100% vesting
of award
EPS
60%
18.0 pence
22.0 pence
US revenue
15%
UK Digital Sales
15%
30% compound
annual growth rate
vs FY19
43% compound
annual growth rate
vs FY19
12% compound
annual growth rate
vs FY19
20% compound
annual growth rate
vs FY19
Colleague
Engagement
Performance
10%
Mid-1 Star level
(BCI score of 678)
or equivalent
Mid-2 Star level
(BCI score of 717)
or equivalent
DEFERRED BONUS AWARDS GRANTED IN FY20
The table below shows the deferred bonus awards granted to Executive
Directors on 25 July 2019 in respect of the FY19 annual bonus (as disclosed
in the FY19 Directors’ Remuneration Report). Awards will vest after three years
subject to continued service and were granted in the form of nil cost options.
FY19
DEFERRED
BONUS
DATE OF GRANT
FACE VALUE
OF AWARDS1
NUMBER OF
SHARES
Tom Joule
25 July 2019
£94,061
Marc Dench
25 July 2019
£96,869
Colin Porter
25 July 2019
£74,405
39,192
40,362
31,002
1 Calculated based on the closing share price on the day before grant of £2.40.
DIRECTORS’ REMUNERATION REPORT 69
DIRECTORS’ REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION
STATEMENT OF DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS
The interests of the Directors and their immediate families in the Group’s ordinary shares as at 31 May 2020 (or, if earlier, the date of their retirement) were
as follows:
BENEFICIALLY
OWNED AT
26 MAY 2019
NO. OF
SHARES
BENEFICIALLY
OWNED AT
31 MAY 20202
NO. OF SHARES
UNVESTED
SHARE AWARDS
SUBJECT TO
PERFORMANCE
CONDITIONS AS
AT 31 MAY 2020
UNVESTED
SHARE
AWARDS NOT
SUBJECT TO
PERFORMANCE
CONDITIONS1
AS AT 31 MAY
20202
VESTED,
UNEXERCISED
SHARE
AWARDS AS AT
31 MAY 20202
NUMBER OF
AWARDS
COUNTING
TOWARDS
SHAREHOLDING
REQUIREMENTS3
AS AT 31 MAY
20202
SHAREHOLDING
GUIDELINES
MET4
EXECUTIVE DIRECTORS
Tom Joule
28,147,210
29,498,433
347,330
Nick Jones
n/a
93,750
Marc Dench
138,016
281,398
NON-EXECUTIVE DIRECTORS
Ian Filby
Jill Little
David Stead
nil
25,625
31,250
FORMER DIRECTORS
50,000
38,125
68,750
262,500
337,997
n/a
n/a
n/a
139,450
194,243
202,441
n/a
n/a
n/a
nil
nil
nil
n/a
n/a
n/a
Colin Porter
1,519,822
1,519,822
211,073
143,612
nil
29,572,342
196,699
388,692
n/a
n/a
n/a
n/a
yes
no
no
n/a
n/a
n/a
n/a
1 Includes: Deferred bonus share awards, in the case of Nick Jones and Marc Dench the awards granted to them in FY20 in respect of their waived salary, and in the case of Nick Jones
the “buyout award” granted to him as part compensation for share awards which would have vested had he remained with this former employer.
2 Or, if earlier, date of retirement.
3 Equal to the total of beneficially owned shares, unvested share awards not subject to performance conditions (on a net of tax basis) and vested but unexercised share awards (on a net
of tax basis).
4 Calculated based on the shareholding requirement of 200% of salary, a share price of £1.37 on 31 May 2020 and the Executive Director’s base salary at 31 May 2020.
The interests of the current Directors and their immediate families in the Group’s ordinary shares did not change between 31 May 2020 and the date these
accounts were signed on 5 August 2020.
70 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
IMPLEMENTATION OF POLICY FOR FY21
BASE SALARY
As noted previously, no salary review for the Executive Directors took place in FY20. As such, their annual base salaries remain unchanged for FY21 (with the
exception of the reduced salary for June and July, as outlined on page 65). Tom Joule reduced his working hours by 50% with effect from 1 June 2020, and his
effective base salary has therefore reduced proportionately.
EXECUTIVE DIRECTOR
BASE SALARY AT 1 JUNE 2020
BASE SALARY AT 1 APRIL 2020
Tom Joule
Nick Jones
Marc Dench
£170,850
£420,000
£270,300
£341,700
£420,000
£270,300
ANNUAL BONUS
For FY21 the annual bonus opportunity will be up to a maximum of 100% of salary for Tom Joule and Marc Dench, and 150% of salary for Nick Jones. The annual
bonus will be paid half in cash and half deferred into shares (vesting after a further three years).
Due to the review of the Remuneration Policy, and ongoing uncertainty as a result of COVID-19, the Committee has not yet finalised the FY21 annual bonus targets.
However, the Committee will not disclose the finalised FY21 annual bonus targets in advance due to commercial confidentiality reasons. Instead, the finalised
targets will be disclosed when we report the performance out-turn in the FY21 Directors’ Remuneration Report.
LONG-TERM INCENTIVE
As explained in the Chair’s statement, the Committee is in the process of finalising the terms of the FY21 LTIP awards, taking into account the unprecedented nature
of COVID-19, the ongoing uncertainty this causes for Joules and the need to retain and motivate the Executive Directors. In particular, the Committee is considering
utilising (in part or in full) the new exceptional LTIP limit in the Directors’ Remuneration Policy by introducing an additional performance condition linked to any grant
value above the normal LTIP limit, such as share price. This additional performance condition would only apply if the performance condition(s) on the “normal”
award is at the maximum level; below this level, the additional shares granted above the normal LTIP limit would lapse. Details will be included in the regulatory
announcement that accompanies the awards and will be fully disclosed in the FY21 Directors’ Remuneration Report. The Company will also engage with major
shareholders as part of this process.
In addition to the applicable performance target(s), the vesting of the awards will also be subject to a further underpin, that the vesting reflects the underlying
financial performance of the Group over the performance period. In line with the new Policy, the Committee will have discretion to vary the formulaic vesting
output applying to the awards.
NON-EXECUTIVE DIRECTOR FEES
Details of Non-Executive Directors’ fees for FY21 are set out below:
• Chairman’s fee: £120,000
• Non-executive director fee: £45,000
• Additional fee for chair of a Board Committee: £5,000
• Additional fee for Senior Independent Director: £5,000.
This does not reflect the reduced fee levels until July 2020 outlined on page 68.
DIRECTORS’ REMUNERATION REPORT 71
DIRECTORS’ REMUNERATION REPORT
GOVERNANCE
SHAREHOLDER APPROVAL OF THE DIRECTORS’ REMUNERATION REPORT
At the 2019 AGM, the votes in respect of the FY19 Directors’ Remuneration Report were as follows.
FY19 DIRECTORS’ REMUNERATION REPORT
For
Against
Withheld
NUMBER
75,173,049
1,732,252
0
%
97.75
2.25
N/A
REMUNERATION COMMITTEE
The members of the Committee are Jill Little (Chair), Ian Filby and David Stead. The Group’s General Counsel attends the meeting as secretary to the Committee.
The Committee meets at least once a year and has responsibility for:
• Maintaining the Remuneration Policy;
• Reviewing and determining the remuneration packages of the Executive Directors;
• Monitoring the level and structure of the remuneration of Senior Management; and
• Production of the annual report on Directors’ remuneration.
The Executive Directors also attend meetings when required and provide information and support as requested. No Executive Director is present when his
remuneration package is considered.
The duties of the Remuneration Committee are set out in its Terms of Reference, which are available on the Group’s website (www.joulesgroup.com) and are also
available on request from the Company Secretary.
This report was approved by the Board on 5 August 2020 and signed on its behalf by:
JILL LITTLE
Remuneration Committee Chairman
72 DIRECTORS’ REPORT
DIRECTORS’ REPORT
JOULES GROUP PLC
The Directors present their Annual Report on the affairs of the Group, together with the financial statements and Auditors’ Report, for the period ended 31 May
2020. The Governance Framework Section also forms part of this Directors’ Report.
ACQUISITION OF THE COMPANY’S OWN SHARES
At the AGM held on 25 September 2019, 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 8,909,110 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 of this report.
Shareholders will be asked to renew these authorities at the AGM as detailed
in the next AGM Notice. The Company held no treasury shares during the year.
DIRECTORS’ INTERESTS
Details of the Directors’ beneficial interests are set out in the Remuneration
Report on pages 55 to 71.
DIRECTORS’ INDEMNITIES AND DIRECTORS AND
OFFICERS’ LIABILITY INSURANCE
The Company has purchased directors’ and officers’ liability insurance during
the year as allowed by the Company’s articles.
FINANCIAL RISK MANAGEMENT
Details of the Directors’ assessment of the principal risks and uncertainties
which could impact the business are outlined in the Principal Risks
and Uncertainties section on pages 30 to 33. The Board manages
internal risk through the on-going 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.
RESTATEMENT OF PRIOR PERIODS’ STATEMENT OF
FINANCIAL POSITION
An adjustment has been made to prior periods’ Statement of Financial Position
to accruals and other debtor balances in relation to a prior period error in
the treatment of Employers National Insurance on the Group’s share schemes.
Management identified that the liability for share-based payments at 1 June
2018 was understated as a result of historical errors in the calculation of the
National Insurance liability. In addition, management identified that in the year
ended 31 May 2018 the deferred tax calculation on share-based payments
had been posted twice in error and credited through both the income
statement and equity. This resulted in a debtor balance being recognised in
error which has been corrected by management in the period in which it arose.
There is no impact on the prior year’s Consolidated Income Statement. Further
detail can be found in the Consolidated Financial Statements under Note 1 -
Significant Accounting Policies.
DIRECTORS
The Directors of the Company during the period under review and
subsequently to the date of this report, were:
Ian Filby
Tom Joule
Nick Jones (appointed 30 September 2019)
Colin Porter (resigned 30 September 2019)
Marc Dench
David Stead
Jill Little
RESULTS AND DIVIDENDS
Results for the period ended 31 May 2020 are set out in the Consolidated
Income Statement on page 86. The Directors are not recommending
a dividend for FY20.
ARTICLES OF ASSOCIATION
A copy of the full articles of association are available on request from
the Company Secretary and are also available on the Group’s website
www.joulesgroup.com. Any amendments to the articles of association can be
made by a special resolution of the Shareholders.
SHARE CAPITAL AND SUBSTANTIAL SHAREHOLDERS
Details of the issued share capital, together with details of the movements
during the year, are shown in Note 19 to the Consolidated Financial
Statements. The Company has one class of ordinary share and each ordinary
share carries the right to one vote at general meetings of the Company.
On 3 April 2020 the Company announced completion of an equity placing of
18,750,000 new ordinary shares of 1p each. These shares were admitted to
trading on AIM on 7 April 2020. Following admission the Company’s issued
share capital was 108,135,920 ordinary shares.
At 31 May 2020 the Company had been notified of the following substantial
shareholders comprising 3% or more of the issued ordinary share capital of
the Company:
Tom Joule (and related Trusts)
Blackrock
Octopus Investments
Standard Life
Canaccord Genuity
Janus Henderson
Columbia Threadneedle Investments
AXA
NFU Mutual Investment
% of issued share capital
27.28%
11.30%
8.96%
7.77%
6.61%
4.91%
4.34%
3.59%
3.56%
There have been no significant changes to substantial shareholders since the
year end.
DIRECTORS’ REPORT
JOULES GROUP PLC
DIRECTORS’ REPORT 73
GOING CONCERN AND VIABILITY STATEMENT - IMPACT
OF COVID-19
As for many businesses in the retail sector, the Group has been significantly
impacted by COVID-19. The impact and management’s initial response is
set-out in detail within the CEO’s Report and the Financial Review.
Considering the significant uncertainties faced by the retail sector including
short-term and potentially more fundamental long-term changes in consumer
behaviour as well as the potential for ongoing operational disruption, the
Directors have undertaken a comprehensive assessment to consider the going
concern and longer-term viability of the Group and Company. In making their
assessment the Directors have considered the following:
• The Group’s financial position, as at the date of this report, and
its committed borrowing facilities available for the time period of
consideration - as detailed in the Financial Review
• The support from the Group’s shareholders and bank, including the
successful equity placing and financing facility extension that were
completed during the early stages of the UK lockdown
• Alternative sources of financing including sale & leaseback of freehold
property and asset financing that might reasonably be assumed to be
available to the Group - noting that any financing from these sources
has not been included within the forecasts that support the going
concern assessment
• Financial commitments: including capital commitments, lease
commitments, stock purchases and other non-variable/non-discretionary
costs. In respect of property leases, the Directors note the relatively short
lease commitments, of less than three years on average, that the Group
has across its store portfolio together with recent progress on renewing
leases on favourable terms
• The extent of continued Government support initiatives including business
rates relief and the Coronavirus Job Retention Scheme (CJRS)
• Strength of brand, reflected in active customer growth, brand awareness
and brand health metrics - as detailed more fully in the Strategic Review
• The flexibility and agility of the Group’s business model, as described in
the Strategic Review, noting that over half of the Group’s retail sales are
via e-commerce and that the Group has diversified sources of revenue,
operating across several channels and geographic markets, with owned
and third-party channels including wholesale and marketplaces. Newer
income streams of brand licensing and the Group’s digital marketplace
provide additional comfort on the strength of the brand and diversity of
income channels.
The Directors have also considered the trading performance of the Group’s
stores as they have re-opened on a phased basis following the easing of the
UK’s lockdown restrictions on 15 June 2020, as well as the performance of the
Group’s e-commerce channel, which has continued to exceed management’s
expectations since the start of the UK lockdown.
The Directors have reviewed management’s business plan forecasts that cover
the period to 28 May 2023, being the Group’s strategic planning horizon.
