SCS Group Plc Annual Report 2016

FY2016 Annual Report · SCS Group Plc

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G R O W T H
S T R E N G T H
D E V E LO P M E N T

Annual Report 2016

S C S I S O N E O F
T H E U K ’ S L E A D I N G
F U R N I T U R E A N D
F L O O R I N G R E TA I L E R S ,
O P E R AT I N G F R O M
9 7 S T O R E S

Our Business Model – page 12

Q U A LITY

Chairman’s Statement – page 08

E
C
I
V
R
E

B U S I N E S S
M O D E L

P
R
I

C
E

CONVE N I E N C

At a Glance – page 02

Our History – page 04

Our Strategy in Action – page 16

Our Markets – page 06

Principally located in modern retail park
locations and 28 concessions in House of
Fraser stores across the country – as far
north as Aberdeen and as far south as
Plymouth, offering a focused range of
upholstered furniture and floorcoverings.

ScS has over 100 years of furniture
retailing experience and our specialist
staff are highly trained in their fields, so
that we can offer our customers the best
service and advice when they choose
new sofas and flooring for their homes.

Financial Highlights

R E V E N U E

G R O S S P R O F I T

£317.3m
+14.7%

£149.1m
+17.3%

E B I T D A

£16.0m
+41.9%

(compared to prior year adjusted EBITDA)

E A R N I N G S P E R S H A R E

21.8p

• Gross sales up 14.5% to £334.7m (2015: £292.2m)
• Revenue up 14.7% to £317.3m (2015: £276.7m)
•

Like-for-like order intake for the year ended 30 July 2016,
up 14.8% (2015: 5.0%)

• Gross profit increased 17.3% to £149.1m (2015: £127.2m)
•
•

EBITDA £16.0m (2015: £7.6m, adjusted 2015 EBITDA: £11.3m)
Operating profit £11.0m, (2015: £2.8m, 2015 operating profit
before exceptional items £6.4m)
Earnings per share 21.8p (2015: loss per share 5.6p, adjusted
2015 earnings per share 13.8p)
Strong balance sheet with cash of £22.4m (2015: £21.1m)
and no debt

•

• Recommended final dividend of 9.83p per share, full year
dividend of 14.5p per share (2015: 14.0p), an increase
of 3.6%

Operational Highlights
•

Sales density per square foot increased 12.9% to £219 (2015:
£194) supported by significant increase in marketing spend

• Two new stores opened in Bromborough on the Wirral on
Boxing Day 2015 and in Aberdeen in September 2016
• Three further stores in Plymouth, Thanet and Edinburgh

are targeted to open on Boxing Day 2016

• House of Fraser concession gross sales up 19.7% to £25.3m
(2015: £21.2m) resulting in a positive EBITDA contribution
• Continued investment and development of the e-commerce
platform for ScS trading website resulting in gross sales
increasing 19.8% to £10.0m (2015: £8.4m)
Improved distribution management leading to a reduction
in costs expressed as a percentage of revenue to 4.9%
(2015: 5.1%)

•

Strategic Report
01 2016 Highlights
02 At a Glance
04 Our History
06 Our Markets
08 Chairman’s Statement
10 Chief Executive Officer’s Review
12 Our Business Model
14 Our Strategy
16 Our Strategy in Action
18
21 Managing Risk
23 Principal Risks and Uncertainties
26 Corporate Social Responsibility

Financial Review and KPIs

Corporate Governance
30 Board of Directors
32 Corporate Governance Statement
36 Audit Committee Report
40 Directors’ Remuneration Report
50 Directors’ Report
52 Statement of Directors’ Responsibilities

Financial Statements
53 Independent Auditors’ Report

to the Members of ScS Group plc

58 Consolidated Statement
of Comprehensive Income
59 Consolidated Statement
of Changes in Equity
60 Consolidated Statement
of Financial Position
Consolidated Statement
of Cash Flows

62 Notes to the Consolidated
Financial Statements
Independent Auditors’ Report
to the Members of ScS Group plc
78 Statement of Financial Position
79 Statement of Changes in Equity
80 Statement of Cash Flows
81 Notes to the Parent Company

Financial Statements
IBC Company Information

See our website for more information
www.scsplc.co.uk

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsAT A G L A N C E

S c S

We trade from 97 stores and
28 House of Fraser department
stores across the country –
from Aberdeen to Plymouth.

Our target is to open two to three new stores per year
with over 20 potential new store locations identified.

Our online sales grew to £10.0m, up from just
£0.5m in 2009. We offer our full in-store ranges,
together with an additional express delivery selection,
for customers where time is a priority, along with
a dedicated website for our House of Fraser customers.

Map key
S ScS
D

Distribution
centres

S T O R E S A C R O S S T H E U K

A V E R A G E S T O R E R E T A I L S P A C E

14,700 sq ft

D I S T R I B U T I O N C E N T R E S

Key Strengths

ScS has a number of key strengths that have supported the growth
in sales and profits in the last three years and which provide a firm base
for further growth.

Oneofthelargestretailersofsofasandflooring
A combination that gives scope to develop our current
customer base, provide further ‘sell-on’ opportunities to
our current customers and reach new customers through
the development of our House of Fraser concessions.

Trainedstaffwithafocusoncustomerservice
ScS places emphasis on the provision of high levels of
service throughout the customer experience from the
point of sale through to delivery and providing appropriate
after sales service if required. Our sales staff are trained
to operate to high standards, supported by in-house
training and external materials, such as videos of mystery
shopper exercises.

Store portfolio
ScS currently operates from 97 stores in the UK, 95 of which
are in out of town retail park locations. Investment in the
store portfolio continues to ensure each store remains well
presented, attractive and modern with a fashionable look
and feel.

Experienced management team
Led by David Knight, ScS’s Chief Executive Officer, the
senior management team has many years of combined
experience both in their respective areas of expertise
and with ScS’s business.

ScS Group plc Annual Report 2016Strategic ReportH O U S E O F F R A S E R – M A D E T O O R D E R S O FA S , F U R N I T U R E & F L O O R I N G

In 2014 ScS began
operating the upholstered
furniture and carpet
concession ranges for
House of Fraser.
The concession currently operates
from 28 House of Fraser stores across
the UK and offers a collection of sofas,
flooring, dining and occasional ranges.
www.houseoffrasermadetoordersofas.co.uk

Map key
H

House of Fraser
concessions

H O U S E O F F R A S E R C O N C E S S I O N S

Diverseandfocusedproductrange
ScS seeks to offer a diverse product and brands offering
at a range of price points in order to appeal to a wide
national customer base. This seeks to provide scope for
growth as well as greater resilience in the event of an
economic downturn.

Growingonlinecapability
Having grown online sales from £0.5m in 2009 to £10.0m in
the year ended 30 July 2016, the website currently generates
more sales than ScS’s leading store. A new website was
launched in July 2014, ScS have continued to invest (2016
£1.4m). This platform is expected to underpin further online
sales growth as well as act as a marketing tool to drive
customer in-store visits.

Negativeworkingcapitalbusinessmodel
The Group operates a negative working capital business
model with low ongoing capital expenditure requirements.
The majority of product suppliers are paid at the end of
the month following the month in which the furniture was
delivered to the Group’s distribution centres.

IT systems
The Group has invested in IT systems that seek to support
ScS’s growth by offering business insights and consistent
reporting data. This infrastructure is supported both by
a professional IT team and external support contracts that
aim to ensure that ScS’s stores, distribution centres and
head office experience minimal disruption.

Read more on page 18

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsO U R S T R AT E G Y
I N A C T I O N

U N D E R S TA N D I N G
O U R C U S TO M E R S

W E M O N I T O R O U R C U S T O M E R S ’ P E R C E P T I O N S A N D E X P E R I E N C E S
T H R O U G H T H E I N D E P E N D E N T T R U S T P I L O T P L A T F O R M A N D
W E H A V E B E E N A B L E T O A N A L Y S E F E E D B A C K A T S T O R E , O N L I N E
A N D D I S T R I B U T I O N C E N T R E L E V E L , E N A B L I N G T A R G E T E D
P E R F O R M A N C E I M P R O V E M E N T S .

Our Trustscore is available publicly
and viewed 20,000 times per month on
average. Our Trustscore is also visible
through search engines and is seen on
average 125,000 times per month.

To drive staff performance in store, and
to continue to improve their customer
service, ScS set an ambitious target of
getting 5-star status. Using actionable
insight tools, we identified that our
customers appreciated knowledgeable
staff, clear explanations of the best
products and a non-pushy sales team.
It was also identified that attention was
needed to delivery lead times and keeping
our customers updated on their order.

As a result of these insights, we were
able to make improvements across
the business; processes have been
established to further enhance the
customer experience. The results are
more happy customers, driven by a
customer-orientated sales team, focusing
on customer needs. The Group has now
had over 31,000 reviews and over the
course of the last financial year we’ve
seen a 20% improvement in our star rating
performance. The Group currently has the
maximum 5 stars and is rated as excellent.

ScS Group plc Annual Report 2016Strategic ReportB R OA D E N I N G
T H E O F F E R – O N L I N E

T H E G R O U P H A S M A D E A S I G N I F I C A N T I N V E S T M E N T
I N I T S O N L I N E P L A T F O R M ; £ 1 . 4 M I N 2 0 1 6 ( 2 0 1 5 : £ 0 . 7 M ) ,
C O U P L E D W I T H I N C R E A S E D D I G I T A L M A R K E T I N G .

As well as generating more sales than the
Group’s leading store, the website has also
proved to be key in driving in-store footfall.

objective of the online strategy is to promote
ScS to potential sofa and carpet customers
and encourage them to visit a ScS store.

The Group launched its transactional
website in April 2009. Sales and profits from
the website have grown steadily, particularly
over the last three years to £10.0m in the
year ended 30 July 2016. For the year
ended 25 July 2015 online gross sales
represented 2.9% of gross sales, this
grew during 2016 to 3.0%.

The Group’s online offering is not only
important as a complimentary sales
channel, it provides a key marketing
channel with many customers choosing
to view and research products before
visiting a physical store location.

The Group’s online sales performance
is reflective of the fact that ‘big ticket’
purchases are generally sold in a retail store
environment rather than online. Whilst the
Group expects to see a continued sales
growth online via this channel, the prime

Investments:
• Development of information content

and product images;
Improved user experience on the
home page, much easier to navigate
on tablet and mobile; and
Improvement of brand visibility.