The forecasts have been produced on the following basis:
• Base plan – gradual sales recovery post-COVID-19, reflecting
management’s estimates for the speed and extent of recovery across its
different sales channels and markets. It reflects phased store re-openings
from mid-June 2020 through to mid-August 2020 with the re-opened
stores initially trading significantly below the prior year, improving to
75-80% of the prior year’s sales level by the end of FY21, with modest
growth thereafter. Third-party wholesale channels are assumed to follow
a similar trajectory, with sales in to the European Union also reflecting
potential disruption arrising ahead of and following the end of the Brexit
transition period. The Group’s e-commerce sales are forecast to grow
at double-digit levels reflecting performance over recent years and
experienced since the UK lockdown in late March 2020
• Downside scenario – the ‘Base plan’ adjusted to reflect a slower recovery
of the Group’s stores channel with total store revenues only achieving
approximately 60% of the pre-COVID-19 levels by the end of FY21, and a
deterioration in the wholesale channel receipts with receivable days more
than double the level of FY20.
Within each forecast, management have reflected financial commitments
and the impact of realised or anticipated cost savings from discretionary
and variable costs. No Government support or subsidies, other than those
announced and committed at the date of this report, are included.
The Directors have stress tested the forecast to consider situations under
which the Company would have insufficient liquidity under its current secured
borrowing facilities and/or it would not meet its banking covenant tests. One
such ‘Stress test scenario’ is that of ongoing material disruption to retail store
operations from COVID-19 that result in no store channel revenue and lower
receipts from the Group’s wholesale channels as per the Downside case. The
Stress test scenario assumes higher e-commerce revenue growth than the Base
case on the basis that loyal customers can no longer access the brand via the
store environment - as demonstrated during the period of the UK lockdown,
plus ongoing income from brand licensing and digital marketplace activities.
The Stress test scenario assumes that the Group will reduce its obligations and
financial commitments, such as property leases, in line with existing contractual
terms and that there is no additional Government support or subsidies to
offset costs or support cash flow. The Directors believe, with reference to the
considerations noted above, that, firstly the likelihood of this situation arising
in its most extreme form is remote and, secondly, that they anticipate that the
Group would be able to adapt and respond to mitigate the impacts and
continue to trade and meet its obligations through the period
of consideration.
GOING CONCERN
The Base plan and Downside scenario forecasts indicate that the Group will
remain within its available committed borrowing facilities and in compliance
with covenants throughout the forthcoming 12-month period. Under the
Downside scenario, the Group has more than £25 million available liquidity
headroom through-out the period under consideration and has EBITDA
headroom of £2.9 million against its first covenant test arising in the period with
headroom increasing further for the second covenant test arising in the period.
The Group would also remain within its borrowing facilities and comply with
covenants under the Stress test through this period.
Following consideration of these forecasts and having made appropriate
enquiries, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence until at least 12 months
after the approval of the Financial Statements. Therefore, the Directors continue
to adopt the going concern basis of accounting in preparing the consolidated
financial statements.
74 DIRECTORS’ REPORT
DIRECTORS’ REPORT
JOULES GROUP PLC
VIABILITY STATEMENT
The Directors have also considered the Group’s prospects and viability over
the three-year period to 28 May 2023, being the Group’s strategic planning
horizon. Under the Base plan and the Downside scenario the Group will
remain within its available committed borrowing facilities and in compliance
with covenants throughout the forecast period.
The Directors anticipate that the Group’s £25 million revolving credit facility
with Barclays Bank PLC, will be extended or refinanced when it falls due in July
2022, which is within the three-year period of the review.
In the remote likelihood that the Group is not able to extend this facility,
replacement financing, of an amount that is significantly less than the
current revolving credit facility, through a combination of alternative loan
arrangements, an equity placing, sale and lease back of its freehold head
office or asset finance arrangements will be required.
Based on this assessment, the Directors have a reasonable expectation that
the Group will continue in operation and meet all its liabilities as they fall due
during the period up to 28 May 2023.
DISABLED EMPLOYEES
Details of the Group’s policy in relation to disabled employees are set out in
the Responsibly Joules section of this report.
STREAMLINED ENERGY AND CARBON REPORTING
Our streamlined energy and carbon reporting is set out in the Responsibly
Joules section of this report.
DISCLOSURE OF INFORMATION TO THE AUDITORS
Each of the persons who is a director at the date of approval of this Annual
Report confirms that:
• So far as the director is aware, there is no relevant audit information of
which the Company’s auditors are unaware; and
• 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, have indicated their willingness to continue in office
and a resolution seeking to re-appoint them will be proposed at the AGM.
JONATHAN DARGIE
Company Secretary
POST BALANCE SHEET EVENTS
There have been no material post balance sheet events.
ANNUAL GENERAL MEETING
The Company’s AGM will be held on 23 September 2020.
FUTURE DEVELOPMENTS IN THE BUSINESS OF
THE COMPANY
The CEO’s Report on pages 13 to 20 sets out the likely future developments of
the Company.
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.
BRANCHES OUTSIDE THE UK
In addition to subsidiary companies in the US, China and Hong Kong,
the Group has branches in France and the Republic of Ireland.
POLITICAL DONATIONS
No political donations were made during the period under review.
EMPLOYEE INVOLVEMENT
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 Responsibly
Joules section of this report.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES 75
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
JOULES GROUP PLC
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors are required to prepare
the Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and Article
4 of the IAS Regulation and have elected to prepare the parent company
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable
law), including FRS 101 “Reduced Disclosure Framework”. Under company
law the Directors must not approve the accounts unless they are satisfied that
they give a true and fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period.
In preparing the parent company financial 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 applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard
1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity’s
financial position and financial performance; and
• make an assessment of the Company’s ability to continue as
a going concern.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination
of Financial Statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
• the Financial Statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole;
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they face; and
• the Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company’s position and performance, business
model and strategy.
This responsibility statement was approved by the Board of Directors on 5
August 2020 and is signed on its behalf by:
MARC DENCH
Chief Financial Officer
5 August 2020
RUNNING WILD IN STYLE
As a family lifestyle brand with an authentic heritage, we’re proud
to say that we live the life our customers lead. We love to embrace the
great outdoors – come rain or shine – we love long walks, picnics
on the beach and gathering together with family and friends.
C H A P T E R
3
we’ve got grand designs
C O N S O L I DAT E D F I N A N C I A L S TAT E M E N TS
78
AUDITOR’S REPORT
JOULES GROUP PLC
AUDITOR’S REPORT 79
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOULES GROUP PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
1. OPINION
In our opinion
• the financial statements of Joules Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of the group’s and
of the parent company’s affairs as at 31 May 2020 and of the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice,
including Financial Reporting Standard 101 “Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company statement of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated cash flow statement; and
• the related notes 1 to 37.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and IFRSs as adopted by the
European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and
United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
2. BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
80 AUDITOR’S REPORT
AUDITOR’S REPORT
JOULES GROUP PLC
3. SUMMARY OF OUR AUDIT APPROACH
Key audit matters
The key audit matters that we identified in the current year were:
• Store impairment
• Accuracy and completeness of the returns provision
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Materiality
The materiality that we used for the group financial statements was £415k. We have revised our materiality benchmark from profit before
tax to a blended consideration of financial performance and position, using revenue and net assets.
Scoping
In aggregate, our procedures have covered 99% of total revenue, 98% of total assets and 96% of total liabilities across the group.
Covid-19 has had a significant effect on the results of the group for the year ended 31 May 2020 and as a consequence, we have
amended our audit plan to adapt to the impact the pandemic has on the group and our assessment of audit risk. We have revised our
materiality benchmark from profit before tax to a blended consideration of financial performance and position, using revenue and net
assets. This has resulted in a 34% reduction in our level of group materiality from the prior year.
Significant changes in
our approach
We have included store impairment as a new key audit matter as a consequence of the impairment indicators identified in the year. The
declining performance of the retail stores in the first half of the year coupled with the impact of Covid-19 has triggered the requirement
for an impairment assessment of the full store portfolio.
There has been no significant change in component scoping with the group engagement team completing all work on components
where required.
4. CONCLUSIONS RELATING TO GOING CONCERN
We are required by ISAs (UK) to report in respect of the following matters where:
• the directors’ use of the going concern basis of accounting in preparation of the financial statements is not
appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern
basis of accounting for a period of at least twelve months from the date when the financial statements are
authorised for issue.
We have nothing to report in
respect of these matters.
5. KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and
include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the
greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
AUDITOR’S REPORT
JOULES GROUP PLC
AUDITOR’S REPORT 81
5.1. Store Impairment
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
Under IAS 36, the group is required to complete an impairment review of its store portfolio where there are indicators of impairment.
The group’s store portfolio has historically been profitable and there have not been any indicators of impairment or onerous contracts.
However, as a consequence of the declining performance of stores at the half year, coupled with the impact of Covid-19 and the related
forecast of a significant reduction in the profitability of stores over the next three years, an impairment review was performed over the
full store portfolio. The initial impairment calculation performed by management only included loss-making stores, however this was
subsequently amended to include the whole store portfolio.
The net book value of the stores right of use asset and associated PPE at 31 May 2020 was £42,942k, prior to recording any
impairment charge. As a result of the impairment review an impairment was recognised of £15,820k relating to 72 stores of the 128
stores as described in note 3, 9, 11 and the Strategic Report.
The store impairment review involves management making several estimates to determine the value in use of each of the stores (being
the net present value of the forecast cash flows). This is then compared to the book value of that store’s assets, to identify whether any
impairment is required. In making this assessment, management determines each store to be a cash generating unit.
The key audit matter relates to the appropriateness of management’s estimate of future trading performance of the stores, which is used
to derive the value in use. Value in use is calculated from cash flow projections and relies upon management’s assumptions and estimates
of future trading performance, the recovery of stores from the period of lockdown and the revival of the UK economy, allocation of direct
costs and overheads and the associated discount rates.
The revised impairment model utilises the forecasts included in the Board’s base plan, which covers the periods up to 28 May 2023.
The revised model is highly sensitive to changes in forecast performance and growth rates, most notably sales. The Board’s base plan is
prepared on a bottom-up basis, building from an individual store level.
The forecast performance within the base plan represents a 12-24 month recovery from Covid-19. The base plan included the phased
reopening of stores from 15 June 2020 and expected recovery to pre-Covid levels not until 2022.
Our audit procedures included:
• Obtaining an understanding of relevant controls around the impairment review process. We identified that the management
review controls in relation to the review of the value-in-use calculation were not sufficiently precise for us to be able to rely on
these controls;
• Assessing the methodology applied in performing the revised impairment review with reference to the requirements of IAS 36
‘Impairment of Assets’;
• Assessing the reasonableness of management’s determination of a cash generating unit in the context of the definition under IAS 36;
• Challenging the key assumptions utilised in the cash flow forecasts (including store sales and costs) with reference to the historical
trading performance, market expectations, and our understanding of the group’s strategic initiatives;
• Assessing the growth rates and discount rates applied to the store cash flows, comparing the rates used to third party evidence with
consideration of recovery from the Covid-19 UK lockdown and benchmarking against our independently estimated discount rates;
• Reviewing management’s sensitivity analysis in relation to the key assumptions used in the cash flow forecasts; and
• Reviewing the adequacy of the group’s disclosures regarding the store impairment in notes 1 and 3 of the financial statements.
Key observations
From the work performed, we concluded that the level of impairment charge recognised on the store estate is appropriate.
82 AUDITOR’S REPORT
AUDITOR’S REPORT
JOULES GROUP PLC
5.2. Store Impairment
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
As described in note 1 to the financial statements, the group has different revenue streams that have separate characteristics. The returns
provision is a provision relating to sales made pre year end that are expected to be returned post year end. Customers are entitled to
return products after purchase for a defined period. Management increased the right to return period to 365 days within the year.
The directors apply estimates in both the retail (stores and e-commerce) and wholesale business streams in determining the level of
provision that is required. The total right of return provision is £5,129k (2019: £1,548k) and a significant proportion of this, at a value of
£2,986k (2019: £1,102k), is in relation to the e-commerce business.
The returns from the e-commerce business are typically at a higher level than traditional store retailing which therefore makes the
judgements involved more significant in determining the level of the provision.
In regards to the e-commerce business, management calculated the returns provision using historical returns data and identified a risk
period for the period of sales for which returns are still expected. Management then applied an expected return rate, based on the
historical data, to the gross value of sales made in the risk period.
The key audit matter relates to the appropriateness of management’s judgements in relation to the risk period and the expected return
rate. We have determined that this is increasingly judgemental in the current year in the light of the impact Covid-19 has had on both of
these factors. The returns provision is discussed further within note 1 and 16.
Our audit procedures included:
• Obtaining an understanding of relevant controls over the returns provision;
• Reviewing the group’s published returns policy and assessed the impact of this on the calculation;
• Testing the validity of the inputs to management’s provision for returns calculation;
• Assessing the returns subsequent to year end in comparison to the provision to assess whether any contradictory evidence exists,
including the reduced rate of return as a consequence of Covid-19;
• Challenging the key assumptions utilised in the return provision calculation in line with the historical data; and
• Recalculating the provision for returns based on our judgements taken from the historical data.
Key observations
From the work performed, we concluded that the key assumptions applied in the returns provision are appropriate.
AUDITOR’S REPORT
JOULES GROUP PLC
AUDITOR’S REPORT 83
6. OUR APPLICATION OF MATERIALITY
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
415k (2019: £633k)
£275k (2019: £627k)
Basis for determining
materiality
Materiality was determined on the basis of a professional
judgement using a blended consideration of financial performance
and position, with reference to revenue and net assets. (2019: 5%
of profit before tax).
Parent company materiality equates to 3% of net assets, which is
capped at 66% of group materiality (2019: 3% of net assets).
Rationale for the
benchmark applied
Materiality is a professional judgement and we consider that the
group is a comparable business both before the pandemic and
once emerged from lockdown. The benchmarks applied give
a representative reflection of the performance and position of
the business.
There has been a 34% reduction in level of materiality from the prior
year to reflect the financial performance in the year and financial
position at the year end.
We have assessed the use of the net asset balance to be
appropriate as the parent company acts as a holding company for
the group’s operations and as such, the value of its net assets is the
key financial metric.
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed
the materiality for the financial statements as a whole. Group performance materiality was set at 70% of group materiality for the 2020 audit (2019: 70%). In
determining performance materiality, we considered the following factors:
a. the quality of the control environment;
b. the number of control deficiencies identified;
c. the low volume and value of corrected and uncorrected misstatements idenified in the previous audit;
d. low turnover of management or key accounting personnel; and
e. the market anouncement issued in January 2020 which was a consequence of lower than anticipated sales over the Christmas 2019 period.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £20k (2019: £30k), as well as differences below
that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT
7.1 Identification and scoping of components
The group’s main operations are within the UK, with non-significant components in the US, Hong Kong, and China. There are no significant sub-consolidations and
the group structure is consistent with the prior year with no acquisitions or disposals arising in the period.
We have concluded that the UK is the only financially significant component within the group. The main UK trading entity, Joules Limited contributes 90% (2019:
92%) of the group’s total revenue and represents 87% (2019: 92%) of the group’s net assets before consolidation eliminations.
The US component has been subject to specified audit procedures on certain balances such as inventory, trade receivables and revenue in the current year. This is
a similar scope to the prior year. The US component contributes 9% (2019: 8%) of the group’s total revenue.
In aggregate, our procedures have covered 99% of total revenue, 98% of total assets and 96% of total liabilities across the Group.
The range of component materialities used were between £145k and £275k, representing between 50-95% of group performance materiality. All the audit work
was undertaken directly by the group engagement team and no component auditors were used.
At the group level we also tested all consolidation adjustments and carried out analytical procedures to confirm our conclusion that there were no significant risk of
misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified balances.
84 AUDITOR’S REPORT
AUDITOR’S REPORT
JOULES GROUP PLC
7.2 Our consideration of the control environment
As part of our control environment understanding, we considered the key IT systems relevant to the audit. We have tested key IT systems including the group’s ERP,
stock management system and point of sale interface.
We relied on key IT controls for the UK component but have performed a fully substantive audit over all areas of the financial statements as we were unable to
rely on controls as we have not been able to obtain detailed evidence of the controls occurring in the period or found that the controls do not fully address our
identified risks of material misstatement.
8. OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in respect of these matters.
9. RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group
or the parent company or to cease operations, or have no realistic alternative but to do so.
10. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Report on other legal and regulatory requirements
11. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
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 financial year for which the financial statements are prepared is consistent with
the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not
identified any material misstatements in the strategic report or the directors’ report.
AUDITOR’S REPORT
JOULES GROUP PLC
AUDITOR’S REPORT 85
12. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
12.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited
by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
12.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made.
We have nothing to report in respect of these matters.
13. USE OF OUR REPORT
This report is made solely to the company’s members, 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.
ANDREW HALLS FCA
Senior statutory auditor
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
5 August 2020
86 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
JOULES GROUP PLC
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
NOTE
REVENUE
Cost of sales
GROSS PROFIT
Other administrative expenses
Share-based compensation
Exceptional administrative expenses
Total administrative expenses
OPERATING (LOSS)/PROFIT
Finance costs
(LOSS)/PROFIT BEFORE TAX
Income tax credit/(expense)
(LOSS)/PROFIT FOR THE PERIOD
Basic earnings per share (pence)
Diluted earnings per share (pence)
2
6
6
190,808
(93,997)
96,811
(99,273)
28
371
(21,480)
217,970
(98,583)
119,387
(103,665)
(2,616)
-
3
6
7
8
27
27
(120,382)
(106,281)
(23,571)
(1,774)
(25,345)
4,640
(20,705)
(22.07)
(22.07)
13,106
(251)
12,855
(2,701)
10,154
11.57
11.32
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
JOULES GROUP PLC
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
NOTE
(LOSS)/PROFIT FOR THE PERIOD
(20,705)
10,154
Items that will not be reclassified subsequently to profit or loss:
Net (loss)/gain arising on changes in fair value of hedging instruments entered into for cash flow hedges
Gains/(losses) arising during the period on deferred tax on cash flow hedges
(Losses)/gains arising during the period on deferred tax on share options
Exchange difference on translation of foreign operations
21
21
18
21
(2,425)
472
(177)
732
3,378
(689)
-
157
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
(22,103)
13,000
Note on IFRS 16 - Leases:
As previously noted, the modified retrospective transition approach has been adopted by the Group, which is available within the new accounting standard
and therefore comparative disclosures have not been restated for the impact of IFRS 16 - Leases, which came into effect for accounting periods commencing after
1 January 2019.
CONSOLIDATED FINANCIAL STATEMENTS 87
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
JOULES GROUP PLC
NOTE
31 MAY 2020
£’000
RESTATED 26 MAY 2019
£’000
RESTATED 28 MAY 2018
£’000
NON-CURRENT ASSETS
Property, plant and equipment
Intangibles
Right-of-use assets
Deferred tax
Derivative financial instruments
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Right of return asset
Trade and other receivables
Current corporation tax receivable
Cash and cash equivalents
Derivative financial instruments
TOTAL CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Lease liabilities
Current corporation tax payable
Borrowings
Provisions
Right of return provision
Derivative financial instruments
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Borrowings
Lease liabilities
Derivative financial instruments
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITIES
Share capital
Hedging reserve
Translation reserve
EBT reserve
Merger reserve
Retained earnings
Share premium
TOTAL EQUITY
9
10
11
18
13
12
12
14
23
13
15
11
17
16
16
13
17
11
13
19
21
21
22
20
20
20
20,547
20,507
31,993
3,135
383
76,565
32,938
2,364
9,226
2,099
26,243
928
73,798
150,363
31,678
11,047
-
12,924
2,368
5,129
-
63,146
8,780
35,635
473
44,888
108,034
42,329
1,081
999
1,250
(769)
17,245
16,862
-
958
-
35,065
35,311
615
17,763
-
16,013
3,320
73,022
108,087
43,241
-
1,612
6,769
247
1,548
-
53,417
3,447
-
-
3,447
56,864
51,223
878
2,631
518
(322)
(125,807)
(125,807)
139,067
26,508
42,329
161,915
11,410
51,223
18,049
12,614
-
1,148
428
32,239
32,795
429
16,166
-
8,571
910
58,871
91,110
40,636
-
1,355
5,559
264
1,196
1,680
50,690
2,972
-
-
2,972
53,662
37,448
875
(277)
361
-
(125,807)
150,886
11,410
37,448
Note on prior year restatement: For further details on the restatement of prior year balances, refer to Note 1-Significant Accounting Policies.
These financial statements of Joules Group plc (Company Registration Number 10164829) were approved by the Board of Directors and authorised for issue on 5
August 2020 and were signed on behalf of the Board of Directors by -
MARC DENCH - Chief Financial Officer
5 August 2020
88 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
JOULES GROUP PLC
MERGER
RESERVE
£’000
HEDGING
RESERVE
£’000
TRANSLATION
RESERVE
£’000
EBT
RESERVE
£’000
SHARE
CAPITAL
£’000
SHARE
PREMIUM
£’000
RETAINED
EARNINGS
£’000
TOTAL
EQUITY
£’000
875
11,410
150,886
37,448
BALANCE AT 27 MAY 2018 - RESTATED1
(125,807)
(277)
Profit for the period
Other comprehensive income for the period
TOTAL COMPREHENSIVE INCOME FOR
THE PERIOD
Basis adjustment to hedged inventory
EBT share purchases and commitments
Shares issued (note 19)
Dividends issued (note 29)
Credit to equity for equity-settled share-
based compensation excl. NI (note 28)
-
-
-
-
-
-
-
-
-
2,689
2,689
219
-
-
-
-
BALANCE AT 26 MAY 2019 - RESTATED1
(125,807)
2,631
Effect of initial adoption of IFRS 16
-
-
BALANCE AS AT 26 MAY 2019 -
RESTATED
(125,807)
2,631
(Loss) for the period
Other comprehensive income for the period
TOTAL COMPREHENSIVE INCOME FOR
THE PERIOD
Basis adjustment to hedged inventory
Share-based compensation options satisfied
through the EBT reserve
EBT share purchases and commitments
Shares issued (note 19)
Dividends issued (note 29)
Debit to equity for equity-settled share-based
compensation excl. NI (note 28)
Debit to equity for cash paid on net - settled
witheld share-based compensation
-
-
-
-
-
-
-
-
-
-
-
(1,953)
(1,953)
321
-
-
-
-
-
-
361
-
157
157
-
-
-
-
-
518
-
518
-
732
732
-
-
-
-
-
-
-
-
-
-
-
-
(322)
-
-
-
(322)
-
(322)
-
-
-
-
724
(1,171)
-
-
-
-
-
-
-
-
-
3
-
-
878
-
878
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,154
10,154
-
2,846
10,154
13,000
-
-
(3)
219
(322)
-
(1,800)
(1,800)
2,678
2,678
11,410
161,915
51,223
-
170
170
11,410
162,085
51,393
-
-
-
-
-
-
(20,705)
(20,705)
(177)
(1,398)
(20,882)
(22,103)
-
321
(349)
(375)
-
-
(1,171)
15,301
(1,202)
(1,202)
(267)
(267)
(318)
(318)
203
15,098
-
-
-
-
-
-
BALANCE AT 31 MAY 2020
(125,807)
999
1,250
(769)
1,081
26,508
139,067
42,329
1For further details on the restatement and prior year balances, refer to Note 1 - Significant Accounting Policies.
CONSOLIDATED FINANCIAL STATEMENTS 89
CONSOLIDATED CASH FLOW STATEMENT
JOULES GROUP PLC
Cash generated from operations
(LOSS)/PROFIT FOR THE PERIOD
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of use assets
Amortisation
Exceptional administrative expenses
Share-based compensation
Finance cost expense
Income tax (credit)/expense
OPERATING CASH FLOWS BEFORE MOVEMENTS IN WORKING CAPITAL
Decrease/(Increase) in inventory and right of return asset
Decrease/(Increase) in receivables
(Decrease)/Increase in payables and right of return provision
CASH GENERATED BY OPERATIONS
Bank interest paid
Interest paid on lease liabilities
Tax paid
NET CASH FROM OPERATING ACTIVITIES
Cash flow from investing activities
Purchase of property, plant and equipment and intangible assets
NET CASH FROM INVESTING ACTIVITIES
Cash flow from financing activities
Purchase of EBT shares
Issue of shares
Capital element of lease repayments
Repayment of borrowings
Proceeds from borrowings
Dividend paid
NET CASH FROM FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
NOTE
(20,705)
10,154
9
11
10
3
28
7
8
11
3,018
12,645
3,803
20,976
(371)
1,774
(4,640)
16,500
624
8,537
(11,573)
14,088
(366)
(1,408)
(931)
11,383
5,126
-
2,672
-
2,616
251
2,701
23,520
(2,702)
(1,597)
3,125
22,346
(270)
-
(2,936)
19,140
9/10
(13,686)
(13,686)
(11,502)
(11,502)
11
24
24
29
24
(1,171)
15,570
(12,306)
(348)
11,850
(1,202)
12,393
10,090
16,013
140
(322)
-
-
(449)
2,134
(1,800)
(437)
7,201
8,571
241
CASH AND CASH EQUIVALENTS AT END OF PERIOD
23
26,243
16,013
90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JOULES GROUP PLC
1. SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF COMPLIANCE
The financial 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 financial statements comprise the financial information of the parent
undertaking and its subsidiary undertakings.
Joules Group plc is a public company limited by shares whose principal
activities are the design and sale of lifestyle clothing, related accessories and
a homeware range, through the multi-channel business structure including retail
stores, e-commerce, county shows and events and wholesale. The company’s
registered office is Joules Building, The Point, Rockingham Road, Market
Harborough, Leicestershire, LE16 7QU.
For the year ended 31 May 2020 the following subsidiaries of the Company
were entitled to exemption from audit under s479A of the Companies Act
2006 relating to subsidiary companies.
The Group has used the modified retrospective transitional approach on
adoption of IFRS 16 - Leases which means that the right-of-use asset and
the lease liability are brought onto the Statement of Financial Position at the
discounted amount applicable at the transition date, which is 27 May 2019.
Operating leases that were active at 27 May 2019 and beyond have been
incorporated into the results for the 53 weeks ended 31 May 2020.
The right-of-use asset has been depreciated in accordance with IAS 16
“Property, Plant and Equipment” and in line with the Group’s existing policies
(straight-line over the lease term), whilst the lease liability has been increased
for the accumulation of interest and reduced by lease payments. There
will be no impact on cash flow overall, however, classifications within the
Consolidated Cash Flow Statement will change to reflect the interest and
capital elements of each lease payment.
When applying IFRS 16 - Leases, the Group has applied the following
practical expedients, on transition date:
• Reliance on the previous identification of a lease (as provided by IAS 17)
for all contracts that existed on the date of initial application;
SUBSIDIARY NAME
Joules Investments Holdings Limited
COMPANIES HOUSE
REGISTRATION NUMBER
08752970
• The accounting for operating leases with a remaining lease term of less
than 12 months as at 27 May 2019 as short-term leases, therefore will
continue to be expensed to the Consolidated Income Statement; and
Joules Limited
Joules Developments Limited
Joules Property Limited
02934327
11250107
11250113
APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRSs)
• The use of hindsight when determining the lease term if the contract
contains options to extend or terminate the lease.
A reconciliation between IAS 17 operating lease commitments and IFRS 16
lease liabilities is as follows:
Adoption of new and revised standards
Operating lease commitments at 26 May 2019
With the exception of IFRS 16, which has been incorporated in to these
financial statements, there have been no new IFRSs adopted in the current year
which have materially impacted the Group’s financial statements.
Effects of discounting1
Short term leases2
IFRS 16 – LEASES
OVERVIEW
This is the first set of the Group’s financial statements where IFRS 16 - Leases
has been applied. The impact of adopting IFRS 16 - Leases is material to the
financial statements and is described below, with the financial impact being set
out in the table below.
The standard is effective for periods commencing on or after 1 January 2019.
Under the new standard, the distinction between operating and finance leases
is removed and most leases will be brought onto the Consolidated Statement
of Financial Position, as both a right-of-use asset and a corresponding
lease liability.
Lease liabilities recognised on adoption of IFRS 16
56,377
1The previously disclosed lease commitments were undiscounted, whilst the
IFRS 16 - Leases obligations have been discounted based on the Group’s
incremental borrowing rate.
2Under IAS 17, short term leases relating to pop-up stores were disclosed
within lease commitments, which had lease terms of less than 12 months.
The Group’s ongoing policy choice under IFRS 16 - Leases is to not recognise
these as lease liabilities.