•

The products available on the Group’s
website generally mirror the in-store
offering but include a small range of
additional ‘web exclusive’ ranges which
typically have a lower price point and
faster delivery time. The online customer
demographic is broadly similar to that of
the in-store customer, with a bias towards
a younger customer demographic as
well as customers located in more rural
locations. The online offering is currently
available only to customers within the
UK and utilises ScS’s existing distribution
network to deliver customer orders.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsF I N A N C I A L R E V I E W
A N D K P I s

Key Performance Indicators
Financial KPIs

T O T A L Y E A R - O N - Y E A R
G R O S S S A L E S G R O W T H

14.5%

L I K E - F O R - L I K E O R D E R
I N T A K E G R O W T H

14.8%

G R O S S M A R G I N % O F G R O S S S A L E S

44.6%

14.5%

13.2%

14.8%

43.8%

43.5%

44.6%

5.1%

4.7%

5.0%

2014

2015

2016

2014

2015

2016

2014

2015

2016

A D J U S T E D E B I T D A

A D J U S T E D E A R N I N G S P E R S H A R E

£16.0m

21.8p

£16.0m

21.8p

£13.7m

£11.3m

17.5p

13.8p

2014

2015

2016

2014

2015

2016

Non-financialKPIs

S c S S A L E S D E N S I T Y P E R S Q U A R E F O O T

T R U S T P I L O T C U S T O M E R S A T I S F A C T I O N

£219

£184

£194

8.9(outoften)

£219

8.9

7.4

2014

2015

2016

2015

2016

ScS Group plc Annual Report 2016Strategic ReportGrosssalesandrevenue
Gross sales increased by £42.5m (14.5%)
on the previous financial year to £334.7m
(2015: £292.2m) and is attributable to:

• An increase in upholstered furniture
gross sales in ScS stores of 13.2%
to £261.3m;

• An increase in flooring gross sales
in ScS stores of 19.9% to £38.1m;
• An increase in online gross sales

of 19.8% to £10.0m, and

• An increase in gross sales from the

House of Fraser concession of 19.7%
to £25.3m.

Revenue, which represents gross sales less
charges relating to interest free credit sales
(see note 3 – Segment information),
increased by 14.7% on the previous financial
year to £317.3m (2015: £276.7m).

Like-for-like order intake for the financial
year ended 30 July 2016, calculated on the
basis of all stores opened for 12 months or
longer, was up 14.8% on the previous
financial year (2015: 5.0%).

Grossprofit
Gross margin as a percentage of gross sales
increased by 110 basis points from 43.5% in
the year ended 25 July 2015 to 44.6% in the
year ended 30 July 2016. The 2015 margin was
impacted by very competitive promotions,
notably a ‘free carpet’ offer during the 2014
Autumn period to support the growth and
awareness of our flooring business.

The increase in gross margin and growth
achieved in the year resulted in an increase
in gross profit of £22.0m or 17.3%.

Operatingprofit
On a statutory basis operating profit for
the year ended 30 July 2016 increased to
£11.0m (2015: £2.8m). The 2015 operating
profit before exceptional items (relating
to the January 2015 IPO) was £6.4m.

Distributioncosts
Distribution costs comprise the total cost
of the in-house distribution function and
includes employment costs, the cost of
leasing vehicles and related running costs
and property costs (principally rent, rates
and utilities) for the ten distribution centres,
as well as costs of third party delivery
services contracted to support peak delivery
periods. During 2016 we have successfully
implemented initiatives for improved route
planning and central arranging of onward
delivery to customers. The resulting
efficiency gains have contributed to the
reduction in distribution costs expressed
as a percentage of revenue year-on-year
from 5.1% to 4.9%.

Administrativeexpenses
Administrative expenses comprise:

• Store operating costs, principally

employment costs and property related
costs (rent and rates, utilities, store
repairs and depreciation of capital
investment) and costs associated with
the concession agreement with House
of Fraser;

• Marketing expenditure; and
• General administrative expenditure

which includes the employment costs
for the directors and senior management
and all head office based functions
(customer call centre, finance, human
resources, IT, merchandising, online
sales support, flooring administration,
administrative support for House of
Fraser concession), company pension
contributions, legal and professional
costs, insurance, company car costs, IT
systems support and telecommunications.

Administration costs for the year totalled
£122.6m, this compares to £106.7m in the
year ended 25 July 2015 after removing
IPO related exceptional costs of £3.7m (see
Exceptional items – note 6). Administrative
costs as a percentage of revenue were in
line with the prior year.

The year saw an increase in administrative
costs of £15.9m, with the majority of the
increase being driven by the following:

• £8.5m increase in payroll costs, £7.1m
relating to bonuses and commission,
reflecting the strong sales and profit
performance in the year; and
• Marketing investment increased

by £3.9m to £23.1m.

Gross sales

Revenue

Gross profit

Distribution costs
Administration expenses (excluding exceptionals)

Total operating expenses (excluding exceptionals)

Operating profit (excluding exceptionals)
Net finance costs (excluding exceptionals)
Exceptional items

Profit/(loss) before tax
Tax

Profit/(loss) after tax

Earnings/(loss) per share

EBITDA (excluding exceptionals)

Year ended
30July2016
£m

Year ended
25 July 2015
£m

334.7

317.3

149.1

(15.5)
(122.6)

(138.1)

11.0
(0.1)
–

10.9
(2.2)

8.7

292.2

276.7

127.1

(14.0)
(106.7)

(120.7)

6.4
(3.9)
(4.2)

(1.7)
(0.5)

(2.2)

21.8p

(5.6p)

16.0

11.3

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsF I N A N C I A L R E V I E W A N D K P I S
C O N T I N U E D

Dividend
An interim dividend of 4.67p per ordinary
share was paid in May 2015. With confidence
in the Group’s future growth prospects, and
supported by strong cash flow dynamics,
robust financial position and the extended
committed banking facility, it is proposed
to pay a final dividend of 9.83p per ordinary
share, resulting in a full year dividend of
14.5p (2015: 14.0p).

ChrisMuir
ChiefFinancialOfficer
3 October 2016

Netfinancecosts
Net finance costs for the year ended
30 July 2016 were £0.1m reflecting the
Group’s strong balance sheet with no
debt (2015: net finance cost £4.5m).

Net finance costs in 2015 comprised
interest payable on the pre-IPO US$
denominated debt owed to the principal
shareholder, together with a loss on
exchange thereon. The year ended
25 July 2015 included exceptional items
of £0.6m and a loss on exchange of £2.8m.

Exceptional costs
Exceptional costs in the year ended
25 July 2015, comprised legal and
professional fees associated with the IPO,
management fees paid to an affiliate of
Parlour Product Holding (Lux) Sarl, the
principal shareholder, in relation to the
early termination of a management
services agreement as a result of the IPO
and commitment and legal fees relating
to the new banking facilities.

Taxation
The Group’s effective tax rate for the year
ended 30 July 2016 was 19.8%.

The 2015 tax charge based on profit
before tax adjusted for IPO costs charged
as exceptional operating items was an
effective rate of 25.8% which was higher
than if the standard rate of corporation
tax had been applied due to charges not
deductible for tax purposes, principally
foreign exchange losses.

Earningspershare(EPS)
EPS for the year ended 30 July 2016 was
21.8p compared to a loss per share of 5.6p
in the previous year. Adjusting the 2015 year
for exceptional/non-recurring operating
costs and non-recurring net finance costs
gives a revised EPS for 2015 of 13.8p.

EBITDA
An analysis of EBITDA (2015: adjusted
EBITDA) is as follows:

Operating profit
Depreciation
Amortisation
Exceptional items

EBITDA

Year ended
30July2016
£m

Year ended
25 July 2015
£m

11.0
4.5
0.5
–

16.0

2.8
4.2
0.6
3.7

11.3

Cashflowandcashequivalents
A strong cash flow has been generated from
operations reflecting the negative working
capital business model whereby:

• For cash/card sales, customers pay

deposits at the point of order and settle
outstanding balances before delivery;

• For consumer credit sales, the loan

provider pays ScS approximately seven
days after delivery; and

• The majority of product suppliers are

paid at the end of the month following
the month of delivery into the
distribution centres.

A summary of the Group’s cash flows is
shown below:

Year ended
30July2016
£m

Year ended
25 July 2015
£m

Cash generated
from operating
activities
Net capital
expenditure
Net taxation and
interest payments

Free cash flow

Loan repayment
Dividends

Net cash generated

13.2

10.0

(3.4)

(2.2)

7.6

–
(6.3)

1.3

(4.1)

(1.8)

4.1

(0.8)
(1.0)

2.3

At an operational level the Group remained
strongly cash generative with cash
generated from operating activities of
£13.2m (2015: £10.0m).

Capital expenditure of £3.4m (2015: £4.1m)
included £1.0m on new stores (2015: £2.5m)
and refurbishment expenditure of £1.0m
(2015: £0.5m).

The Group’s cash and cash equivalents at
the end of the financial year are very strong
at £22.4m (2015: £21.1m), whilst debt is £nil.
The year-end closing cash balance has been
impacted by the 53-week year with the
year-end falling in line with the month end.
This timing means that the month end
payment runs to suppliers and employees
have been made. The Group’s cash and
cash equivalents at the end of week 52
was £31.9m.

In August 2016, the Group also extended its
£12.0m committed revolving credit facility
to October 2018.

ScS Group plc Annual Report 2016Strategic ReportM A N A G I N G R I S K

Riskgovernance
Like all businesses, we face risks and
uncertainties that could impact the
achievement of our strategy. These risks
are accepted as part of doing business.

The Board recognises that the nature and
scope of these risks can change; regular
reviews are undertaken of the risks and the

systems and processes to mitigate them.
The Board has ultimate responsibility
for risk management throughout the
Group and determines the nature and
extent of the risks the Group is willing
to take to achieve its strategic objectives.
The Group has a formal governance
framework in place underpinning
our approach to risk management.

The Board has carried out a robust
assessment of the principal risks and
uncertainties of the Group, including
those that threaten its business model,
future performance, solvency and risk.

T
H
SIG
R
E
V

B OA R D

AU D I T
CO M M I T T E E

E X EC U T I V E
D I R EC TO R S

I N T E R N A L
AU D I T

O P E R AT I N G
CO M PA N Y B OA R D

D O
N
E A
C
N
A
N
R
E
V
O
G

The Board has overall
responsibility for the leadership
of risk management, sets
strategic objectives and the
risk appetite and monitors
performance.

TheAuditCommittee has
delegated responsibility
from the Board to oversee
risk management and
internal controls. The
Committee reviews the
Group’s internal controls
and sets the objectives and
monitors the effectiveness
of the Internal Audit team.
The Committee also monitors
the independence and expertise
of the external auditors.

TheExecutiveDirectors
are responsible for
disseminating risk policies.
They support and help the
Operating Company Board
to assess risk. The Executive
Directors also oversee risk
management throughout
the Group and encourage
open communication on
risk matters. The Executive
Directors assess the
materiality of risks in the
context of the whole Group.

InternalAudit is responsible
for the monitoring of the
Group’s risk management
approach and provides a link
between the Operational
Managers and the Audit
Committee. The Head of
Internal Audit reports
formally to the Audit
Committee and has direct
access to the Chair of the
Audit Committee. The
Internal Audit team takes
a risk-based approach to
planning audit work.

Operating Company
Board are responsible for
risk management roles
at operational level. They
are responsible for the
continuous identification
of risk assurance and
self-assessment of
mitigating controls.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial Statements

Risk management
process&framework
The Board and Executive Management are
collectively responsible for managing risk
across the Group. On a departmental basis
risks are reviewed and reported through
risk registers.

The Audit Committee is presented with
risk reports at every committee meeting.
The Group takes the following ongoing
approach to risk management.