£’000
65,625
(8,918)
(330)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 91
The impact of IFRS 16 on the Statement of Financial Position at the transition date is as follows:
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Total equity
27 MAY 2019
PRE - IFRS 16
£’000
TRANSITION
£’000
27 MAY 2019
POST - IFRS 16
£’000
35,065
73,022
58,666
(1,316)
93,731
71,706
108,087
57,350
165,437
53,417
3,447
56,864
51,223
51,223
13,713
43,467
57,180
170
170
67,130
46,914
114,044
51,393
51,393
IFRS 16 – LEASES POLICY
The Group leases its stores and offices where it operates, with the exception of the new Head Office development of which the Group owns the freehold land and
building development. Other lease contracts include office equipment and motor vehicles.
On entering into a contract, the Group assesses whether a contract is a lease based on whether the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease liability on the lease commencement date. The right-of-use asset is initially measured based on the initial
amount of the lease liability, adjusting for any lease payments made on or before the commencement date, plus any initial direct costs incurred, less any lease
incentives received. The assets are depreciated over the full lease term using the straight-line method. right-of-use assets are reviewed for indicators of impairment.
The lease liability is initially measured at the present value of the lease payments that are outstanding at the commencement date, discounted using the interest rate
implicit in the lease, or if that rate cannot be readily determined, the Group’s incremental borrowing rate for the same term as the underlying lease. Lease payments
included in the measurement of the liability contain fixed payments, break fees where appropriate, less any lease incentives receivable as at the commencement
date. Lease modifications result in a remeasurement of the lease liability.
Depreciation is recognised under administrative expenses and the interest expense is recognised under finance costs in the Consolidated Income Statement.
The Group has elected to use the exemption not to recognise the right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or
less. The payments associated with these leases are recognised as administrative expenses on a straight-line basis over the lease term, the total amount expensed in
the period amounted to £792,000.
New accounting standards, amendments and interpretations in issue but not yet effective
There are several standards and interpretations issued by the IASB that are effective for financial statements after this reporting period. Of these new standards,
amendments and interpretations, there are none which are expected to have a material impact on the Group’s consolidated financial statements.
92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PREPARATION
The financial statements have been prepared on the historical cost basis, except for certain financial assets and liabilities that are measured at fair value at the end
of each reporting period, as explained in the accounting policies below.
For financial 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 significance 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.
The preparation of financial 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 financial 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 financial statements incorporate the financial 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 sufficient 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 financial 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 flows relating to transactions between members of the Group are eliminated in full on
consolidation. Intragroup balances are repayable on demand.
RESTATEMENT OF PRIOR PERIOD STATEMENT OF FINANCIAL POSITION
An adjustment has been made to prior periods’ Statement of Financial Positions to accruals and other debtor balances in relation to a prior period error on the
treatment of Employer’s National Insurance on the Group’s share schemes. Management identified that the liability for share-based payments at 1 June 2018
was understated as a result of historical errors in the calculation of the National Insurance liability. In addition, management identified that in the year ended 31
May 2018 the deferred tax calculated on share-based payments had been posted twice in error and credited through both the income statement and equity. This
resulted in a debtor balance being recognised in error which has been corrected by management in the period in which it arose. There is no impact on the prior
year’s Consolidated Income Statement. The effect on specific financial statement line items within the Consolidated Statement of Financial Position is as follows:
Trade and other receivables
Trade and other payables
Retained Earnings
REPORTED
£’000
18,053
(42,613)
(162,833)
26 MAY 2019
ADJUSTMENT
£’000
(290)
(628)
918
RESTATED
£’000
REPORTED
£’000
17,763
16,456
(43,241)
(40,008)
(161,915)
(151,804)
28 MAY 2018
ADJUSTMENT
£’000
(290)
(628)
918
RESTATED
£’000
16,166
(40,636)
(150,886)
93
94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
• Downside scenario – the ‘Base plan’ adjusted to reflect a slower
recovery of the Group’s stores channel with total store revenues only
achieving approximately 60% of the pre-COVID-19 levels by the end
of FY21, and a deterioration in the wholesale channel receipts with
receivable days more than double the level of FY20.
Within each forecast, management have reflected financial commitments
and the impact of realised or anticipated cost savings from discretionary
and variable costs. No Government support or subsidies, other than those
announced and committed at the date of this report, are included.
The Directors have stress tested the forecast to consider situations under
which the Company would have insufficient liquidity under its current secured
borrowing facilities and/or it would not meet its banking covenant tests. One
such ‘Stress test scenario’ is that of ongoing material disruption to retail store
operations from COVID-19 that result in no store channel revenue and lower
receipts from the Group’s wholesale channels as per the Downside case. The
Stress test scenario assumes higher e-commerce revenue growth than the
Base case on the basis that loyal customers can no longer access the brand
via the store environment - as demonstrated during the period of the UK
lockdown, plus ongoing income from brand licensing and digital marketplace
activities. The Stress test scenario assumes that the Group will reduce its
obligations and financial commitments, such as property leases, in line with
existing contractual terms and that there is no additional Government support
or subsidies to offset costs or support cash flow. The Directors believe, with
reference to the considerations noted above, that, firstly the likelihood of this
situation arising in its most extreme form is remote and, secondly, that they
anticipate that the Group would be able to adapt and respond to mitigate
the impacts and continue to trade and meet its obligations through the period
of consideration.
The Base plan and Downside scenario forecasts indicate that the Group will
remain within its available committed borrowing facilities and in compliance
with covenants throughout the forthcoming 12-month period. Under the
Downside scenario, the Group has more than £25 million available liquidity
headroom through-out the period under consideration and has EBITDA
headroom of £2.9 million against its first covenant test arising in the period with
headroom increasing further for the second covenant test arising in the period.
The Group would also remain within its borrowing facilities and comply with
covenants under the Stress test through this period.
Following consideration of these forecasts and having made appropriate
enquiries, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence until at least 12 months
after the approval of the Financial Statements. Therefore, the Directors continue
to adopt the going concern basis of accounting in preparing the Consolidated
Financial Statements.
GOING CONCERN
As for many businesses in the retail sector, the Group has been significantly
impacted by COVID-19. The impact and management’s initial response is set-
out in detail within the CEO’s report and the Financial Review.
Considering the significant uncertainties faced by the retail sector, including
short-term and potentially more fundamental long-term changes in consumer
behaviour as well as the potential for ongoing operational disruption, the
Directors have undertaken a comprehensive assessment to consider the going
concern and longer-term viability of the Group and Company. In making their
assessment the Directors have considered the following:
• The Group’s financial position, as at the date of this report, and
its committed borrowing facilities available for the time period
under consideration
• The support from the Group’s shareholders and bank, including the
successful equity placing and financing facility extension that were
completed during the early stages of the UK lockdown
• Alternative sources of financing, including sale & leaseback of freehold
property and asset financing that might reasonably be assumed to be
available to the Group - noting that any financing from these sources
has not been included within the forecasts that support the going
concern assesment
• Financial commitments, including capital commitments, lease commitments,
stock purchases and other non-variable/non-discretionary costs. In
respect of property leases, The Directors note the relatively short lease
commitments, of less than three years on average, that the Group has
across its store portfolio together with recent progress on renewing leases
on favourable terms
• The extent of continued Government support initiatives including business
rates relief and the Coronavirus Job Retention Scheme (CJRS)
• Strength of brand, reflected in active customer growth, brand awareness
and brand health metrics - as detailed more fully in the Strategic Review
• The flexibility and agility of the Group’s business model, as described in
the Strategic Review, noting that over half of the Group’s retail sales are
via e-commerce and that the Group has diversified sources of revenue,
operating across several channels and geographic markets, with owned
and third-party channels including wholesale and marketplaces. Newer
income streams of brand licensing and the Group’s digital marketplace
provide additional comfort on the strength of the brand and diversity of
income channels.
The Directors have also considered the trading performance of the Group’s
stores as they have re-opened on a phased basis following the easing of the
UK’s lockdown restrictions on 15 June 2020, as well as the performance of the
Group’s e-commerce channel that has continued to exceeded management’s
expectations since the start of the UK lockdown.
The Directors have reviewed management’s business plan forecasts that cover
the period to 28 May 2023, being the Group’s strategic plan horizon. The
forecasts have been produced on the following basis:
• Base plan – gradual sales recovery post-COVID-19, reflecting
management’s estimates for the speed and extent of recovery across its
different sales channels and markets. It reflects phased store re-openings
from mid-June 2020 through to mid-August 2020 with the re-opened
stores initially trading significantly below the prior year, improving to 75-
80% of the prior year’s sales level by the end of FY21, with modest growth
thereafter. Third-party wholesale channels are assumed to follow a similar
trajectory. The Group’s e-commerce sales are forecast to grow at double-
digit levels reflecting, performance over recent years and experienced
since the UK lockdown in late March 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 95
SALE OF GOODS AND REVENUE RECOGNITION
The Group’s contracts with customers for the sale of products generally include
one performance obligation being the delivery of the goods. The Group has
concluded that revenue from the sale of product should be recognised at the
point in time when control of the asset is transferred to the customer i.e. on the
delivery of the product.
Royalties on licensed products are recognised on a straight-line basis as
license income over the period of the invoice, which is typically invoiced
quarterly. Any additional royalties due are accrued as earned based on
sales statements received from product license partners, to reflect delivery of
the product. Commission received from digital marketplace sales is invoiced
monthly and recognised in the month that the sale occurred.
Revenue is measured at the fair value of the consideration received or
expected to be receivable. Revenue is recorded excluding Value Added Tax
and is reduced for actual and estimated customer returns, discounts, rebates
and other similar allowances.
RETURNS PROVISION
Present obligations for the actual and estimated customer 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.
PROPERTY, PLANT AND EQUIPMENT
Land and buildings held for use in the production or supply of goods or for
administrative purposes, are stated in the Statement of Financial Position
at their fair value, being the deemed cost at the date of acquisition, less
any subsequent accumulated depreciation and subsequent accumulated
impairment losses. Assets in the course of construction for production, supply or
administrative purposes, are carried at cost, less any recognised impairment
loss. Depreciation of these assets commences when the assets are ready for
their intended use.
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 finance lease term,
whichever is the shorter.
Land and Buildings - Buildings straight line over 25 years, Land
non-depreciating
Leasehold improvements - straight line over the lease period, typically
5-10 years
Fixtures and fitting - straight line over 3-5 years
Motor vehicles - straight line over 4 years
Useful lives are reviewed annually and carrying values adjusted in line with
third party valuations where appropriate.
INTANGIBLE ASSETS
TRADEMARKS AND OTHER INTANGIBLES
Trademarks and other intangibles are measured initially at purchase cost and
are amortised on a straight-line basis over their estimated useful lives.
IT SYSTEMS
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 benefit, which is typically between three to eight years. The new ERP
system is being depreciated over eight years.
INTANGIBLE ASSETS ACQUIRED SEPARATELY
Intangible assets with finite 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.
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 benefits;
• the availability of adequate technical, financial 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 first
meets the recognition criteria listed above. Where no internally-generated
intangible asset can be recognised, development expenditure is recognised in
profit 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.
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic
benefits 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 are recognised in profit or loss when the asset is derecognised.
IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS
At each Statement of Financial 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 flows are discounted
to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific 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 profit or loss.
96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventory is carried in the financial statements at the lower of cost and net
realisable value. Cost includes product purchase price and associated inward
transportation costs. Net realisable value is based on estimated selling price
less further costs incurred to disposal.
TAXATION
Income tax credit/expense represents the sum of the tax currently receivable/
payable and deferred tax.
CURRENT TAX
The tax currently receivable/payable is based on taxable profit for the year.
Taxable profit differs from net profit 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.
DEFERRED TAX
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit.
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 profits will be available against which deductible
temporary differences can be utilised.
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 reflects 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 profit 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.
The assets and liabilities of overseas subsidiaries denominated in a foreign
currency, including fair value adjustments arising on consolidation, are
translated at foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of overseas subsidiaries are translated into sterling
using average foreign exchange rates ruling at the date of transaction.
Foreign exchange differences arising on retranslation are recognised in the
retranslation reserve in equity.
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, net of any third-party recoveries that can be
measured reliably.
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.
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. In line with IFRS 16, each lease delapidation provision
is capatalised within the right-of-use asset of each lease and depreciated
over the life of the lease where any delapadation costs could be reasonably
estimated at the comencement date.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised when a group entity
becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of
financial assets and financial liabilities are added to or deducted from the fair
value of the financial assets or financial liabilities, as appropriate, on initial
recognition.
FINANCIAL ASSETS
LOANS AND RECEIVABLES
Trade and other receivables originated by the Company are stated at
amortised cost as reduced by appropriate allowances for doubtful debts
using the Expected Credit Loss model, as detailed in note 14 “Trade and other
receivables”.
Trade and other receivables that have fixed or determinable payments that are
not quoted in an active market are classified as ‘Trade and other receivables’.
They 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are measured at transaction cost, based on the
relevant exchange rates at the Statement of Financial Position and include
overdrafts where these are used on a day-to-day basis to manage cash.
OTHER FINANCIAL LIABILITIES
Other financial liabilities, including loans payable, are initially measured at
fair value, net of transaction costs. Other financial 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 FLOW HEDGES
The Group holds derivative financial instruments to hedge its foreign currency
exposures. These derivatives, classified as cash flow hedges, are initially
recognised at fair value and then re-measured at fair value at the end of
each reporting date. Hedging relationships are documented at inception
and effectiveness is tested throughout their duration. Changes in the value of
cash flow hedges are recognised in other comprehensive income and any
ineffective portion is immediately recognised in the income statement.
If the firm commitment or forecast transaction that is the subject of a cash flow
hedge results in the recognition of a non-financial asset or liability, then at the
time the asset is recognised, the associated gains or losses on the derivative
that had been previously recognised in other comprehensive income are
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 97
included in the initial measurement of the asset or liability (reclassified to the
balance sheet). 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 profit.
SHARE-BASED COMPENSATION
Equity-settled share-based compensation 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 28.
The fair value determined at the grant date of the equity-settled share-based
compensation 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 Statement of Financial Position 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 profit or loss such that the cumulative
expense reflects the revised estimate, with a corresponding adjustment to
equity reserves.
SHARES HELD BY EBT
During the year ended 26 May 2019 Joules Group plc set up an Employee
Benefit Trust (“EBT”) to provide for the issue of shares to Group employees,
principally under share option schemes. Shares in the Company held by the
EBT are included in the Statement of Financial Position at cost, including any
directly attributable incremental costs, as a deduction from equity.
EXCEPTIONAL ADMINISTRATIVE EXPENSES
Exceptional Administrative Expenses are those that, in management’s
judgment, should be disclosed by virtue of their nature or amount. Exceptional
Administration Expenses will typically include items that are significant in nature,
non-recurring and are important to users in understanding the business.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY
Drawing up the financial 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. However,
actual results may differ from these estimates and assessments will bring about
an adjustment in the value of the assets and liabilities in the next financial
year. The Directors have not considered there to be any critical accounting
judgements present.
In accordance with IAS 1 the Group is required to disclose critical accounting
judgements and key sources of estimation uncertainty, the Directors have
identified the following key estimates:
Returns provision – rate of return
In preparing the financial statements the Directors have made estimates with
regard to the variable consideration element within product sales as a result
of returns. The Directors have used their accumulated historical knowledge
of returns to model the level of provision required and have also taken into
account the extension of the returns policy to 365 days and the impact for the
period that stores were closed.
The rate of returns expected in relation to e-commerce sales is considered to
be a source of estimation uncertainty. Sensitivity analysis has been carried out
on the rate of return used at the year end using a reasonable change in rate:
• An increase/decrease of 3% in the expected rate of return for
e-commerce sales would increase/decrease the returns provision
by £533,000
Value in use calculations
A key estimate in relation to the impairment charge recognised for right-of use
assets, property plant and equipment and intangible assets, is the calculation
of the value in use for each separate cash-generating unit (“CGU”). Each
CGU comprises of the right-of use asset for each store, as well as any fixtures
and fittings associated directly to each store. The value in use is calculated
from expected future cash flows using suitable discount rates, management
assumptions and estimates on future performance. Future cash flows include an
apportionment of relevant head office costs, and only includes direct revenues
from store sales, in line with the Management’s Base Plan which is summarised
further under the Going Concern section of Note 1.
The discount rate used for the value in use calculation is considered to be a key
source of estimation uncertainty, which has been calculated at 8.5%. Sensitivity
analysis has been carried out on the impairment calculations using various
reasonably possible scenarios, including discount rates and a change to the
sales assumptions in the base financial plan:
• An increase of 2% in the discount rate would increase the impairment
charge by £808,000
• A decrease of 2% in the discount rate would decrease the impairment
charge by £806,000
• An increase of 2% in sales growth each year would decrease the
impairment charge by £872,000
• A decrease of 2% in sales growth each year would increase the
impairment charge by £928,000
IFRS 16 – Discount rate
Another estimate associated with the adoption of IFRS 16 - Leases is the
identification of the discount rate to be used to calculate the present value of
the future lease payments on which the reported lease liability and right-of-use
asset are based. For any new lease, an interest rate might be determined at
the point of entering the lease. However, with no such information available for
existing leases, a discount rate of 2.5% has been used to reflect the impact of
the transition to IFRS 16 - Leases, derived from existing borrowing rates.
Dilapidations provision
A key estimate associated with the transition to IFRS 16 – Leases is the
recognition of any dilapidation costs within the right-of use asset for each
lease, and a subsequent dilapidation provision. Dilapidation costs are
estimated at the commencement date of each lease. For retail stores, the
dilapidations provision is calculated using an average cost per store based
on the most recent dilapidation costs incurred from stores exited. Estimated
dilapidation costs for other non-retail leases are based on management’s
accumulated historical knowledge of buildings of similar size and purpose.
Based on the factors set out above, the Group has recognised a dilapidations
provision of £2,368,000 at the end of the period.
The average estimate used for each retail store is considered to be a key
source of estimation uncertainty. Sensitivity analysis has been carried out on the
average calculations using various average costs per store:
• An increase/decrease of 20% on the average dilapidations provision
recognised per retail store would result in an increase/decrease of the
provision of £393,000
Aged inventory provision
A key estimate associated with recognising inventory at the lower of cost
and net realisable value is the calculation of the provision for aged inventory.
Management perform an assessment of all inventory, taking into consideration
current sales and forecast sell through plans to consider the impact on the
period end stock holding. The provision for aged inventory at the period end of
£682,000 is calculated by providing for 50% of inventory that is two-seasons
old and providing for 90% of inventory that is more than three seasons old.
A percentage point increase of 40% on the provision for inventory that is two-
seasons old would result in an increase of the provision of £510,000.
98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. REVENUE
The revenue and profit before taxation are attributable to the one principal activity of the Group.
Sale of goods
Third party sales - licensing royalties and commision
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
188,566
2,242
190,808
216,176
1,794
217,970
3. EXCEPTIONAL ADMINISTRATIVE EXPENSES
The exceptional administrative expenses recognised in the period relate to right-of use assets, property plant and equipment, and intangible assets which are
impaired, as well as other costs associated with redundancy payments and financing costs. The total charge recognised in the period can be categorised
as follows:
Impairment of Property, plant and equipment
Impairment of Intangible assets
Impairment of Right-of-use assets
Other exceptional costs
Total
53 WEEKS ENDED 31 MAY 2020
HEAD
OFFICE AND
SHOWROOMS
£’000
216
141
3,573
333
4,263
STORES
£’000
2,608
-
13,144
-
15,752
OTHER
£’000
1,294
-
-
171
TOTAL
£’000
4,118
141
16,717
504
1,465
21,480
STORE IMPAIRMENTS
Retail stores are subject to impairment based on whether current or future events and conditions suggest that their recoverable amount may be less than their
carrying value. The recoverable amount of each store is based on the higher of the value in use and fair value less costs to dispose. As all of the Group’s retail
stores are leasehold, only the value in use has been considered in each impairment assessment. Value in use is calculated from expected future cash flows using
suitable discount rates, management assumptions and estimates on future performance. The carrying value for each store is considered net of the carrying value
of any cash contribution received in relation to that store. For impairment testing purposes, the Group has determined that each store is a separate CGU. Each
CGU is tested for impairment if any indicators of impairment have been identified. The value in use of each CGU is calculated based on the Group’s latest budget
and forecast cash flows. Cash flows are discounted using the weighted average cost of capital (“WACC”) and are modelled for each store through to their
lease expiry or break date. No lease extensions have been assumed when forecasting. As a result of this assessment impairment charges of £13,144,000 and
£2,608,000 were recognised in the period against the right-of-use asset and property, plant and equipment respectively for the stores which are impaired.
OTHER LEASES AND FIXED ASSETS
Management have also assessed whether any other lease arrangements show impairment indicators. The development of the Group’s new Head Office which is
due to be completed in 2020 has resulted in the current Head Office leasehold buildings undergoing an impairment assessment. An in-depth review of other fixed
assets has also been performed to identify any which are intrinsically associated with the current Head Office buildings as well as other locations, and those that
have a value in use which is below the carrying value. The calculation of the net present value of future cash flows is based on the same assumptions for growth
rates and expected changes to future cash flows as set out above. The cost of exiting leases as set out in the lease agreement, either at the end of the lease or
the lease break date (whichever is shorter), have been considered in the calculation. Based on the factors set out above, the Group has recognised £3,573,000
relating to other leases and £4,259,000 relating to fixed assets which are impaired.
OTHER EXCEPTIONAL COSTS
During the year one-off charges of £504,000 were incurred relating to restructuring costs.
Any amounts which become recoverable for which an amount has been recognised as an exceptional expense will be recognised as a gain through exceptional
items in the relevant period.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 99
4. 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, and the ‘Friends of Joules’ digital marketplace, central costs and items that are not distinguishable into the
segments 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. Operating results, being earnings before exceptional administration expenses, share-based compensation, interest and taxation 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.
53 WEEKS ENDED 31 MAY 2020
REVENUE
Cost of sales
GROSS PROFIT
Administration expenses
Depreciation and amortisation
OPERATING RESULT
Costs unallocated to segments:
Share-based compensation (incl. NI)
Exceptional administrative expenses
Finance costs
LOSS BEFORE TAX
52 WEEKS ENDED 26 MAY 2019
REVENUE
Cost of sales
GROSS PROFIT
Administration expenses
Depreciation and amortisation
OPERATING RESULT
Costs unallocated to segments:
Share-based compensation (incl. NI)
Finance costs
PROFIT BEFORE TAX
RETAIL
£’000
WHOLESALE
£’000
OTHER
£’000
TOTAL
£’000
145,898
42,668
2,242
190,808
(62,880)
(31,117)
-
(93,997)
83,018
11,551
2,242
96,811
(42,423)
(12,219)
(25,165)
(79,807)
(13,964)
(773)
(4,729)
(19,466)
26,631
(1,441)
(27,652)
(2,462)
371
(21,480)
(1,774)
(25,345)
RETAIL
£’000
WHOLESALE
£’000
OTHER
£’000
TOTAL
£’000
159,088
57,088
1,794
217,970
(62,682)
(35,901)
-
(98,583)
96,406
21,187
1,794
119,387
(56,350)
(11,963)
(27,554)
(95,867)
(4,390)
(663)
(2,745)
(7,798)
35,666
8,561
(28,505)
15,722
(2,616)
(251)
12,855
100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GEOGRAPHICAL INFORMATION
The Group’s revenue from external customers and non-current assets by geographical location are detailed below.
53 weeks ended 31 May 2020
Revenue
Non-current assets
52 weeks ended 26 May 2019
Revenue
Non-current assets
5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES
Staff costs during the period
Wages and salaries
Social security costs
Other pension costs
Equity-settled share-based compensation charges
The average number of employees (including executive directors) was:
Head office
Stores and Shows
Warehousing
Staff costs are net of government job retention scheme grants totalling £2.4million.
UK
£’000
INTERNATIONAL
£’000
TOTAL
£’000
161,307
75,554
182,917
33,845
29,501
1,011
35,053
1,220
190,808
76,565
217,970
35,065
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
31,546
3,002
763
(371)
32,846
3,903
793
2,677
34,940
40,219
573
1,235
128
1,936
539
1,152
132
1,823
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 101
DIRECTORS’ REMUNERATION
The tables below detail the total remuneration earned by each Executive Director:
53 WEEKS ENDED
31 MAY 2020
Executive Directors
T S L Joule
C N Porter*
N D G Jones*
M S Dench
Non-Executive Directors
I F Filby
J C Little
D A Stead
TOTAL
SALARIES/
FEES
£’000
TAXABLE
BENEFITS
£’000
PENSION
£’000
ANNUAL
BONUS
(including
deferred bonus)
£’000
LTIP
£’000
ONE-OFF
AWARDS
£’000**
TOTAL
REMUNERATION
£’000
284.8
146.6
294.0
256.8
120.0
50.0
45.8
21.0
12.6
12.6
16.7
-
-
-
17.1
7.3
9.5
12.8
-
-
-
1,198.0
62.9
46.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
223.1
33.8
-
-
-
322.9
166.5
539.2
320.1
120.0
50.0
45.8
256.9
1,564.5
* Colin Porter retired as CEO, and Nick Jones was appointed as CEO, with effect from 30 September 2019. Nick Jones’ remuneration in the table above reflects
his remuneration from 2 September 2019, the date on which he joined the Company. Colin Porter’s remuneration in the table above reflects his remuneration to his
last day of employment with the Company, which was 31 October 2019.
** The one-off awards reflect one-off share awards granted in FY20, as further described in the Directors Remuneration Report. The award to both Nick Jones
and Marc Dench, in respect of their waived salary, was based on a share price of £0.80. The joining award for Nick Jones only was based on a share price of
£1.3264.
52 WEEKS ENDED
26 MAY 2019
Executive Directors
T S L Joule
C N Porter
M S Dench
Non-Executive Directors
I F Filby**
N W McCausland**
J C Little
D A Stead
TOTAL
SALARIES/
FEES
£’000
TAXABLE
BENEFITS
£’000
PENSION
£’000
ANNUAL
BONUS
(including
deferred bonus)
£’000
338.3
348.0
267.7
100.0
13.3
50.0
55.0
22.9
22.2
16.4
-
-
-
-
15.8
17.4
13.4
-
-
-
-
188.1
193.8
148.9
-
-
-
-
LTIP*
£’000
497.5
512.4
490.1
-
-
-
-
TOTAL
REMUNERATION
£’000
1,062.6
1,093.8
936.5
100.0
13.3
50.0
55.0
1,172.3
61.5
46.6
530.8
1,500.0
3,311.2
*An estimated market share price at vesting was used and this was calculated as the volume weighted three month average share price to 18 July 2019.
**Neil McCausland retired as Non-Executive Chairman on 31 July 2018. Ian Filby was appointed as Non-Executive Chairman commencing on 1 August 2018.
The number of Directors to whom retirement benefits have accrued during the Period was 3 (2019: 3).
102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. PROFIT FOR THE YEAR
Profit before tax is stated after charging/(crediting):
Cost of inventories recognised as expense
Write down of inventory in the period
Transportation, carriage and packaging
Property rent and service charges*
Depreciation of property, plant and equipment
Depreciation of Right-of-use assets
Amortisation of intangible assets
Staff costs (see note 5)
Share-based compensation
Exceptional adminitrative expenses (see note 3)
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
79,850
682
11,499
792
3,018
12,645
3,803
35,311
(371)
21,480
85,303
696
10,517
13,998
5,126
-
2,672
37,542
2,616
-
*The movement in this line compaired to the prior period is largely due to the transition to IFRS16. The Group has also benefitted from Government business rates relief, which totalled
£776,000 during the period.