M A N A G I N G R I S K
C O N T I N U E D

Key risks by area
(and any changes
since the last
review)

This process is then
reviewed/monitored
and reported to the
Board and Audit
Committee on an
on-going basis

R I S K
M A N AG E M E N T
P R O C E S S

Risk ratings – by
evaluating each
risk and assigning
a score

Progress in executing
agreed process
improvement and
implementing agreed
risk mitigation

Identifying the
required actions
against each risk

Identificationofrisks
The Board and the Group’s management
have a clearly defined responsibility for
identifying the major business risks facing
the Group and for developing systems
to mitigate and manage those risks. The
control of key risks is reviewed by the Board
twice yearly and by the Group’s management
at their monthly meetings. The Board can
therefore confirm that there is an ongoing
process for identifying, evaluating and
managing the significant risks faced by the
Group, that has been in place for the year

under review and up to the date of approval
of this annual report. The Board has
performed a robust assessment of the
principal risks facing the Group.

Risk appetite
Risk is always high on the Board’s agenda
and the focus on effective risk management
cascades all the way through the organisation.
The culture of the organisation ensures that all
activities, from day-to-day operations to high
level strategic decisions, are performed in line
with this approach. Management’s

assessment of our principal risks is based
on impact, likelihood, change from the prior
year and appetite. The governance of risk
is undertaken in the context of the Group’s
overall risk appetite. The Group considers
risk appetite to ensure adequate resources
are allocated to the risks. The Board reviewed
and approved a formal risk appetite statement
as follows:

C AT E G O R Y
O F R I S K

STRATEGIC

OPERATIONAL

R I S K PA R A M E T E R S

Medium to
high tolerance

During development of new propositions, and assessing new opportunities, we are
prepared to accept medium to high risks that support our pursuit of growth.

Low to
medium
tolerance

When operating within our business, including the management of our suppliers, controlling
stock and assets, and managing our people we have a low to medium tolerance for risk. We
will take a cautious approach to risk within our operations, but consider that certain risks will
be taken in order to achieve our strategic objectives and maintain our competitive position.

FINANCIAL

Low tolerance

We consider that robust financial controls are necessary to manage our business
effectively. All our operating processes are based around policies and procedures that
minimise the risk of a loss of financial control.

COMPLIANCE

Extremely
low tolerance

We have an extremely low tolerance when complying with laws and regulations that relate to
bribery and corruption, product safety employee safety, customer safety, and consumer credit.
We have controls in place that are designed to mitigate these types of risks. We have detailed
and tested procedures in place for dealing with these types of scenarios when they arise.

ScS Group plc Annual Report 2016Strategic Report
P R I N C I PA L R I S K S
A N D U N C E R TA I N T I E S

The following principal risks and uncertainties are those that the Board has identified as having
a potential detrimental impact on our corporate reputation, the operation of our business or on
our ability to execute our strategy. The business takes a variety of steps to mitigate these risks
and these are reviewed regularly as part of the oversight by the Audit Committee of the system
of internal controls and reported on to the Board and the Executive Directors, who are
collectively responsible for overall risk management.

Key to change in risk level since the previous year:

Risk Higher (Worsened)

Risk Stayed Level

Risk Lower (Improved)

K E Y R I S K

D E S C R I P T I O N

M I T I G AT I O N

C H A N G E I N
R I S K L E V E L

ECONOMIC
ENVIRONMENT

A reduction in consumer confidence
or activity levels and pricing in the
housing market, resulting in a fall in
consumer spending on discretionary
high value items, such as furniture,
could be damaging to the performance
of and prospects for the Group.

• We offer a range of products and price points in our

categories to ensure that customers can trade up or down.
• We maintain a lean business model allowing us to remain
competitive in our markets and adapt to change quickly.

• A key strand of our strategy has been to broaden and
thereby diversify our product offering into categories
such as flooring and third party brands.

The recent referendum decision
for the UK to leave the EU could
potentially impact on the economy
and a reduction in consumer spending.

• We will continue to offer a quality product at a competitive
price that remains attractive to our consumer base. Our
entrance into the flooring market, concessions and brands
has diversified our offering into a wider demographic
consumer base.

Further exchange rate fluctuations
could lead to cost pressure.

• We work closely with our suppliers and will attempt to
minimise any impact on our cost base and our retail
pricing strategy.

The Group operates in competitive
and fragmented markets and against
a wide variety of retailers and may
face increased competition in its
target markets. Failure to be aware
of or respond to key changes in the
competitive environment is a risk
to our future success.

• We continue diversifying and developing our proposition

for customers as part of our Group strategy. We continually
respond to changing patterns in demand in our core market
which broadens our appeal and sales base.

• We actively monitor sales performance, product and
advertising performance and competitor activity.

• Our sales performance has demonstrated that we continue

to grow our share of the market.

Many of the Group’s activities are
regulated by legislation and standards
including trading, advertising,
product quality, health & safety,
the environment, data protection
and the Bribery Act. Failure to
comply with these may risk incurring
financial or reputational damage.

• We actively monitor compliance with our existing

obligations and we have internal policies and procedures.
Colleagues are kept informed of these requirements via
regular briefings and internal communications.
• All employees are issued with a code of conduct.
• A confidential hotline has been setup for colleagues to

raise any concerns in confidence.

• All suppliers are subject to regular checks and

independent product testing is regularly undertaken.

COMPETITION

REGULATION
AND COMPLIANCE

BUSINESS
SYSTEMS AND
INFORMATION
INFRASTRUCTURE

The Group’s business involves a high
number of operational and financial
transactions across numerous sites
which rely on the continuous
operation of our IT systems.

• 24-hour system monitoring is in place for business

critical systems.

• A disaster recovery site is available and a full

disaster recovery plan is in place and is reviewed
and updated annually.

• This resilience is tested and monitored by the Group.

SEASONALITY/
EXTREME
WEATHER

Furniture retailing is highly seasonal in
nature. Prolonged extreme cold, warm
or unseasonal weather conditions may
reduce footfall in our stores, resulting
in weak sales, leading to potentially
adverse effects on profitability.

• The Group constantly monitors national, divisional,

regional and branch results.

• This close monitoring and our ability to flex the marketing
and advertising spend enables the Board to react quickly
to changes in the marketplace.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsP R I N C I PA L R I S K S
A N D U N C E R TA I N T I E S
C O N T I N U E D

K E Y R I S K

D E S C R I P T I O N

M I T I G AT I O N

C H A N G E I N
R I S K L E V E L

CONSUMER
FINANCE

The Group’s ability to offer interest-free
credit to customers may be impaired
as a result of high default levels, higher
interest rates or the withdrawal or
uncompetitive nature of consumer
credit facilities provided by external
finance companies – thereby reducing
the competitiveness of a key part of
the Group’s customer proposition.

• We maintain a longstanding relationship with two credit

providers to reduce the risk of the facility being withdrawn.

• We regularly reviews default levels with the providers

to discuss the associated fee levels.

• The Group has obtained the relevant permissions from
the FCA to continue to provide interest-free credit
to customers.

• Regular training is provided to retail staff and any

complaints regarding regulated activity are reported
to the Board.

CREDIT RISK
& LIQUIDITY

The availability of supplier credit and
the ability of suppliers to obtain credit
risk insurance could have material
adverse effects on the Group’s cash
position and overall financial condition.

SUPPLY CHAIN/
INFRASTRUCTURE

BRAND &
REPUTATION

A large proportion of the Group’s
products are supplied by a small
number of key manufacturers.
A supplier which ceases to trade
could cause disruption to the
supply of products to customers.

Around one-third of the total
products sold by the Group are
manufactured in the Far East, which
could present difficulties in ensuring
supplier compliance and an ethical
supply chain.

The Group recognises the need to
protect its brand and reputation –
failure to do so effectively could
result in a loss of confidence by
customers and or colleagues.

PRODUCT
LIABILITY
CLAIMS

Failure to deliver a safe, quality
product in line with customer
expectations risks the reputation
of the Group, resulting in loss
of customer confidence and
declining sales volumes.

• We have developed strong relationship and credibility
with credit insurers though regular communication
and information sharing.

• Robust forecasting facilities enable early discussion of

possible issues increasing the chances of positive solutions.

• The committed bank revolving credit facility has been

agreed and is in place until October 2018.

• Suppliers provide regular updates on their Credit

Insurance arrangements.

• See viability statement for further information.

• The Group has long-established and good working

relationships with its key suppliers.

• When sourcing products we ensure that at least two

factories can produce each product providing resilience.

• We independently monitor supplier financial stability

to identify any early signs of failure.

• Service level agreements are in place with all suppliers.
• Suppliers are expected to be members of Sedex (the
supplier ethical data exchange) and agree to audits
of manufacturing facilities.

• Our contractual relationships are with long-standing

UK businesses.

• Key aspects of our business activities which have the
potential to impact reputation are monitored closely.
• We regularly survey customer service levels (for example,

though Trustpilot), and product quality, colleague
engagement (through staff surveys). The integrity of our
product sourcing is regularly monitored and reviewed.
• We ensure that we comply with current guidelines on pricing
and promotions through regular review and monitoring.

• All suppliers have entered into a service level agreement

with the Group.

• Suppliers are required to provide evidence that the product
supplied is compliant with all current regulations and are
expected to be members of Sedex and agree to audits of
manufacturing facilities.

• The Group carries out regular independent testing on
products supplied to ensure ongoing compliance to
current regulations.

• Product performance is monitored via the customer service
team and regular meetings are held with suppliers to help
eliminate and reduce product issues.

ScS Group plc Annual Report 2016Strategic ReportK E Y R I S K

D E S C R I P T I O N

M I T I G AT I O N

C H A N G E I N
R I S K L E V E L

OUR PEOPLE

The business is reliant on the high
quality, stability and experience
in its senior management team.

• The key senior Executives and management are

appropriately rewarded and incentivised through bonus
and long-term incentive arrangements with a focus on
retention as well as performance.

• The Board has adopted a succession plan which includes

strategy and contingency measures should key individuals
not be available.

Retaining trained and engaged
colleagues is essential to the delivery
of the high standard of customer
service, which is a key part of our
proposition. Our future success
is at risk if we do not recruit and
retain high calibre people.

• Retention rates monitored and supported by an exit

interview process.

• The Group ensures terms and conditions of employment

are fair and competitive in the sector.

• The Group works to maintain its brand presence and

retain its reputation as an ‘employer of choice’.

• The Group has Investors in People status.

PROPERTY –
AVAILABILITY/
LEASE COSTS

The Group’s business requires that
it leases substantial amounts of retail
space. The availability and cost of
suitable leasehold store property
is a key element of the Company’s
business model – permitting it to
compete cost-effectively, alter the
size and position of its stores when
necessary and also expand into new
locations as part of its strategy for
growth. The Group’s performance
and prospects could be adversely
affected were the availability and
cost of suitable property to move
unfavourably.

• We work closely with agents and we regularly monitor for

new opportunities.

• Ensuring we have current information from landlords
on our current sites and are aware of the development
of new retail sites.