AUDITOR’S REMUNERATION
The analysis of auditor's remuneration is as follows:
Audit of these financial statements
Audit of financial statements at subsiduary companies
TOTAL AUDIT FEES
Tax advice
Audit related assurance services
Remuneration and share plan advisory
TOTAL NON-AUDIT FEES
7. FINANCE COSTS
Credit facility interest
Term loan interest
Finance lease interest
Lease liability interest
TOTAL
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
141
-
141
8
5
20
33
94
22
116
7
4
16
27
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
258
108
-
1,408
1,774
210
23
18
-
251
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 103
8. INCOME TAX
a) Analysis of charge in the period
Current tax
UK corporation tax based on the profit for the period
Adjustment in respect of prior periods
Overseas tax
TOTAL CURRENT TAX (CREDIT)/CHARGE
Deferred taxation (note 18)
Adjustment in respect of prior periods
Deferred tax on share-based compensation
Pension contributions
Short lease premiums tax deduction
Movement in fixed asset timing differences
IFRS 16 transitional adjustment
Movement on tax losses
Movement on disallowable provision
Effect of adjustment in tax rate
TOTAL DEFERRED TAXATION (CREDIT)/CHARGE
TAX (CREDIT)/CHARGE FOR THE PERIOD (NOTE 8b)
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
(3,160)
127
275
(2,758)
(251)
599
68
9
(109)
18
(2,019)
-
(196)
(1,882)
(4,640)
3,029
(26)
197
3,200
56
(543)
(64)
(8)
78
-
-
(18)
-
(499)
2,701
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 18)
Gain/(loss) arising during the period on deferred tax on cash flow hedges
Deffered tax on unexercised share options
TOTAL INCOME TAX (LOSS)/GAIN RECOGNISED IN OTHER COMPREHENSIVE INCOME
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
(472)
177
(295)
689
-
689
104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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:
53 WEEKS ENDED
31 MAY 2020
£’000
52 WEEKS ENDED
26 MAY 2019
£’000
(LOSS)/PROFIT BEFORE TAXATION
UK corporation tax at the standard rate
Profit multiplied by the standard rate in the UK
Effects of:
Expenses not deductible for tax purposes and other permanent differences
Depreciation and amortisation on non-qualifying assets
Adjustment in respect of prior period (current tax)
Adjustment in respect of prior period (deferred tax)
Difference in overseas tax rate
Effect of adjustment in deferred tax rate
Share-based compensation
R&D expenditure credits
IFRS 16 practical expedient on transition adjustment
TAX (CREDIT)/EXPENSE FOR THE PERIOD (NOTE 8A)
(25,345)
19.0%
(4,816)
283
442
126
(251)
21
(196)
(300)
33
18
(4,640)
12,855
19.0%
2,442
171
281
(26)
56
45
59
(302)
(25)
-
2,701
The current tax credit in the period includes a reversal of the prior year corporation tax charge for the 52 weeks ended 26 May 2019, following a carry back of
tax losses generated for the 53 weeks ended 31 May 2020.
The Finance Acts 2015 and 2016 included provision to reduce the rate of UK corporation tax to 19% with effect from 1 April 2017, with a further reduction to 17%
with effect from 1 April 2020. During the 53 weeks ended 31 May 2020, the reduction to 17% from 1 April 2020 was repealed such that 19% was the future
corporation tax rate substantively enacted at the Statement of Financial Position date. Deferred taxation is measured by reference to the tax rates/laws that are
enacted/substantively enacted at the Statement of Financial position date for the future periods in which the temporary timing differences are expected to reverse.
Accordingly, the deferred tax balances at 31 May 2020 are calculated at 19% (2019: 17%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 105
9. PROPERTY, PLANT AND EQUIPMENT
LAND &
BUILDINGS
£’000
FIXTURES AND
FITTINGS
£’000
MOTOR
VEHICLES
£’000
COST
At 27 May 2018
Additions
Disposals
Transfers
At 26 May 2019
Additions
Disposals
At 31 May 2020
ACCUMULATED DEPRECIATION
At 27 May 2018
Charge for the period
Disposals
Transfers
At 26 May 2019
Charge for the period
Disposals
Impairment
At 31 May 2020
NET BOOK VALUE
At 27 May 2018
At 26 May 2019
At 31 May 2020
4,715
2,676
-
-
7,391
7,280
-
14,671
-
-
-
-
-
-
-
-
-
4,715
7,391
14,671
28,081
2,357
-
(988)
29,450
3,095
-
32,545
14,750
5,123
-
(277)
19,596
2,980
-
4,118
26,694
13,331
9,854
5,851
93
-
(34)
-
59
63
-
122
90
3
(34)
-
59
38
-
-
97
3
-
25
TOTAL
£’000
32,889
5,033
(34)
(988)
36,900
10,438
-
47,338
14,840
5,126
(34)
(277)
19,655
3,018
-
4,118
26,791
18,049
17,245
20,547
PROPERTY, PLANT AND EQUIPMENT
Transfers in the prior period relate to Trademarks and other intangibles which were previously recorded within Plant, Property and Equipment being reclassified to
Intangible Assets.
Land & buildings comprise of land, buildings and capitalised borrowing costs in relation to the ongoing development of the site intended for use as the Group’s
new head office, which is under construction therefore it is not being depreciated. The amount of borrowing costs capitalised in the year amounted to £112,000,
which is also the cumalitive amount capitalised.
During the year, the Group carried out a review of the recoverable amount of property, plant and equipment. The review led to the recognition of an impairment
loss of £4,118,000, which has been recognised within exceptional administrative expenses in the Consolidated Income Statement.
106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. INTANGIBLE ASSETS
COST
At 27 May 2018
Additions
Disposals
Transfers
At 26 May 2019
Additions
Disposals
At 31 May 2020
ACCUMULATED AMORTISATION
At 27 May 2018
Charge for the period
Disposals
Transfers
At 26 May 2019
Charge for the period
Disposals
Impairment
At 31 May 2020
NET BOOK VALUE
At 27 May 2018
At 26 May 2019
At 31 May 2020
TRADEMARKS
AND OTHER
INTANGIBLES
£’000
IT SYSTEMS
£’000
-
179
-
999
1,178
81
-
17,423
6,030
-
(11)
23,442
7,508
-
TOTAL
£’000
17,423
6,209
-
988
24,620
7,589
-
1,259
30,950
32,209
-
120
-
277
397
124
-
-
521
-
781
738
4,809
2,552
-
-
7,361
3,679
-
141
4,809
2,672
-
277
7,758
3,803
-
141
11,181
11,702
12,614
16,081
19,769
12,614
16,862
20,507
INTANGIBLE ASSETS
Transfers in the prior period relate to trademarks which were previously recorded within Plant, Property and Equipment being reclassified to Trademarks and
other intangibles.
During the year, the Group carried out a review of the recoverable amount of intangeable assets. This review led to the recognition of an impairment loss of
£141,000, which has been recognised within exceptional administrative expenses in the Consolidated Income Statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107
11. LEASES
RIGHT-OF-USE ASSETS:
Balance as at 27 May 2019
Additions
Disposals
Impairment
Modifications
Depreciation of Right-of-use assets
Balance as at 31 May 2020
LEASE LIABILITIES:
LAND &
BUILDINGS
£’000
FIXTURES AND
FITTINGS
£’000
MOTOR
VEHICLES
£’000
57,645
1,381
(533)
(16,717)
1,710
(11,976)
31,330
199
-
-
-
-
(97)
102
356
131
-
-
-
(249)
238
IT
EQUIPMENT
£’000
646
-
-
-
-
(323)
323
LAND &
BUILDINGS
£’000
FIXTURES AND
FITTINGS
£’000
MOTOR
VEHICLES
£’000
IT
EQUIPMENT
£’000
Balance as at 27 May 2019
55,176
199
Additions
Disposals
Interest expense related to lease liabilities
Modifications
1,292
(521)
1,376
1,710
Repayment of lease liabilities (including interest)
(13,020)
Balance as at 31 May 2020
46,013
-
-
3
-
(94)
108
356
130
-
16
-
(265)
237
646
-
-
13
-
(335)
324
TOTAL
£’000
58,666
1,512
(533)
(16,717)
1,710
(12,645)
31,993
TOTAL
£’000
56,377
1,422
(521)
1,408
1,710
(13,714)
46,682
108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. INVENTORIES
Goods for resale
Goods in transit
31 MAY 2020
£’000
26 MAY 2019
£’000
29,475
3,463
32,938
26,403
8,908
35,311
The cost of inventories recognised as an expense during the year in respect of continuing operations in the 53 weeks ended 31 May 2020 was £80,948,000
(2019: £85,948,000). The cost of inventories recognised as an expense includes £682,000 for the 53 weeks ended 31 May 2020 (2019: £696,000) in respect
of write-downs of inventory to net realisable value. Inventories are stated after provisions for impairment of £941,000.
Product is purchased on a seasonal basis with the intention of selling it within 12 months of the purchase date. Any aged stock is appropriately provided for.
Right of return asset
31 MAY 2020
£’000
26 MAY 2019
£’000
2,364
2,364
615
615
The right of return asset represents the Group’s right to recover products from customers where customers exercise their right of return. The Group uses its
accumulated historical experience to estimate the number of returns using the expected value method.
13. 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 31 May 2020, the Group had 78 (2019: 72) forward foreign exchange contracts outstanding. Derivative financial instruments are carried at fair value, further
detailed on note 25.
The following table details the USD foreign currency contracts outstanding as at the balance sheet date.
AVERAGE
EXCHANGE RATE
2019
2020
£/$
£/$
FOREIGN
CURRENCY
NOTIONAL
VALUE
FAIR
VALUE
2020
$’000
2019
$’000
2020
£’000
2019
£’000
2020
£’000
2019
£’000
OUTSTANDING CONTRACTS
Buy U.S. Dollars
Less than 3 months
3 to 6 months
1.245
1.4158
21,809
7,000
17,876
4,945
129
1.229
1.4306
26,309
19,375
21,782
13,532
(129)
6 months and above
1.282
1.3317
28,809
41,000
22,801
30,793
1.254
1.3673
76,927
67,375
62,459
49,270
838
838
545
1,617
1,158
3,320
The Company does not hold Euro to GBP forward options (2019: nil). The US Dollar spot rate at 31 May 2020 was $1.2368/ £1.
The fair value of cash flow hedges of the Group as at 31 May 2020 was an asset of £1,311,000 (2019: £3,320,000) and a liability of £473,000 (2019: £nil)
resulting in a net asset of £838,000 (2019: £3,320,000), further detailed in note 25.
The ineffective component of the cash flow hedge is insignificant and therefore the entire value of the continuing hedges at the year end is recognised within the
cash flow hedge reserve.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 109
14. TRADE AND OTHER RECEIVABLES
Trade receivables – gross
Less: allowance for expected credit losses (calculated under IFRS 9)
Trade receivables – net
Other receivables
Prepayments
TOTAL TRADE AND OTHER RECEIVABLES
31 MAY 2020
£’000
26 MAY 2019
£’000
5,913
(940)
4,973
1,359
2,894
9,226
6,955
(325)
6,630
999
10,134
17,763
All of the Other receivables and Prepayment balances above are deemed to be current and do not include impaired assets. Amounts within prepayments do not
include payment made over one year in advance. The maximum exposure to credit risk at the reporting date is the carrying value of each class of asset.
The Group has no significant 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.
The standard credit period on sales of goods is 30 days. Interest may be charged on outstanding trade receivables. The Group measures the loss allowance for
trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past
default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtor, general economic
conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of trading conditions at the reporting
date. All trade receivable balances are assessed individually.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of
recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade receivables are over two years
past due, whichever occurs earlier. None of the trade receivables that have been written off is subject to enforcement activities.
The following table details the risk profile of trade receivables based on the Group’s provision matrix. As the Group’s historical credit loss experience does not show
significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished between the
Group’s different customer base:
31 MAY 2020
Expected credit loss
Gross carrying amount
Loss allowance
NET TRADE RECEIVABLES
NOT PAST DUE
£’000
<30
£’000
0%
2,440
-
2,440
12%
675
(82)
593
31-60
£’000
16%
1,615
(260)
1,355
>61
£’000
51%
1,183
(598)
585
TOTAL
£’000
15%
5,913
(940)
4,973
As at the date of the approval of these financial statements a total of £3,750,000 has been received in relation to the above trade receivables as follows:
£1,732,000 not past due, £572,000 <30 days past due, £925,000 31-60 days past due and £521,000 and >61 days past due.
26 MAY 2019
Expected credit loss
Gross carrying amount
Loss allowance
NET TRADE RECEIVABLES
NOT PAST DUE
£’000
0%
4,495
(8)
4,487
<30
£’000
2%
1,390
(32)
1,358
31-60
£’000
26%
632
(16)
616
>61
£’000
59%
438
(269)
169
TOTAL
£’000
9%
6,955
(325)
6,630
110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Movement in expected credit losses
BALANCE AT BEGINNING OF PERIOD UNDER IFRS 9
Movement in loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectable
Amounts recovered
BALANCE AT END OF PERIOD
2020
£’000
(325)
(921)
143
163
(940)
2019
£’000
(592)
(227)
172
322
(325)
The table above details the movement in the lifetime expected credit losses that have been recognised for trade and other receivables in accordance with the
simplified approach set out in IFRS 9.
15. TRADE AND OTHER PAYABLES
Trade payables
Other taxation and social security
Deferred income
Other payables
Accruals
31 MAY 2020
£’000
26 MAY 2019
£’000
14,777
2,989
1,431
1,353
11,128
31,678
23,130
3,188
1,108
460
15,355
43,241
Trade and other payables 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.
16. PROVISIONS
Dilapidations provision at the period end is as follows:
Balance brought forward
Additional provision during the period
Utliisation of provision
BALANCE AT END OF PERIOD
31 MAY 2020
£’000
26 MAY 2019
£’000
247
2,121
-
2,368
264
93
(110)
247
Dilapidation costs are estimated at the commencement date of each lease. For retail stores, the dilapidations provision is calculated using an average cost per
store based on the most recent dilapidation costs incurred from stores exited, whereas estimated dilapidation costs for other non-retail leases are based on
management’s accumulated historical knowledge of buildings of similar size and purpose. The provision is expected to be utilised within three years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 111
The right of return provision at the period end is as follows:
Balance brought forward
Additional provision during the period
Utliisation of provision
BALANCE AT END OF PERIOD
31 MAY 2020
£’000
26 MAY 2019
£’000
1,548
5,129
(1,548)
5,129
1,196
1,548
(1,196)
£1,548
The right of return provision relates to the customer’s right to return product following purchase. At the point of sale, a refund liability and a corresponding
adjustment to revenue is recognised for those products expected to be returned. The Group uses its accumulated historical experience to estimate the number of
returns using the expected value method. The provision is expected to be utilised within one year.