• Work closely with our professional advisors to monitor

progress and changes to rental evidence to predict future
lease costs.

Viabilitystatement
As explained in the Strategic Report, our business model provides
customers with high quality, competitively priced upholstered
furniture, flooring and related products. The Directors have
assessed the viability of the Group over the three-year period
to 27 July 2019, taking into account the Group’s current position
and the potential impact of the principal risks documented in
the Strategic Report.

The three-year period was selected as this represents the normal
budgeting period of the business and the payback requirements
of any significant capital investment (new stores).

The strategy and associated principal risks underpin the Group’s
three-year strategic planning process (‘the Strategic Plan’), which
is updated annually. This process takes into account the current
and prospective macro-economic conditions in the UK and the
competitive tension that exists within the markets that we trade in.
Changing economic conditions which impact consumer confidence
could have an impact on demand for high ticket items.

The Strategic Plan also encompasses the projected cash flows and
headroom against financial covenants under the Group’s existing
facility. The Strategic Plan makes certain assumptions about the
normal level of capital recycling likely to occur and therefore
considers whether additional financing will be required. Current
headroom against the Group’s existing facility is £12.0m. The Group
bank facility, which was extended in August 2016, has a maturity
date of October 2018. In preparing the viability statement the
Directors have assumed that the current facility will be extended
to cover the three-year period to July 2019.

Based upon this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
to 27 July 2019. In making this statement, the Directors have
considered the resilience of the Group, taking into account its
current position and the principal risks facing the business.
The Strategic Plan (which covers the same period as the viability
statement to 27 July 2019) was stress tested for severe but
reasonable scenarios and the effectiveness of any mitigating
actions that would reasonably be taken. The Strategic Plan was
specifically stress tested for downturns in revenue, gross margin
(due to increased cost of sales) and the withdrawal of supplier
credit insurance. The outcome of this testing satisfied the
Directors with respect to the ongoing liquidity and solvency
of the Group over the period under review.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsC O R P O R AT E S O C I A L
R E S P O N S I B I L I T Y

At ScS we see our core purpose as helping customers find
the perfect furniture and flooring for their home, suiting both
our customer’s budget and personal style. At the same time
of course, we recognise that as a responsible business we
have an obligation to operate in a manner that is both
ethical and sustainable.

AtScS,CorporateSocialResponsibility
(CSR)isakeypartofourbusiness
and is integrated into the day-to-day
management of the Company. It is
importanttoourreputationinthe
marketplaceandtoourcustomers
andcolleagues,aswellasthewider
stakeholders in society and the
communitiesweserve.

OurCSRprogrammeisfocusedonfour
keypriorityareas:Environment,where
ouremphasisisonrecyclingwaste,
reducingelectricityusage,improvingfuel
efficienciesandsourcingwithintegrity;
HealthandSafety,toensurethatour
staffandcustomerscanworkandshop
inasafeenvironment;Colleagues,where
ourfocusisonseekingtoensurethatScS
isagreatplacetoworkanddevelop;and
Community,whereweputgreatemphasis
onlocalcharitablefundraising.

DavidKnight
ChiefExecutiveOfficer

Environment
As a retailer we recognise that our
operations will impact on the environment,
and we have a duty to ensure that both now
and in the future we seek to minimise this
impact. There are a number of important
areas that we place emphasis on, to reduce
the environmental impact of the business.
Our focus is to maximise the level of waste
recycling, reduce our electricity usage,
improve our fuel efficiencies and source
products with integrity.

Waste recycling
ScS is committed to reducing waste. All of
our waste packaging, principally plastic and
cardboard, generated by our stores, head
office, distribution centres and used for
protecting the product we deliver directly
to our customers, is collected and recycled.
Since 2013 we have reduced our gross weight
volumes by 35% and we now recycle or divert
from landfill 92% of all waste collected.

Greenhouse gas emissions reporting
We aim to reduce our carbon footprint.
All ScS sites now have automatic meter
readers (AMR) fitted for recording electricity
usage and meter loggers for recording gas
usage. This allows greater control of costs
by more accurate recording of data but
also the policing of anomalies as these are
highlighted within 24 hours.

ScS are currently trialling a building energy
management system (BEMs) at four sites.
This allows automatic computerised
management of all energy usage, leading to
maximising cost efficiencies and minimising
downtime and wastage. Such systems
include movement sensors to switch off
equipment when it is not being used, light
sensors to moderate lighting on signage
and auto controls for heating and cooling.

Since 2014 ScS have installed new corporate
signage at all sites incorporating the latest
LED Illumination technology and all new
sites opened since then include LED store
lighting and energy efficient heating
and cooling systems. This together with
a progressive change to energy efficient
systems in our existing stores means
that we are reducing our electricity usage
year-on-year by 2.5% and in 2016 reduced
our gas usage by 22%.

In 2016 we have reduced our greenhouse
gas emission by approximately 755 tonnes
across our business.

In 2015 we introduced the Paragon system
of computerised management of our
logistics operation. This allows the use of
delivery vehicles to be optimised in terms
of load en route, minimising the mileage
required to achieve our customer deliveries,
thus reducing fuel consumption. During
2016 we estimate that we have reduced
our fuel consumption by 4.1% per delivery.

Sourcing with integrity
ScS recognises modern forms of slavery can
be very difficult to detect, given its criminal
nature. The Group is committed to tackling
this type of human rights abuse through
effective due diligence and risk assessment
of its supply chains.

ScS Group plc Annual Report 2016Strategic ReportScS operates a zero-tolerance approach
to any such activities to ensure compliance
with the Modern Slavery Act, and its values,
policies and processes have been developed
which extend throughout our supply chain.

Risk assessment
The majority of goods are manufactured
in the UK, however, around a third of goods
are manufactured in the Far East. A large
proportion of the Group’s products are
supplied by a small number of key
manufacturers. The Group has developed
good working relationships with its key
suppliers over many years and is therefore
able to effectively communicate and
achieve support in this area. The Group
risk assesses its supply chain by:

• Assessing the risk profile of individual
countries based on the Global Slavery
Index together with the inherent profile
risk associated with the manufacturing
of the goods in that territory.

• Analysing the insights and expertise

of specialist third parties.

• Reviewing the extent to which types

of employees may be more vulnerable
than others due to cultural, economic
or demographical reasons.

The biggest identified risks to modern slavery
are products sourced for sale from the Far
East, and the Group has prioritised its focus
with these suppliers. The manufacturing
of all goods in the Far East are all completed
in modern purpose built factories. Given the
size and nature of the goods the level of
risk is lower compared to other types of
manufacturing activities in the Far East.

Steps taken
In preparation for our first statement,
ScS has written to its suppliers raising
awareness of the Modern Slavery Act and
the steps required by its suppliers to tackle
modern slavery. In addition, this year our
standard supplier contractual terms have
changed to include:

• A requirement that our suppliers conduct
regular modern slavery risk assessments
and obtain independent ethical audits
within their own manufacturing processes.

• Clear obligations on suppliers to comply
and implement controls to prevent
modern slavery. This includes ensuring all
employment shall be voluntary, provision
of an employment contract confirming
the employee’s right to leave work and
the ability to terminate employment upon
expiry of reasonable notice.

• Never requiring employees to lodge

deposits of money or surrender of any
government-issued identification,
passports or work permits as a condition
of employment.
Immediate notification to the Group if
a supplier becomes aware of any modern
slavery within their supply chains.

•

In addition, the Group operates a
Whistleblowing Policy, aimed principally at
our employees but also available to others
working in our supply chains which allows
the reporting of any wrongdoing and
extends to human rights violations such as
modern slavery. Any reporting will be fully
investigated and appropriate remedial
actions taken.

Any new supplier intending to supply
the Group not only must adhere to these
terms, but, in addition, must also support
the Group’s commitment through the
production of an independent ethical
trading audit that specifically covers the
requirements of the Modern Slavery Act
prior to orders being placed.

Caption:1. Recognising the contribution of our people | 2. One
of our distribution teams on the ‘delivering excellence’
programme | 3. Celebrating long service | 4. ScS’s HR team
celebrate being re-accredited Investors in People status |
5. Showing our colours cheering on England and Wales
in Euro 2016.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsC O R P O R AT E S O C I A L
R E S P O N S I B I L I T Y
C O N T I N U E D

Training
To ensure a high level of understanding
of the risks of modern slavery and human
trafficking in our supply chains, extensive
training has been provided to all members
of staff in our Merchandising and
Compliance departments.

environment. The Board has the ultimate
responsibility for ensuring health and
safety compliance. The business regularly
monitors a number of KPIs, including the
number of accidents, particularly those
that are required to be reported to the
Health and Safety Executive.

Colleagues
Our people are core to our business, whether
they work in our stores, are part of our
distribution operation or are a member of
our support teams. ScS is a growing business
and in the last 12 months we have created
132 new jobs across our organisation.

Assessment of effectiveness
In order to assess the effectiveness of the
measures put in place by the Group, the
following will be reviewed and reported
on in future Modern Slavery Statements:

• Staff training levels;
• Further actions taken to strengthen

supply chain audits; and

• Steps taken to upskill our suppliers

through continued assessment of their
ability to detect and mitigate modern
slavery risk within their supply chains.

Health and safety
We take the welfare of our customers and
employees very seriously. We are therefore
committed to ensuring that our business
has appropriate health and safety standards
across our store portfolio as well as our
distribution centres and our head office.
We want to ensure that our customers
and employees can shop and work in a safe

In 2016 there were eight accidents
reportable to the Health and Safety
Executive. In 2015 there were five reportable
accidents. The root cause of these accidents
were investigated and operating procedures
revised as a result with the aim of reducing
this number in 2017. During 2016 we did see
an overall reduction in incidents across the
business of 20% compared to the previous
year, the accident frequency rate reducing
from 9.2 (per 100,000 hours worked) to
7.2 (per 100,000 hours worked).

Our Health and Safety Policy is communicated
throughout the business and all our colleagues
receive health and safety training that is
appropriate to their job role. Observance of
policy is monitored through regular health
and safety audits and we ensure that we are
abreast of all current statutory requirements.
Retail and Distribution Managers bonus
earnings are reduced for a poor Heath and
Safety Audit.

We are an equal opportunities employer
and we strive to ensure that no employee
is discriminated against on the grounds
of gender, race, religion, disability, sexual
orientation or age. We want ScS to be a
great place to work and everyone working
in it has an equal opportunity to progress
within the business.

ScS has held the Investors in People
standard for the past 15 years, and we
undertake regular culture surveys across
our organisation to ensure that every
employee has the opportunity to provide
us with feedback about our workplace.
Our Investors in People accreditation
was re-assessed in August 2016 and we
are proud to have retained the standard.

We offer apprentice opportunities within our
business and in 2016, ten new apprentices
joined our business. Our aim is always to
offer permanent roles to apprentices,

C E L E B R AT I N G 4 0 Y E A R S
O F D E D I C AT E D S E R V I C E

Employee Lesley Sheraton, based at our
Sunderland office, is looking and feeling
fab as she celebrates 40 years’ service
with the Company, becoming the Group’s
longest-serving employee. Lesley joined
the A. Share & Sons family business in 1975
as an ‘Office Junior’ working for Alan Share
and his mother Esther, based then in
Blandford Street, Sunderland.