17. BORROWINGS
SUMMARY OF BORROWING ARRANGEMENTS
The Credit facility relates to two Revolving Credit Facilities with Barclays Bank PLC that total £40.0 million, in which amounts drawn down are generally repayable
within three months. The original facility of £25.0 million matures in July 2022. In April 2020, the Group established a second Revolving Credit Facility of £15.0
million which matures in April 2021.
The five-year term loan facility with Barclays Bank PLC of £9.5 million is being used by the Group to part fund the development of the Group’s new head office
premises. The term loan facility is secured against the new head office land and buildings asset and £9.0 million of it was drawn down as at the period end
(2019: £4.0m). During the year the repayment profile was renegotiated such that four quarterly payments due from March 2020 were deferred and have been
added to the final payment due on maturity of the loan in December 2023.
The weighted average interest rates paid during the period were as follows:
Credit facility
Term loan
Finance leases
Credit facility
Term loan
Finance leases
53 WEEKS ENDED
31 MAY 2020
%
52 WEEKS ENDED
26 MAY 2019
%
2.4%
1.9%
-
2.3%
1.7%
9.0%
31 MAY 2020
£’000
26 MAY 2019
£’000
12,660
9,044
-
21,704
6,157
3,975
84
10,216
112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BORROWINGS ARE REPAYABLE AS FOLLOWS:
Credit facility
Within one year
Term loan
Within one year
Between one and two years
Between two and five years
Finance leases
Within one year
Between one and two years
Between two and five years
Total borrowings
Within one year
Between one and two years
Between two and five years
31 MAY 2020
£’000
26 MAY 2019
£’000
12,660
6,157
264
1,056
7,724
9,044
-
-
-
-
12,924
1,056
7,724
21,704
528
1,056
2,391
3,975
84
-
-
84
6,769
1,056
2,391
10,216
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 113
18. DEFERED TAXATION
The following is the analysis of deferred tax assets/(liabilities) presented in the consolidated statement of financial position:
DIFFERENCE BETWEEN DEPRECIATION AND CAPITAL ALLOWANCES
Balance brought forward
Credit/(charge) to income statement
Balance at end of period
OTHER SHORT-TERM TIMING DIFFERENCES
Balance brought forward
(Charge)/credit to income statement
Credit/(charge) due to cash flow hedges
(Charge)/credit due to share options
Balance at end of period
TAX LOSSES
Balance brought forward
Credit/(charge) to income statement
Balance at end of period
TOTAL DEFERRED TAX ASSET AT END OF PERIOD
MOVEMENT
Balance brought forward
Credit/(charge) to income statement (note 8)
Credit/(charge) to other comprehensive income (note 8)
BALANCE AT END OF PERIOD
31 MAY 2020
£’000
26 MAY 2019
£’000
333
429
762
616
(283)
333
31 MAY 2020
£’000
26 MAY 2019
£’000
625
(566)
472
(177)
354
532
782
(689)
-
625
31 MAY 2020
£’000
26 MAY 2019
£’000
-
2,019
2,019
3,135
-
-
-
958
31 MAY 2020
£’000
26 MAY 2019
£’000
958
1,882
295
3,135
1,148
499
(689)
958
There is no unprovided deferred tax in the current period for the Group (2019: £nil). The deferred tax asset on tax losses recognised in the current period is
expected to be utilised against future taxable profits. The deferred tax asset on fixed asset and other timing diferences is expected to reverse in future periods.
19. CALLED UP SHARE CAPITAL
Allotted and issued
31 MAY 2020
£’000
26 MAY 2019
£’000
108,135,920 Ordinary shares of £0.01 each (2019: 87,793,809)
1,081
875
Authorised
148,485,165 Ordinary shares of £0.01 each (2019: 116,667,736)
1,485
1,167
During the period new ordinary shares were issued to employees that left the business from the following share schemes: SAYE: 42,387 shares (2019: 11,032),
ESOP: 28,718 shares (2019: 62,500) and LTIP: 289,615 shares (2019: 5,650).
All ordinary shares carry equal rights.
114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. OTHER RESERVES
MERGER RESERVE
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. As a result, a merger reserve of £125,807,000 was created upon acquisition and AIM listing of the
Group on 26 May 2016.
RETAINED EARNINGS
The movement on retained earnings is as set out in the Consolidated Statement of Changes in Equity. Retained earnings represent cumulative profits or losses, net of
dividends and other adjustments.
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.
During the year Joules Group plc undertook a placing of ordinary shares to certain existing shareholders and institutional and other investors, including Directors
of the company. The purpose of the placing was to secure cash proceeds in order to maintain sufficient working capital during the start of the COVID-19
outbreak and be able to emerge relatively stronger from this unprecidented situation. The placing has resulted in an additional £15,098,000 being recognised in
share premium.
Balance at 26 May 2019
Balance at 31 May 2020
21. HEDGING AND TRANSLATION RESERVE
GROUP
BALANCE AS AT 27 MAY 2018
Loss/(gain) arising on changes in fair value on hedging instruments during the period
Other comprehensive income for the period
Deferred tax related to gains/(losses) recognised in other comprehensive income during the period
Basis adjustment to hedged inventory
BALANCE AS AT 26 MAY 2019
(Gain)/loss arising on changes in fair value of hedging instruments during the period
Other comprehensive income for the period
Deferred tax related to gains/(losses) recognised in other comprehensive income during the period
Basis adjustment to hedged inventory
BALANCE AS AT 31 MAY 2020
Hedging reserve
£’000
11,410
26,508
HEDGING
RESERVE
£’000
TRANSLATION
RESERVE
£’000
(277)
277
3,101
(689)
219
2,631
(2,631)
837
(159)
321
999
361
-
157
-
-
518
-
732
-
-
1,250
The reserve represents the cumulative gains and losses on hedging instruments in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument
is recognised in profit or loss only when the hedge transaction impacts the profit or loss or is included as a basis adjustment to the non-financial hedged item,
consistent with the applicable accounting policy.
Translation reserve
Exchange differences relating to the translation of the net assets 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 115
22. EBT RESERVE
During the year ended 26 May 2019 the Group set up an Employee Benefit Trust (“EBT”). The EBT has an independent trustee resident in Jersey.
At 31 May 2020 the EBT held 291,469 (2019: 118,300) ordinary shares of 1p each in the Company purchased for a total consideration of £769,000
(2019: £322,000).
The consideration paid for the ordinary shares of 1p each in the Company held by the EBT at 31 May 2020 has been shown as an EBT reserve and presented
within equity for the Company and the Group. All other assets, liabilities, income and costs of the EBT have been incorporated into the accounts of the Company
and the Group.
The table below shows the movements in equity from EBT share purchases during the year:
Shares purchased by EBT in the year
Shares issued on employee option exercises
23. CASH AND CASH EQUIVALENTS
Cash and cash at bank
24. ANALYSIS OF NET CASH/NET DEBT
Cash at bank and in hand
Net cash per statement of cash flows
Borrowings
Net cash before lease liabilities
Lease liabilities
2020
2019
SHARES
£’000
SHARES
£’000
453,277
(280,108)
1,171
(724)
118,300
-
322
-
31 MAY 2020
£’000
26 MAY 2019
£’000
26,243
16,013
AT 26 MAY
2019
£’000
IMPACT OF
IFRS16
£000
CASH FLOW
£’000
NON-CASH
CHANGES
£’000
AT 31 MAY
2020
£’000
16,013
16,013
(10,216)
5,797
-
-
-
-
-
(56,377)
10,090
10,090
(11,502)
(1,412)
13,714
140
140
14
154
26,243
26,243
(21,704)
4,539
(4,019)
(46,682)
NET DEBT AFTER LEASE LIABILITIES
5,797
(56,377)
12,302
(3,865)
(42,143)
Non-cash changes relate to movements in interest on borrowings, the re translation of foreign currency balances at the end of the period and lease acquasitions,
disposals and mortifications.
116 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. FINANCIAL INSTRUMENTS
CATEGORIES OF FINANCIAL INSTRUMENTS
Carrying value of financial assets at amortised cost:
Cash and cash equivalents
Trade receivables
Carrying value of financial assets at fair value:
Cash flow hedges
TOTAL FINANCIAL ASSETS
Financial liabilities held at amortised cost:
Trade payables
Accruals
Borrowings
Lease liabilities
Financial liabilities held at fair value:
Cash flow hedges
TOTAL FINANCIAL LIABILITIES
AT 31 MAY 2020
£’000
AT 26 MAY 2019
£’000
NOTE
23
14
26,243
4,973
31,216
13
1,311
35,527
(14,777)
(12,481)
(21,704)
(46,682)
15
15
17
11
16,013
6,630
22,643
3,320
25,963
(23,130)
(15,815)
(10,216)
(56,377)
(95,644)
(105,538)
13
(473)
-
(96,117)
(105,538)
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 profit for the period ended 53 weeks to 31
May 2020 would decrease/increase by £106,000 (2019: £95,000). This has been calculated by applying the amended interest rate to the weighted average
rate of borrowings for the period to 31 May 2020 for borrowings at the period end, other than borrowings which are held at a fixed 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 fluctuations in the US $, which is used for stock purchases. If the US $ exchange rate strengthened/weakened by 10 percent and
all other variables were held constant, the Group’s profit for the period ended 53 weeks to 31 May 2020 would increase/decrease by £208,000 and £138,000
respectively (2018: £919,000 and £482,000). This has been calculated by applying the amended currency rate to the US $ value of financial assets and financial
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
fluctuations via forward contracts.
EXPECTED CREDIT LOSS SENSITIVITY
Deterioration in the ability of customers to afford their payments will have an impact the Group’s Expected Credit Loss (“ECL”).
A 2% movement upwards (or downwards) in the expected rate of cash collectable following default reduces (or increases) the allowance for ECL by £19,000.
In the eight weeks following the year end date, £3,750,000 of the £6,290,000 Joules Group plc’s customer and other trade receivables has been settled.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 117
LIQUIDITY AND INTEREST RISK TABLES
The following tables detail the Group’s remaining contractual maturity for its derivative and non-derivative financial liabilities with agreed repayment periods. The
tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.
The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate
curves at the balance sheet date. The contractual maturity is based on the earliest date on which the Group may be required to pay.
WEIGHTED
AVERAGE
EFFECTIVE
INTEREST RATE
%
LESS THAN
1 MONTH
£’000
1-3
MONTHS
£’000
3 MONTHS TO
1 YEAR
£’000
1-5
YEARS
£’000
31 MAY 2020
Credit facility
Term loan
Trade payables
Accruals
Lease liabilities
2.4
1.9
-
-
2.5
(25)
-
(6,379)
(5,564)
(921)
(51)
(49)
(8,398)
(4,451)
(1,841)
TOTAL
£’000
(12,812)
(9,659)
(14,777)
(11,128)
(12,736)
-
(411)
-
(1,113)
(9,199)
-
-
(8,285)
(35,635)
(46,682)
NON-DERIVATIVE FINANCIAL INSTRUMENTS
(12,889)
(14,790)
(22,545)
(44,834)
(95,058)
DERIVATIVE FINANCIAL INSTRUMENTS
(5,427)
(20,798)
(31,765)
(4,469)
(62,459)
TOTAL CONTRACTUAL CASH FLOWS
(18,316)
(35,588)
(54,310)
(49,303)
(157,517)
26 MAY 2019
Credit facility
Term loan
Finance leases
Trade payables
Accruals
2.3
1.7
9.0
-
-
(12)
(269)
(14)
(17,891)
(7,364)
(25)
(10)
(29)
(5,098)
(5,891)
(6,194)
-
(837)
(43)
(141)
(1,472)
(3,089)
-
-
-
(6,231)
(4,205)
(86)
(23,130)
(14,727)
NON-DERIVATIVE FINANCIAL INSTRUMENTS
(25,550)
(11,053)
(8,687)
(3,089)
(48,379)
DERIVATIVE FINANCIAL INSTRUMENTS
(2,949)
(14,218)
(32,103)
-
(49,270)
TOTAL CONTRACTUAL CASH FLOWS
(28,499)
(25,271)
(40,790)
(3,089)
(97,649)
The Group has significant financial assets in trade debtors which are easily convertible to cash. In addition, the above table includes derivative financial instruments
where there would be cash inflows on maturity of the forward contract.
CARRYING VALUE OF FINANCIAL ASSETS
The Directors have assessed that, on the basis of the net assets of the owing companies, receivables are fully recoverable. A significant decrease in the net assets
and trade of the owing company or a decline in the financial position of customers would trigger an impairment review.
CREDIT RISK
In the opinion of the Directors, the only financial instrument that is subject to credit risk is the trade receivables. The Directors believe that the Expected Credit Loss
provision as disclosed in note 14 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. Foreign currency forward contracts and options are considered
Level 2. In the opinion of the Directors, the fair value of the financial 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 sufficient 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 sufficient liquid resources to meet
its requirements.
FOREIGN CURRENCY ASSETS AND LIABILITIES
Included within the consolidated statement of financial position are £11,980,000 (2019: £16,483,000) of assets and £4,105,000 (2019: £5,070,000) 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 significant enough to warrant hedging against the
investments in overseas subsidiaries.
Also included within the above table are foreign denominated external trade payables and receivables of £3,714,000 (2019: £12,508,000)
and £5,850,000 (2019: £4,561,000) respectively.
118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26. RELATED PARTY TRANSACTIONS
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation.
The Directors control 30,420,923 shares (2019: 29,861,923 shares) in Joules Group plc, which represents 28% (2019: 34.0%) of the issued share capital.
The remuneration of the Directors of the Group is disclosed in note 5 and the Directors’ Remuneration Report. No other employees are considered to be key
management personnel as defined by IAS 24. In addition Directors participate in share schemes and dividend payments, further details of which can be found in
note 28 and 29 respectively.
27. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares in
issue during the period.
For the calculation of diluted earnings per share, the weighted average number of shares in issue is further adjusted to assume conversion of all potentially dilutive
ordinary shares. The Company has one category of potentially dilutive ordinary shares, being management shares not yet vested.
During the 53 weeks ended 31 May 2020, diluted loss per share is capped at the basic earnings per share as the impact of dilution cannot result in a reduction in
the loss per share.
Basic (loss)/earnings per share (pence)
Diluted (loss)/earnings per share (pence)
The calculation of basic and diluted (loss)/earnings per share is based on the following data:
Earnings
(Loss)/earnings for the purpose of basic and diluted earnings per share
Number of shares
53 WEEKS ENDED
31 MAY 2020
52 WEEKS ENDED
26 MAY 2019
(22.07)
(22.07)
£’000
(20,705)
11.57
11.32
£’000
10,154
Weighted number of ordinary shares for the purpose of basic earnings per share
93,829,041
87,745,789
Potentially dilutive share awards
929,026
1,901,152
Weighted number of ordinary shares for the purpose of diluted earnings per share
94,758,067
89,646,941
28. SHARE-BASED COMPENSATION
SUMMARY OF MOVEMENT IN AWARDS
NUMBER OF SHARES
DBP
ESOP
LTIP
SAYE
TOTAL
OUTSTANDING AT 26 MAY 2019
464,845
235,620
2,901,895
890,657
4,493,017
Granted during the year
Lapsed during the year
Exercised during the year
239,174
12,500
2,044,598
341,766
2,638,038
-
(1,366)
(181,741)
(303,467)
(486,574)
(132,132)
(169,350)
(1,291,251)
(285,186)
(1,877,919)
OUTSTANDING AT 31 MAY 2020
571,887
77,704
3,473,501
643,770
4,766,562
EXERCISABLE AT 31 MAY 2020
-
46,551
-
28,944
75,495
As noted in the Directors’ Remuneration Report, an award over 128,618 Joules Group plc shares was granted to Nick Jones on 6 April 2020 as part compensation
for share awards which would have vested had he remained with his former employer.
As noted in the Directors’ Remuneration Report, as part of measures taken by the Group to preserve cash during the COVID-19 crisis, Marc Dench, Nick Jones and
the Group’s employees agreed to take a pay reduction and were granted options on 6 April 2020 over 107,859 ordinary shares in Joules Group plc with a value
commensurate with the value of the salaries waived.
A total of 1,877,919 share options were exercised in the year of which 5,700 were cash-settled, 280,108 were settled with shares previously purchased by the EBT
and the remaining 1,592,111 were from new shares issues as detailed in note 19.
All share options were valued using the Black-Scholes model. Expected volatility was determined by management, using comparator volatility as a basis for share
options granted in 2016, 2017 and 2018 and Joules historic volatility data for the share options granted in 2019 and 2020. The expected life of the options was
determined based on management’s best estimate. The expected dividend yield was based on the anticipated dividend policy of the Company over the expected
life of the options. The risk-free rate of return input into the model was a zero-coupon government bond with a life in line with the expected life of the options.
The fair value of the total shares issued during the period and measured as at issue date is £3,902,765.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 119
The inputs into the model were as follows:
SUBSIDIARY NAME
Weighted average share price
Weighted average exericse price
No. of employees
Shares under option
Expected volatility
Expected life (years)
Risk-free rate
DBP
2.33
0.01
4
704,019
28% - 68%
3
ESOP
1.7
1.32
20
788,316
28% - 35%
3
LTIP
2.26
0.01
354
SAYE
2.7
2.1
54
5,584,258
1,426,070
28% - 124%
28% - 34%
0.5 - 3
3
0.08% - 0.44%
0.08% - 0.55%
0.08% - 0.55%
0.08% - 0.55%
Possibility of ceasing employment before vesting
Expectations of meeting performance criteria
Expected dividend yields
0%
100%
0% - 1.9%
0%
100%
1.90%
0% - 7.5%
0% - 40%
10% - 15%
100%
0% - 1.9%
0% - 1.9%
The Group recognised a net credit of £246,000 during the year (2019: expense of £2,677,000) relating to cash settled and equity settled share-based
compensation. Including associated employer’s National Insurance contributions which in the year was a credit of £125,000 (2019: £61,000 credit), the Group
recognised a total credit of £371,000 during the year (2019: expense of £2,616,000).
DEFERRED BONUS PLAN (“DBP”)
The DBP operates in conjunction with the Group’s annual bonus plan. The number of ordinary shares subject to a DBP award will be the number of shares that have
a market value equal to the value of the annual bonus deferred into a DBP award. DBP awards take the form of nil-cost options, vest on the third anniversary of the
date on which the relevant annual bonus was determined and are normally exercisable until the tenth anniversary of the grant date.
EXECUTIVE SHARE OPTION PLAN (“ESOP”)
The Group operated a share option scheme during the period for certain employees under the Executive Share Option Plan (“ESOP”). The different options
vest between two years and three years and have an exercise life between three and ten years from grant date. All option schemes are subject to continued
employment over the vesting period.
LONG TERM INCENTIVE PLAN (“LTIP”)
The Board approved Long Term Incentive Plan 2016 (“LTIP 2016”) allows the grant of options to executive directors and senior management of the Group in
the form of nil-cost options over ordinary shares in Joules Group plc. The options are exercisable three years after the date of grant subject to achieving certain
stretching targets.
The target of share option awards granted to the Executive directors and members of the operating board in 2017 and 2018 is 80% based on an EPS target in the
final year of the relevant performance period, being the financial years ending May 2020 and May 2021 and 20% of the target is based on achieving specified
international revenue targets.
The share option awards granted to the Executive Directors, members of the operating board and some senior managers in FY20 are based upon achievement
against four targets, to be delivered in the final year of the performance period (FY22). 60% of the awards will be subject to underlying diluted EPS, 15% subject
to US revenue, 15% subject to UK digital sales and 10% subject to the level of employee engagement (as measured by an industry recognised, third party,
anonymous survey e.g. Best Companies (“BCI”)).
For other senior management awards the target is based on the cumulative PBT over the three years to May 2020, May 2021 and May 2022. 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.
120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. DIVIDENDS
Interim dividend paid in the financial year
Final dividend proposed, not accrued, payable subject to approval at AGM
TOTAL
31 MAY 2020
26 MAY 2019
PENCE PER
SHARE
£’000
PENCE PER
SHARE
-
-
-
-
-
-
0.75
1.35
2.1
£’000
658
1,185
1,843
The final dividend proposed for the 52 weeks ended 26 May 2019 was paid in the 53 weeks ended 31 May 2020.
The Directors are not proposing a final dividend this year.
COMPANY STATEMENT OF FINANCIAL POSITION 121
COMPANY STATEMENT OF FINANCIAL POSITION
JOULES GROUP PLC
NON-CURRENT ASSETS
Investments
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Cash and cash equivalents
Other debtors
TOTAL CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Other payables
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT LIABILITIES
CAPITAL AND RESERVES
Called up share capital
Share premium
EBT reserve
Loss for the period
Profit and loss account
SHAREHOLDERS’ FUNDS
NOTE
31 MAY 2020
£’000
26 MAY 2019
£’000
31
139,980
139,980
139,980
139,980
32
33
34
35
22
95
14,315
14,410
-
41
41
154,390
140,021
7,685
7,685
5,821
5,780
146,705
134,200
1,081
26,508
(769)
(797)
120,682
146,705
878
11,410
(322)
(532)
122,766
134,200
The parent company loss for the period was £797,000, (2019: loss of £532,000).
These financial statements of Joules Group plc (Company Registration Number 10164829) were approved by the Board of Directors and authorised for issue on
5 August 2020 and were signed on behalf of the Board of Directors by –
MARC DENCH
Chief Financial Officer
5 August 2020
122 COMPANY STATEMENT OF CHANGES IN EQUIT Y
COMPANY STATEMENT OF CHANGES IN EQUITY
JOULES GROUP PLC
SHARE
CAPITAL
£’000
SHARE
PREMIUM
£’000
RETAINED
EARNINGS
£’000
EBT
RESERVE
£’000
NOTE
875
11,410
124,568
Balance at 27 May 2018
Shares issued
EBT share purchases and commitments
Dividend paid
Loss for the year and total comprehensive income
Balance at 26 May 2019
Shares issued
Share based compensation options satisfied through the
EBT reserve
EBT share purchases and commitments
Dividend paid
Loss for the year and total comprehensive income
22
29
22
29
3
-
-
-
878
203
-
-
-
-
-
-
-
-
11,410
15,098
-
-
-
-
TOTAL
EQUITY
£’000
136,853
-
(322)
(1,800)
(532)
(3)
-
(1,800)
(532)
-
-
(322)
-
-
122,233
(322)
134,200
-
(349)
-
724
-
(1,171)
(1,202)
(797)
-
-
15,301
375
(1,171)
(1,202)
(797)
Balance at 31 May 2020
1,081
26,508
119,885
(769)
146,705
NOTES TO THE COMPANY FINANCIAL STATEMENTS 123
30. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
These separate financial statements of Joules Group plc were prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure Framework
(FRS 101).
The Company’s financial statements are presented in GBP.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to:
• share based compensation;
• financial instruments,
• capital management,
• presentation of comparative information in respect of certain assets,
• presentation of a cashflow statements;
• standards not year effective and;
• certain related parties transactions;
• business combinations;
As permitted by section 408 of the Companies Act 2006, the profit and loss account is not presented. The loss for the year amounted to £(797,000),
(2019: loss of £(532,000)).
Director remuneration for the period was £225,000 (2019: £218,300) in relation to Non-Executive Directors, further detailed in note 5.
Auditor remuneration for the period was £141,000 (2019: £94,000), further detailed in note 6.
The financial 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 financial 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
financial statements.
SHARES HELD BY EBT
The Joules Group plc Employee Benefit Trust (“EBT”) is set up to provide for the issue of shares to Group employees, principally under share option schemes. Shares
in the Company held by the EBT are included in the Balance Sheet at cost, including any directly attributable incremental costs, as a deduction from equity.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
There were no critical accounting judgements that would have a significant effect on the amounts recognised in the parent company financial statements or key
sources of estimation uncertainty at the balance sheet date that would have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next year. There were also no sources of estimation uncertainty.
124 NOTES TO THE COMPANY FINANCIAL STATEMENTS
31. INVESTMENTS
Cost and Net Book Value
At 26 May 2019
At 31 May 2020
£’000
139,980
139,980
On 26 May 2016 Joules Group plc acquired the entire share capital of Joules Investments Holdings Limited.
The Company’s 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
Joules Investments Holdings Limited Holding company
England and Wales
Joules Limited*
Retailer
England and Wales
Joules Hong Kong Limited*
Overseas trading
entity
Hong Kong
Joules Clothing Shanghai
Company Limited*
Overseas office
China
REGISTERED ADDRESS
Joules Building, The Point,
Rockingham Road, Market
Harborough
Joules Building, The Point,
Rockingham Road, Market
Harborough
18/F, United Centre, 95
Queensway, Admiralty, Hong
Kong
Room 1401-1404, No.432 West
Huaihai Road, Changning district,
Shanghai, China
PROPORTION
OF OWNERSHIP
INTEREST
PROPORTION OF
VOTING POWER
HELD
100%
100%
100%
100%
100%
100%
100%
100%
Joules USA Inc.*
Overseas trading
entity
USA
103 Foulk Road, Suite 202,
Wilmington, DE19803, USA
100%
100%
Joules Developments Limited *
Non trading entity
England and Wales
Joules Property Limited *
Non trading entity
England and Wales
Joules Building, The Point,
Rockingham Road, Market
Harborough
Joules Building, The Point,
Rockingham Road, Market
Harborough
100%
100%
100%
100%
32. OTHER DEBTORS
Amounts owed by groups undertakings
Prepayments
Other receiveables
TOTAL
31 MAY 2020
£’000
26 MAY 2019
£’000
14,187
63
65
14,315
-
41
-
41
Amounts owed by group undertakings are in relation to the placing and shares in April 2020. The terms of the intercompany balance receivable is at nil interest,
payable on demand.
33. OTHER PAYABLES
Trade payables
Payables due to subsidiary
Taxation and social security
Accruals
NOTES TO THE COMPANY FINANCIAL STATEMENTS 125
31 MAY 2020
£’000
26 MAY 2019
£’000
180
7,466
-
39
9
5,785
11
16
7,685
5,821
The payables due to subsidiary is in relation to administrative expenses and dividends paid by Joules Limited on behalf of Joules Group plc. The terms of the
intercompany balance receivable is at nil interest, payable on demand.
34. CALLED UP SHARE CAPITAL
Allotted and issued
31 MAY 2020
£’000
26 MAY 2019
£’000
108,135,920 Ordinary shares of £0.01 each (2019: 87,793,809)
1,081
875
Authorised
148,485,165 Ordinary shares of £0.01 each (2019: 116,667,736)
1,485
1,167
During the period new ordinary shares were issued to employees that left the business from the following share schemes: SAYE: 42,387 shares (2019: 11,032),
ESOP: 28,718 shares (2019: 62,500) and LTIP: 289,615 shares (2019: 5,650).
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. As a result, a merger reserve of £125,807,000 was created upon acquisition and AIM listing of the Group on
26 May 2016.
All ordinary shares carry equal rights.
35. 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.
During the year Joules Group plc undertook a placing of Ordinary Shares to certain existing shareholders and institutional and other investors, including Directors
of the Company. The purpose of the placing was to secure cash proceeds in order to maintain sufficient working capital during the start of the COVID-19 outbreak
and be able to emerge relatively stronger from this unprecedented situation. The placing has resulted in an additional £15,098,000 being recognised within
share premium.
Balance at 26 May 2019
Balance at 31 May 2020
36. DIVIDEND
Details of the Dividend paid is shown in note 29 of the Consolidated Financial Statements.
£’000
11,410
26,508
37. 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 (which are the Directors) are shown in note 26 of the Consolidated Financial Statements.
126
COMPANY INFORMATION 127
COMPANY INFORMATION
JOULES GROUP PLC
JOULES GROUP PLC
Registered in England and Wales number: 10164829
COMPANY SECRETARY
Jonathan William Dargie
REGISTERED OFFICE
Joules Building, The Point,
Rockingham Road, Market Harborough,
Leicestershire, LE16 7QU
WEBSITE
www.joulesgroup.com
NOMINATED ADVISER & BROKER
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
25 Charterhouse Square,
London, EC1M 6AE
LEGAL ADVISORS TO THE COMPANY
Eversheds LLP,
115 Colmore Row,
Birmingham, B3 3AL
AUDITOR
Deloitte LLP,
Four Brindleyplace
Birmingham, B1 2HZ
REGISTRARS
Equiniti Limited, Aspect House,
Spencer Road,
Lancing, BN99 6DA