Having joined the business aged 16, Lesley
has worked her way up to her current role
as PA to our Chief Executive, David Knight,
and Assistant Company Secretary. Lesley
also manages a team of people and plays
an intrinsic role in the smooth and efficient
running of our headquarters.

Lesley said: “I’m extremely proud to be part
of the success of this fantastic business,
from one North East store in Sunderland
to 97 nationwide and becoming a major

UK sofa and carpet specialist. Whilst
there have been a number of changes
and challenges during my time with the
business, in my experience, the key to its
longevity and success is the passion and
commitment from its employees, and the
high number of very long-serving
employees is testament to that.”

At the same time Lesley became the
Group’s current longest-serving employee
the business also celebrated 40 years of
the ScS brand.

David Knight, Chief Executive, said: “Lesley
is a wonderful example of someone who has
helped grow and develop our business, she
is truly a huge asset to us and her work ethic
and understanding of the importance of our
customers is unquestionable. This ethic
has enabled her to become the very valued
senior member of our team she is today.”

ScSGroupplcAnnualReport2016

Strategic Reportwhere it is possible to do so on completion
of their training. An open programme of
NVQ training is offered to colleagues across
the business and in 2016 25 NVQ’s were
awarded. Our Time to Train policy gives
colleagues the opportunity to engage in
other external training opportunities and, if
the course meets relevant business criteria,
the Company offers financial support
towards this and, where required, a flexible
work arrangement to allow them to attend
their chosen course. Using this approach is
key to the development of our distribbution
teams in identifying potential drivers whilst
offering career progression and promotion.

In addition to external courses we produce
bespoke development events to increase
the capability of our people and support
them through product and policy changes.
Using technology to deliver some learning
interventions means our training can be
more cost-effective and highly responsive in
terms of identifying best working practices.
This drives a consistent performance
standard throughout the business.

We reward our store teams through results-
focused bonus and commission schemes,
which allow our retail sales teams to earn
rewards commensurate with performance.

Caption:Fromtop– Presenting an award to a participant
in the Foundation of Light Programme |
Dog on the Tyne, the ScS Snowdog.

In May 2015, we launched a share incentive
plan that will allow all employees the
opportunity to participate in the future
success of ScS.

The Company’s Snowdog is located at
the famous and iconic Angel of the North,
Gateshead, and is already becoming
a great addition to the ScS family.

Community
Whilst we’re a leading UK retailer we also
understand our role as a local furniture
and flooring store in the many communities
and lives of the millions of people we
serve, whether customer, employee or
stakeholder. We understand with this
role comes responsibility.

We encourage our people to contribute
positively to the local communities in and
around our network of branches, distribution
centres and office locations. As a business
and through our people we regularly help
support the work of national charities
and local causes. This year alone, together
with our employees, we have raised and
given funds totalling more than £44,000
to causes close to the hearts and minds
of our employees.

Foundations in the North East
One of those causes includes Sunderland
AFC’s sporting charity, Foundation of Light.
This year the Group has continued its
support with a further £10,000 donation
helping even more youngsters and their
families across the North East region access
sport. The Company’s contributions, which
now total more than £30,000, support the
delivery of specialist disability sports
coaching as well as social educational
programmes in the region.

Our involvement in
Great North Snowdogs
As a business we are also helping support
and raise funds for St Oswald’s Children’s
Hospice this year by sponsoring a Great
North Snowdog, which is part of a ‘paw-
some’ mass-participation, public art trail
happening in the North East of England
commencing in September 2016. St Oswald’s
UK has teamed up with Wild in Art to stage
the interactive trail of some 60 large-scale
Snowdog sculptures, inspired by the much
loved animated short film, The Snowman™
and The Snowdog. The Snowdogs are
decorated by artists and will be on show
for ten weeks in locations across Tyne
and Wear.

ScS has sponsored a Snowdog designed by
Jane Headford, a scenic artist who trained in
London, from Dartura Art & Design who has
created designs for many public art trails in
the UK. Dog on the Tyne’s design is inspired
by the North East’s architecture, heritage and
its beauty when it’s cold and snowy outside.

Great team efforts
During December 2015, employees
across the ScS Group took part in national
‘Christmas Jumper Day’ by wearing their
favourite festive knit and making a donation
to TEXT SANTA to help three amazing
charities give hope to families in difficulty
at Christmas. Those charities include:
Macmillan Cancer Support, Make-A-Wish
UK and Save the Children. And it didn’t
stop there, ScS were also the proud sponsor
of Big Star’s Bigger Star as part of ITV’s
coverage of the charity appeal, with the
Company donating monies for every
question answered correctly on the show.
In total the ScS Group and its employees
raised some £25,000 for TEXT SANTA.

Another instance during the year is our
dedicated team’s fundraising activity for
the Sports Relief Day campaign. Together
our employees collected a fantastic £900
over the course of the day through a series
of fundraising activities, including a dress
down day, bake sale, sporting competitions
and generous donations. The Company
further boosted the total by doubling it
and bringing our Group fundraising total
to some £1,800.

Our employees working within
their local communities
Many of our employees individually take on
various challenges and fundraising events
in which the Company and its employees
lend their support.

We’ve a cohort of Great North Runners
supporting various national and local
charitable organisations at the same time as
racing the 13-mile course. This has included
raising funds for Cancer Research UK,
Tommy’s Baby Charity, Macmillan Cancer
Support, Diabetes UK and many more.

A member of our supply chain team helped
host a charity football match with his local
team taking on a team of SAFC legends,
including Gary Bennett, Julio Arca, Darren
Williams and Alex Rae. ‘The Match’ was in
aid of raising funds for Sunderland’s Niall
Quinn Children’s Centre and a local church
community roof appeal. ScS was the
event’s match programme sponsors.

We also regularly help raise awareness and
get behind national charitable campaigns,
including the likes of Macmillan’s Coffee
Morning and Children in Need.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsB O A R D O F
D I R E C T O R S

A L A N S M I T H
Non-ExecutiveChairman

D AV I D K N I G H T
ChiefExecutiveOfficer

C H R I S M U I R
ChiefFinancialOfficer

R O N M C M I L L A N

Non-ExecutiveDirector

PA U L D A C C U S

Non-ExecutiveDirector

G E O R G E A D A M S

Non-ExecutiveDirector

Date of Appointment

22 October 2014*

Committee Membership

Chairman of the Nomination Committee
Audit Committee
Remuneration Committee

Biography

Alan has held a number of roles for retail
companies across the private equity and quoted
sector previously including Chairman and Chief
Executive Officer of Robert Dyas, Chief Executive
Officer of Somerfield, Non-Executive Director of
Flybe Group and Managing Director of B&Q plc.

Alan Smith is also Chairman of the Nomination
Committee and a member of the Remuneration
and Audit Committee.

External Appointments

Displayplan Holdings Limited
Displayplan Limited
NAAFI Trustees Limited
The Navy, Army and Air Force Institutes
The Royal Air Force Charitable Trust Enterprises
Brambledown Aircraft Hire

1 January 2002

4 April 2016

1 December 2014*

9 July 2015

N/A

Remuneration Committee (resigned 18 Nov 2015)

Chairman of the Remuneration Committee

Nomination Committee

Audit Committee (resigned 18 Nov 2015)

Audit Committee

Nomination Committee

Date of Appointment

22 October 2014*

Committee Membership

Chairman of the Audit Committee

Remuneration Committee

Nomination Committee

Biography

David joined ScS in 1988 as a General Manager
from Wades Department Stores, which he joined
in 1978. He progressed to become the Branch
Manager of the Group’s flagship store, located
at the Metro Centre in Gateshead. He became
National Sales Manager in October 1995 and was
appointed to the Board in November 1997 as
Merchandising Director. In October 1999 he was
promoted to the position of Managing Director,
then to Chief Executive Officer in January 2002.

Chris joined ScS on 4 April 2016 as Chief Financial
Officer. Prior to this he was Group Finance Director
of Northgate plc. Northgate is Europe’s leading
specialist in light commercial vehicle hire and
a member of the FTSE 250. He joined Northgate
in 2003 as a Group Accountant and held a number
of senior UK and group roles, including UK Finance
Director and acting group CEO in the summer of
2014. He is a chartered accountant having qualified
with Deloitte in 1999.

Ronald (Ron) is the Senior Independent Director

Paul is Managing Director of Sun European

and Chairman of the Audit Committee of N Brown

Partners, LLP. He has more than a decade of

George has a strong commercial and management

background, with over 30 years of international

Group plc, 888 Holdings plc, Brammer PLC and

is a non-executive Director and the Chairman

of the Audit Committee of B&M European Value

Retail S.A. Ron spent the whole of his career with

experience in mergers and acquisitions, specialising

experience across Europe and Asia. George spent

in private equity and acquisition finance. Prior to

joining Sun European Partners, LLP in 2005, Paul

16 years with Kingfisher plc, in roles which included

CEO of Europe Development, Group Commercial

served as a Director on corporate finance teams at

Director and Commercial Managing Director for

PricewaterhouseCoopers where he was a partner

Deloitte and Touche LLP and Arthur Andersen LLC.

B&Q. He has also held CEO positions at Spicers

for 28 years until his retirement on 31 March 2013.

He received his Bachelor of Accountancy degree

Ron is the Chairman of the Audit Committee

and a member of the Remuneration and

Nomination Committees.

with Honours from Dundee University.

Paul is a member of the Nomination Committee.

Group and Maxeda DIY Group and has both plc

and private equity experience in the retail and

consumer goods sector.

George is Chairman of the Remuneration

Committee and a member of the Audit and

Nomination Committees.

Frontier Economics Ltd

Whales and Dolphins Conservation Society

FFX Ltd

External Appointments

N Brown Group plc

888 Holdings plc

B&M European Value Retail S.A.

Brammer Plc

Welcome to Yorkshire

Sun European Partners LLP

SAG Advisory 1 Ltd

Dreams Holdco Ltd

Dreams Topco Ltd

Hey Bidco Ltd

Hey Midco Ltd

Hey Topco Ltd

Upsilon Bidco Ltd

Upsilon Midco Ltd

Upsilon Topco Ltd

* The letters of appointment for Mr Smith and Mr McMillan are each dated 22 October 2014. Mr Daccus’ appointment commenced with effect from 1 December 2014 pursuant

to a letter of appointment dated 9 January 2015.

ScS Group plc Annual Report 2016Corporate GovernanceA L A N S M I T H

Non-ExecutiveChairman

D AV I D K N I G H T

ChiefExecutiveOfficer

C H R I S M U I R

ChiefFinancialOfficer

R O N M C M I L L A N
Non-ExecutiveDirector

PA U L D A C C U S
Non-ExecutiveDirector

G E O R G E A D A M S
Non-ExecutiveDirector

1 January 2002

4 April 2016

Chairman of the Nomination Committee

N/A

Date of Appointment

22 October 2014*

Committee Membership

Audit Committee

Remuneration Committee

Biography

Alan has held a number of roles for retail

companies across the private equity and quoted

sector previously including Chairman and Chief

Executive Officer of Robert Dyas, Chief Executive

Officer of Somerfield, Non-Executive Director of

Flybe Group and Managing Director of B&Q plc.

David joined ScS in 1988 as a General Manager

Chris joined ScS on 4 April 2016 as Chief Financial

from Wades Department Stores, which he joined

Officer. Prior to this he was Group Finance Director

in 1978. He progressed to become the Branch

Manager of the Group’s flagship store, located

at the Metro Centre in Gateshead. He became

National Sales Manager in October 1995 and was

appointed to the Board in November 1997 as

of Northgate plc. Northgate is Europe’s leading

specialist in light commercial vehicle hire and

a member of the FTSE 250. He joined Northgate

in 2003 as a Group Accountant and held a number

of senior UK and group roles, including UK Finance

Alan Smith is also Chairman of the Nomination

Committee and a member of the Remuneration

and Audit Committee.

Merchandising Director. In October 1999 he was

Director and acting group CEO in the summer of

promoted to the position of Managing Director,

then to Chief Executive Officer in January 2002.

2014. He is a chartered accountant having qualified

with Deloitte in 1999.

External Appointments

Displayplan Holdings Limited

Displayplan Limited

NAAFI Trustees Limited

The Navy, Army and Air Force Institutes

The Royal Air Force Charitable Trust Enterprises

Brambledown Aircraft Hire

Date of Appointment

22 October 2014*

Committee Membership

Chairman of the Audit Committee
Remuneration Committee
Nomination Committee

Biography

Ronald (Ron) is the Senior Independent Director
and Chairman of the Audit Committee of N Brown
Group plc, 888 Holdings plc, Brammer PLC and
is a non-executive Director and the Chairman
of the Audit Committee of B&M European Value
Retail S.A. Ron spent the whole of his career with
PricewaterhouseCoopers where he was a partner
for 28 years until his retirement on 31 March 2013.

Ron is the Chairman of the Audit Committee
and a member of the Remuneration and
Nomination Committees.

External Appointments

N Brown Group plc
888 Holdings plc
B&M European Value Retail S.A.
Brammer Plc
Welcome to Yorkshire

1 December 2014*

9 July 2015

Remuneration Committee (resigned 18 Nov 2015)
Nomination Committee
Audit Committee (resigned 18 Nov 2015)

Chairman of the Remuneration Committee
Audit Committee
Nomination Committee

George has a strong commercial and management
background, with over 30 years of international
experience across Europe and Asia. George spent
16 years with Kingfisher plc, in roles which included
CEO of Europe Development, Group Commercial
Director and Commercial Managing Director for
B&Q. He has also held CEO positions at Spicers
Group and Maxeda DIY Group and has both plc
and private equity experience in the retail and
consumer goods sector.

George is Chairman of the Remuneration
Committee and a member of the Audit and
Nomination Committees.

Frontier Economics Ltd
Whales and Dolphins Conservation Society
FFX Ltd

Paul is Managing Director of Sun European
Partners, LLP. He has more than a decade of
experience in mergers and acquisitions, specialising
in private equity and acquisition finance. Prior to
joining Sun European Partners, LLP in 2005, Paul
served as a Director on corporate finance teams at
Deloitte and Touche LLP and Arthur Andersen LLC.
He received his Bachelor of Accountancy degree
with Honours from Dundee University.

Paul is a member of the Nomination Committee.

Sun European Partners LLP
SAG Advisory 1 Ltd
Dreams Holdco Ltd
Dreams Topco Ltd
Hey Bidco Ltd
Hey Midco Ltd
Hey Topco Ltd
Upsilon Bidco Ltd
Upsilon Midco Ltd
Upsilon Topco Ltd

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsC O R P O R AT E
G O V E R N A N C E
S TAT E M E N T

This corporate governance statement
sets out the main elements of the
Company’s corporate governance
structure and how it complies with
the UK Corporate Governance Code.
It also includes information required
by the Listing Rules and the Disclosure
Rules and Transparency Rules.

Alan Smith
Chairman

Role of the Board
The Board is committed to high standards of corporate governance.
The Company has complied (except where otherwise stated below)
and intends to continue to comply with the requirements of the UK
Corporate Governance Code.

The Company is led and controlled by the Board which is collectively
responsible for the long-term performance of the Group. The Board
focuses on the strategy, performance and governance of the Group.
The Board has delegated certain responsibilities to committees to
assist in discharging its duties and the implementation of matters
approved by the Board. A summary of the terms of reference of each
committee is set out on page 34 and reports of each committee are
set out on pages 36 to 49.

Detailed implementation of matters approved by the Board and
operational day-to-day matters are delegated to the Executive
Directors. The Executive Directors are also supported by experienced
and able operational senior management.

MattersreservedfortheBoard
A formal schedule of matters is reserved for the Board for its
approval, which includes:

• Approval of the Group’s strategic aims and objectives, reviewing

performance and business planning and oversight of the
Group’s operations.

• Approving any changes to the capital structure of the Group.
• Approving the financial reporting, budgets, dividend policy and
any significant changes in accounting policies and practices of
the Group.

• Ensuring maintenance of a sound system of internal control and

risk management.

• Approval of any major capital projects and materially significant

contracts for the Group.

• Ensuring a satisfactory dialogue with shareholders based on the

mutual understanding of objectives.

• Approval of the structure, size and composition of the Board and
the remuneration policy for all Directors and Senior Executives.

• Setting the division of responsibilities between the Chairman,

Chief Executive and the Chief Financial Officer.

• Undertaking a formal and rigorous review of the Board

performance and corporate governance matters.

• Approval and supervision of any material litigation, insurance

levels of the Group and the appointment of the Group’s
professional advisors.

There is a rolling programme of Board meetings throughout
the year and there are six Board meetings presently scheduled
for 2017.

ScS Group plc Annual Report 2016Corporate GovernanceS T R U C T U R E C H A R T

G R O U P B OA R D

E X EC U T I V E
D I R EC TO R S

C O M M I T T E E S

O P E R AT I N G
COM PA N Y BOA R D

A U D I T

R E M U N E R AT I O N

N O M I N AT I O N

All Board and committee members receive sets of Board packs in
advance of the Board and committee meetings. For Board meetings
this includes current trading, management accounts and detailed
papers on other matters where Board approval is required. The CEO
and CFO present reports to the Board at each meeting on trading,
financial performance and operational matters, along with updates
on any significant health and safety, litigation or regulatory matters.

Composition of the Board
The Board comprises the Non-Executive Chairman, two Executive
Directors, two independent Non-Executive Directors and a
Non-Executive Director appointed by Sun Capital Partners
Management V, LLC in their capacity as the principal shareholder.

The UK Corporate Governance Code recommends that smaller
companies have at least two independent Non-Executive Directors
excluding the Chairman. The Company has met this requirement, Ron
McMillan (Senior Independent Director), appointed 22 October 2014,
and George Adams, appointed 9 July 2015, are both considered by the
Group to meet the definition of an independent Director. The Chairman,
Alan Smith, is also considered independent. Each of them is considered
by the Board to be independent in character and judgement and free
from relationships or circumstances which may affect, or could appear
to affect the Director’s judgement. Independence is determined by
ensuring that the Non-Executive Directors do not have any material
business relationships or arrangements (apart from their fees for acting
as Non-Executive Directors) with the Group or its Directors which
in the opinion of the Board could affect their independent judgement.
Paul Daccus is not regarded as independent for the purpose of the
UK Corporate Governance Code in view of his position as a Partner
of Sun European Partner LLP and his interests in Sun Capital
Partners Management V, LLC which hold shares in the Company.

On 22 October 2014, Sun Capital Partners Management V, LLC,
entered into a Relationship Agreement with the Company. Under
the terms of that agreement Sun Capital Partners Management V,
LLC are entitled to appoint one Non-Executive Director to the Board
for an initial period of three years. At the year ended 30 July 2016,
Sun Capital Partners Management V, LLC, held 41.5% of the total
issued shares in the Company.

The Board believe that the terms of the relationship agreement
referred to above will ensure that the Company and other members
of the Group are capable of carrying on their business independently
of Sun Capital Partners Management V, LLC and that transactions
and relationships between those parties and the Group are at arm’s
length on normal commercial terms.

All Directors have service agreements or letters of appointment
in place and the details of the terms of these are set out in the
Directors Remuneration Report on pages 40 to 49.

The Nomination Committee will review on an annual basis the Board’s
composition, experience and skills to ensure the effective working of
the Board and the Standing Committees and the commitment of their
members. The Chairman has met with each of the Non-Executive
Directors during the year on a one-to-one basis, without the Executive
Directors being present, to discuss matters relating to the Board, its
balance and the monitoring powers of the Executive Directors.

The Chairman believes the current Board and Standing Committees
have an appropriate balance of skills and experience to enable them
to discharge their responsibilities effectively. Where Directors have
external appointments, the Board is satisfied that they do not
impact on the time the Director needs to devote to the Company.

Divisionofresponsibilities
The positions of Chairman and CEO are occupied by different
individuals. There is a clear division of the roles and responsibilities
between the Chairman and the CEO and no individual has unrestricted
powers of decision making.

Alan Smith, as Chairman of the Board, is responsible for leading the
Board, setting its agenda and overseeing its effectiveness. The
Chairman facilitates the contribution of the Non-Executive Directors
and constructive relations between them and the Executive Directors.

David Knight as CEO, together with Chris Muir as CFO, is responsible
for the day-to-day management of the Group and the implementation
of strategies approved by the Board and the implementation of other
Board decisions.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsC O R P O R AT E G O V E R N A N C E
S TAT E M E N T
C O N T I N U E D

Diversity
The Group is satisfied overall with its record on diversity, and is
aware of the need to monitor and review its level of diversity. Whilst
the Group would have preferred to appoint a female Non-Executive
Director following the IPO, appointments will always be made on
merit as opposed to on the basis of gender targets, and this is
considered in the best interests of the Group and its shareholders.

Conflictsofinterest
Paul Daccus has an interest in the shares held by Sun Capital Partners
Management V, LLC, which holds 41.5% of the Ordinary Share Capital
and voting rights in the Company as a result of his partnership in Sun
European Partners LLP.

Except as referred to above there are no potential conflicts of interest
between any of the Directors or senior management within the Group
and their private interests.

There is an established process of the Board for regularly reviewing
actual or potential conflicts of interest. In particular, there is a
process for reviewing transactions proposed to be entered into by
related parties of Directors with any entities in the Group, including
professional advice and consideration of it by the Board and the
Company’s corporate brokers on the application of the Listing Rules,
the applicability and the appropriateness of any exemptions in
respect of any transactions in the ordinary course of business and
reporting to general meetings of shareholders under England and
Wales Company Law. This process also includes consideration of the
extent to which the Board may require external and any other reports
and evaluations to be presented to it on any proposed transactions.

Remuneration Committee
The Remuneration Committee is chaired by George Adams. The
Remuneration Committee sets the policy for the Group on executive
remuneration. It determines the level of remuneration of the
Chairman and the Executive Directors of the Company and makes
recommendations in relation to other senior management.

In accordance with its terms of reference, the Committee prepares an
annual Directors Remuneration Report for approval by shareholders at
the Annual General Meeting of the Company. The terms of reference
for the Remuneration Committee are available at ScS Group plc
head office.

The members of the Remuneration Committee are George Adams
(Chair), Alan Smith and Ron McMillan. All members served on the
Committee throughout 2016 and all remain in place at the date
of this report.

The Remuneration Committee meets not less than two times a year.
Details of the activities of the Committee in the last financial year
are set out on pages 40 to 49.

Nomination Committee
The Nomination Committee comprises all of the Non-Executive
Directors. It is chaired by Alan Smith and its other members are
Ron McMillan, George Adams and Paul Daccus.

The duties of the Nomination Committee as delegated to it by the
Board are contained in the terms of reference available at
ScS Group plc head office, which in summary include:

Committees of the Board
The Board has established and delegated authority to an Audit
Committee, Remuneration Committee and Nomination Committee.
A summary of the terms of reference of each of these committees is
set out below. The full terms of reference of each of the committees
is available at ScS Group plc head office.

• Reviewing the structure, size and composition of the Board,

including the balance of Executive and Non-Executive Directors;
• Putting in place plans for the orderly succession of appointments

•

to the Board and to Senior Management; and
Identifying and nominating candidates for the approval of the
Board, to fill Board vacancies when they arise.

The Committee meet at least annually.

During the 2016 financial year the Nomination Committee has
reviewed the size, structure and composition of the Board, with
regard to the experience and skills represented on it and the balance
of Executive and Non-Executive Directors represented on it. The
Committee appointed Chris Muir to the position of Chief Financial
Officer during the course of 2016, to succeed Ron Turnbull who
announced he would be leaving the Group.

The Committee recognised the need to keep under review
certain areas where over the course of time, appointments may
be appropriate to consider. The Nomination Committee also
recognises the need to monitor and review diversity in relation to
how the Group is led and represented. Appointments will always
be made on merit-based, objective criteria, recognising diversity
policy but without setting gender targets and this is considered
to be in the best interests of the Group and its shareholders.

Audit Committee
The Audit Committee is chaired by Ron McMillan. The duties of the
Audit Committee as delegated by the Board are contained in the
terms of reference available at ScS Group plc head office, which in
summary include:

• Monitoring the quality, effectiveness and independence of the

external auditors approving their appointment, re-appointment
and fee levels;

• Reviewing and monitoring the integrity of the financial statements

and any other price sensitive information of the Group; and
• Keeping under review the adequacy and effectiveness of the

Group’s internal financial controls and internal control and risk
management systems.

The members of the Audit Committee are Ron McMillan (Chair),
Alan Smith and George Adams. Ron McMillan is an ICAEW chartered
accountant and his experience formally as an audit partner of PwC
fulfils the requirement under the UK Corporate Governance Code
that one member of the Committee has recent and relevant financial
experience. All members served on the Committee throughout 2016
and all three remain in place at the date of this report.

The Audit Committee meets not less than three times a year. Details
of the activities of the Committee in the last financial year are set
out in pages 36 to 39.

ScS Group plc Annual Report 2016Corporate Governance
MonitoringofControls: There are formal policies and procedures
in place to ensure the integrity and accuracy of accounting records
of the Group and to safeguard its assets. The Board have carried out
a review of the effectiveness of the internal controls during the year
ended 30 July 2016 and for the period up to the date of approving
the Annual Report and Financial Statements. The Board were
satisfied after a review of the key risks to the business and relevant
mitigating actions that they were acceptable for a business of the
type, size and complexity as that operated by the Group.

InternalAudit: The Group has established an Internal Audit
function who are responsible for the monitoring of the Group’s role
management approach and provides a line between operational
managers and the Audit Committee.

StaffPolicies: There are formal policies in place in relation to
anti-bribery and corruption and whistleblowing policies in relation
to the reporting of any suspected malpractice or wrongdoing.
In addition, the Group have provided all employees with access
to an independent organisation (Safecall) where any concerns
regarding wrongdoing can be reported to the Group.

Compliance statement
The Company has complied with the provisions of the Corporate
Governance Code (September 2014) during 2016, as applicable,
except where stated above in this report.

Shareholder relations
The Board recognises that good communication is key to maintaining
shareholder relations, and as such we will endeavour to explain our
actions and financial results on a regular basis and to respond to
investor inquiries and feedback.

Meetings and calls are regularly made with institutional investors
and analysts in order to provide the best quality information to
the market.

The Company will communicate with its shareholders though the
Annual General Meeting, at which the Chairman will give an account
of the progress of the business over the past year, and will provide the
opportunity for shareholders to raise questions with the Chairman
and the Chairs of each of the Committees of the Board.

The Company also runs a corporate website at www.scsplc.co.uk,
which is regularly updated with our releases to the market and other
information and which includes a copy of this Annual Report and
Financial Statements.

Alan Smith
Chairman
3 October 2016

Directors attendance
The Board held eight meetings during 2016 and the attendance at
the meetings was as follows:

Board

Audit
Committee

Remuneration
Committee

Nomination
Committee

David Knight

Ron Turnbull

Chris Muir

Alan Smith

Ron McMillan

George Adams

Paul Daccus

–

Further meetings of the Board, Audit and Remuneration Committees
have also been held since the year end.

Boardperformanceevaluation
A review was undertaken during the 2016 financial year, this being
the first full-year cycle of the Board following the IPO. This will be
repeated on an annual basis going forward, and at least once every
three years with an external consultant to assist in the process are
required by the UK Corporate Governance Code.

Re-election of Directors
Based on the performance review by the Nomination Committee
of the size, structure and composition of the Board with regard
to the experience and skills represented on it, the Nomination
Committee has recommended that each of the Directors be
re-elected to the Board.

Risk management and internal control
The Board has overall responsibility for ensuring that the Group
maintains a strong system of internal control.

The system of internal control is designed to identify, manage and
evaluate, rather than eliminate the risk of failing to achieve business
objectives. It can therefore provide reasonable but not absolute
assurance against material misstatement, loss or failure to meet
objectives of the business due to the inherent limitations of any
such system.

The key elements of the Group’s system of internal controls are
as follows:

FinancialReporting: Monthly management accounts are provided
to members of the Board which contain current financial reports.
Reporting included an analysis of actual verses budgeted performance
and reasons for any significant differences. The annual budget is
reviewed and approved by the Board. The Company reports half-yearly
and publishes trading updates in line with market practice.

RiskManagement: The Group maintains a risk register, which is
continually updated and monitored, with full reviews occurring on
at least an annual basis. Each risk identified on the risk register is
allocated an owner, at least at the level of senior manager within the
business, the action required (where necessary) or acceptance of the
risk is also recorded. The risk registers are provided to the Board, key
risks and appropriate mitigating actions are monitored by the Board.

Information on key risks and uncertainties of the Group are set out
on pages 23 to 25.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial Statements
A U D I T
C O M M I T T E E
R E P O R T

The Audit Committee exercises
oversight of the Group’s financial
policies and reporting. It monitors the
integrity of the financial statements
and reviews and considers significant
financial and accounting estimates
and judgements.

Ron McMillan
ChairmanoftheAuditCommittee

Dear Shareholder
The Committee satisfies itself that the disclosures in the financial
statements about these judgements and estimates are appropriate
and obtains from the external auditors an independent view of the
key disclosure issues and risks.

A key responsibility of the Committee is to review the scope of the
work undertaken by the newly-established Internal Audit function
and the external auditors and to consider their effectiveness. The
scope of the Internal Audit work is agreed with management and
the Committee; the Committee monitors and reviews the key
aspects of the work undertaken by the external auditors. In relation
to risks and controls the Committee ensures that these have been
identified and that appropriate responsibilities and accountabilities
have been set.

The Committee oversees the process of the Board’s assessment of
the viability of the Groups stress testing of key trading assumptions
and the preparation of the viability statement, which is set out on
page 25 in the managing risks section of the Strategic Report.

The Committee also reviewed on behalf of the Board, the Group’s
compliance with the Modern Slavery Act and its policies in relation
to money laundering, anti-bribery and whistleblowing.

Further information on the Committee’s responsibilities and the
manner in which these have been discharged are set out below.

I shall be available at the Annual General Meeting on 23 November
2016 to answer any questions you may have on this report and
would like to thank my colleagues for their help and support during
the year.

Committee composition
The Committee comprises three members, two of whom are
independent Non-Executive Directors. Two members constitute
a quorum. The Committee must include one financially qualified
member with recent and relevant financial experience. The
Committee Chairman fulfils this requirement. All members
are expected to have an understanding of financial reporting,
the Group’s internal control environment, relevant corporate
legislation, the roles and functions of Internal Audit and external
audit and the regulatory framework of the business.

The members of the Committee during the year were Ron McMillan,
Alan Smith and George Adams. Paul Daccus resigned from the
Committee on 18 November 2015. Details of Committee meetings
and attendance are set out in the Corporate Governance Statement
on page 35. The biographies of the members of the Committee can
be found on pages 30 and 31.

Although not members of the Committee, David Knight, as CEO,
Chris Muir, as CFO and Paul Daccus as Non-Executive Director
attend meetings, together with representatives from the Internal
Audit function and the external auditors.

In addition to scheduled meetings, the Committee Chairman meets
with the Head of Internal Audit, the external auditors and the CFO
during the year.

ScS Group plc Annual Report 2016Corporate GovernanceResponsibilities
The responsibilities of the Committee, as delegated by the
Board, are set out in the terms of reference and are available
from the Group’s head office. They include the following:

• Monitoring the quality, effectiveness and independence

of the external auditors and approving their appointment,
re-appointment and fee level;

• Reviewing and approving the external audit plan, and ensuring
that it is consistent with the scope of the audit engagement;

• Reviewing and monitoring the integrity of the financial
statements and other price sensitive financial releases
of the Group;

• Assisting the Board with the development and execution

of a risk management strategy, risk policies and current risk
exposures including the maintenance of the Group’s risk register;

• Keeping under review the adequacy and effectiveness of the

Group’s internal financial controls and internal control and risk
management systems; and

and responsibilities. The Group’s Internal Audit function also
focuses on ‘in-store’ activity and ensures that all transactions
are properly accounted for.

Other areas of focus for the Committee were:

• The Group’s significant accounting policies and practices;
• The Group’s exposure to tax and VAT issues;
• Fraud risk and its mitigation;
• The Group’s business continuity and disaster recovery

procedures; and

• The adequacy of the Group’s IT systems.

In addition to the above, the Committee undertook the following:

• Approval of the external auditors terms of engagement;
• Consideration of the level of non-audit services provided

by the external auditors and the application of the Group’s
policy to these;

• Monitoring the activities of the Internal Audit function and

• Consideration of the significant risks included in the

approving the Internal Audit plan.

annual report;

• Consideration of the interim results and non-statutory financial
statements of the Group for the half-year ended 23 January 2016;

• Consideration of the processes that are in place to ensure that
assurance can be provided on whether the Annual Report and
Accounts is considered to be fair, balanced and understandable.
The Committee receives drafts and working papers relating to
the Annual Report and Accounts in order to facilitate its review
and input. Management representations, external and Internal
Audit reviews have also taken place to provide this assurance
to the Audit Committee and the Board;

• Consideration of this set of full-year annual report and financial

statements of the Group;

• Consideration of significant articles of accounting estimation

or judgement; and

• Making recommendations to the Board in respect of the

Committee’s findings, and reporting on how the Committee
has discharged its duties.

The Board considers that the processes undertaken by the
Committee are robust and effective and in compliance with the
guidance issued by the Financial Reporting Council. During the year
the Board has not been advised by the Committee of, nor identified
itself, any failings, frauds or weaknesses in the internal controls
which it has determined to be material in the context of the
financial statements.

Activities
In discharging its oversight of the matters referred to in the
introductory letter to this report the Committee was assisted
by management and the internal and external auditors.

The significant matters considered by the Committee during the
year were:

• Volumerebateswithsuppliers

The Group receives volume rebates from suppliers. The Committee
gained an understanding of these arrangements, discussed
them with management and the external auditors and satisfied
itself with the controls that are in place to ensure that amounts
received and receivable from suppliers are properly accounted
for on a monthly basis and that the related judgements are limited.

The volume arrangements are pre-negotiated with suppliers and
are split between suppliers with rebate ‘hurdle’ rates dependent
on spend and those that have a flat rate. At the year end, the vast
majority of hurdle rates were exceeded and therefore the level
of judgement involved was significantly reduced. Where hurdle
rates were not surpassed and the arrangements were not
coterminous with the year-end, judgements were required but
the amounts involved were not material.

• Completenessofstockprovision

The Group policy in relation to stock provisioning is to provide
for obsolete, slow moving and defective stocks. The Committee
discussed with the CFO and the external auditors the judgements
related to stock provisioning and the appropriateness of these in
light of the aged stock analysis. The Committee satisfied itself
that stock was not materially misstated.

• Risk management and internal controls

The Committee reviewed the Group’s internal control
environment and concluded that the Group continues to
maintain a robust system of internal control for the purpose
of safeguarding the Group’s assets, managing risk and, where
appropriate, complying with regulation. This covers all material
risks and related controls, including financial, operational
and compliance controls together with mitigating actions

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial Statements
A U D I T C O M M I T T E E
R E P O R T
C O N T I N U E D

The Committee has, in conjunction with the Board and the
management team, reviewed the effectiveness of the external
auditors, both in relation to audit and non-audit services and has
satisfied itself that the work undertaken by the external auditors
was effective.

Risk management
The Directors have overall responsibility for ensuring that
the Group maintains a sound system of internal control. There
are inherent limitations in any system of internal control and
no system can provide absolute assurance against material
misstatement, loss or failure. Equally, no system can guarantee
elimination of the risk of failure to meet the objectives of the
business. Against this background, the Committee continued to
help develop a risk management policy for the Group which, sets
out risk appetite and tolerance, the framework within which risk is
managed and the responsibilities and procedures attaining to the
application of the policy.

The Group is proactive in ensuring that corporate and operational
risks are identified, assessed and managed by identifying suitable
controls. The Group maintains a Corporate Risk Register and an
Operational Risk Register which detail:

1. The risks and impacts they may have;
2. Actions to mitigate the risks;
3. Risk scores to highlight the likelihood of occurrence;
4. The ‘owners’ of the risks; and
5. Target dates for actions by risk owners.

The Board is responsible for measuring the effectiveness of
risk management and for regularly reviewing the Corporate Risk
Registers. Management are responsible for monitoring risks on
a quarterly basis and for reporting all new and identified risks
to the Board.

The agreed framework for Risk Management is as follows:

• Review of principal risks and mitigating controls;
• Review of risk appetite;
• Review of the Corporate Risk Register and key risk indicators;
• Quarterly tracking and reporting movement of risks to

Operating Company Board and the plc Board; and
Internal Audit reviews and will test controls over risks.

•

A description of the principal risks together with mitigating actions
is set out on pages 23 to 25.

InternalAudit
The Head of Internal Audit was appointed on 5 October 2015 with
a direct reporting line to the Committee. Since that date, Internal
Audit has undertaken a programme of work which was discussed
and agreed with both management and the Committee and
which was designed to address both risk management and areas
of potential financial loss. Internal Audit has also established
procedures within the business to ensure that new risks are
identified, evaluated and managed and that necessary changes
are made to the risk register.

During the year the Committee reviewed reports from Internal Audit
in relation to:

1. Fraud risk, money laundering, anti-bribery and whistleblowing;
2. Compliance with the Modern Slavery Act;
3.

Performance assessments of the Group’s retail outlets
compliance procedures;
The effectiveness of mitigating actions in relation to the
Group’s principle risks, including IT systems, business
continuity and cyber risk;
5. Security around cash banking;
6. Finance house receivables;
7.
8. Cash and credit card controls;
9. Stock management processes and controls; and
10. Marketing expenditure and controls.

Payroll and expenses procedures and controls;

In relation to each of the above, Internal Audit made recommendations
for improvement, the vast majority of which were agreed by
management and either have been or are being implemented.

Internal Audit are also working closely with retail store managers
to improve the level of compliance and embed processes.

The Committee has evaluated the performance of Internal Audit
during the year and concluded that significant progress has been
made. Internal Audit is viewed as a function which has a strategic
plan developed in collaboration with the Committee, providing
constructive challenge and demonstrates a realistic and commercial
view of the business.

Externalauditors
PwC have been the Group’s auditors for eight years, with the current
year being the second audit signed off by the partner who is
currently responsible. The Committee has formally recommended
that PwC be re-appointed as auditors at the forthcoming Annual
General Meeting and PwC has signalled its willingness to continue
in office. Resolutions appointing PwC as auditors and authorising
the Directors to set remuneration will be proposed at the Annual
General Meeting. The Group intends to review the external audit
appointment in 2018.

The Committee has established policies which ensure that PwC
is not engaged in any work which is not permitted under current
guidance and that non-audit fees paid to the auditors will not
exceed 70% of audit fees over a three-year period.

All non-audit work undertaken by the auditors has to be approved
by the Committee or by the Chairman of the Committee in advance.
Fees paid and payable to PwC in respect of the year under review are
as shown in note 4.

ScS Group plc Annual Report 2016Corporate GovernanceThe Committee believes that appropriate internal controls
are in place throughout the Group. The Group has a well-defined
organisational structure, with clear lines of responsibility. The Group
has a comprehensive financial reporting system and the Committee
believes that the Group complies with the provisions of the UK
Corporate Governance Code on internal controls.

Ron McMillan
ChairmanoftheAuditCommittee
3 October 2016

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsD I R E C T O R S ’
R E M U N E R AT I O N
R E P O R T

On behalf of the Board, I am pleased
to present the Director’s Remuneration
Report for the year ended 30 July 2016.

George Adams
ChairmanoftheRemunerationCommittee

Dear Shareholder
The Remuneration Policy was approved by our shareholders at our
2015 AGM. There are no changes to the Policy approved in 2015,
however, for ease of reference, this is set out for shareholders’
information on pages 45 to 49. There will be no resolution on our
Remuneration Policy at the 2016 AGM.

Our Annual Report on Remuneration outlines how our Remuneration
Policy was applied in 2016 and how we intend to apply it for 2017.
The Annual Report on Remuneration is subject to an advisory vote
at our 2016 AGM.

Remunerationprinciples
The key aims of the Remuneration Policy are to:

• Attract, retain and motivate high-calibre senior management;
• Focus senior management on the delivery of the Group’s

business objectives;

• Promote a strong and sustainable performance culture;
•
• Align the interests of the Executive Directors and senior

Incentivise profitable growth; and

management with those of the shareholders.

In promoting these objectives, the Committee’s aims are to develop a
remuneration policy in a simple, transparent and understandable way.

2016 Performance related pay
Sales and revenue for 2016 showed significant growth on the
previous financial year. The results significantly outperformed
the marketplace.

For 2016, the annual bonus was based solely on EBITDA.

EBITDA of £16.0m was above the maximum target set for the year,
as a result the bonus paid out at 100% of maximum. The Committee
considers that this fairly reflects the results for the year. Further
information on the bonus and targets can be found on page 42
of our Annual Report on Remuneration.

As set out in our Remuneration Policy on pages 45 to 49 the
Committee considered the long-term incentive plan to be awarded
to the Executive Directors. Due to the timing of the award made at
IPO, no long-term incentive plan was awarded during 2016. Nor were
there any long-term incentive plan awards vesting during the year.

Remunerationproposalsfor2017
Base salary
During the year, the remuneration of the two Executive Directors of
the Company, along with the senior management of the Group, was
reviewed and an external benchmarking process was undertaken.

The CEO’s salary remained unchanged in 2016; however, an increase
was awarded effective from 1 August 2016 and his salary was
increased to £306,000 in line with the average increase given to other
employees. Further details are provided on page 42. The salary of the
CFO will remain unchanged from the salary awarded on appointment.

There will be no change in pension provision or benefits framework
for Executive Directors.

ScS Group plc Annual Report 2016Corporate GovernanceAnnual bonus
The 2017 bonus will continue to be based on EBITDA performance
supporting our strong emphasis on delivering profitable growth.
The maximum award opportunity remains 140% of salary for the
Chief Executive and 100% of salary for the Chief Financial Officer.
The Committee considers the forward-looking EBITDA targets
to be commercially sensitive, but full disclosure of the targets and
performance against them will be provided on a retrospective basis
in next year’s remuneration report.

2017 Long-Term Incentive Plan (LTIP)
The Committee has agreed to a LTIP award in 2017 which is in keeping
with our remuneration policy. Awards will be granted at 100% of salary
for the Chief Executive and 100% of salary for the Chief Financial
Officer. The awards will be subject to an earnings per share (EPS)
performance condition. Taking into account internal forecasts for
business performance over the next three years, as well as external
expectations of performance, the Committee agreed the following
targets for 2017 awards:

EPS figure (in 2019)

Percentage of award that vests

Less than 27.3p
27.3p
Greater than 27.3p but
less than 34.4p
34.4p

Nil
25%
Straight-line basis between
25% and 100%
100%

The Committee considers that the targets are stretching and
will ensure that significant reward is only available for delivery
of a strong performance.

RecruitmentofanewChiefFinancialOfficer
Ron Turnbull stood down as Group CFO and ceased to be a Director
on 6 May 2016. He departed from the Company on 12 August 2016.
His leaving arrangements are in line with our Policy and further details
are provided on page 43 of our Annual Report on Remuneration.

His replacement, Chris Muir, joined the Group on 4 April 2016. The
package awarded on joining was in keeping with our Remuneration
Policy. No changes are proposed to his remuneration for 2017.
Further details are provided on page 43.

Shareholderfeedback
We value the views of our shareholders and we actively welcome
any feedback on our remuneration policy and its implementation.
We hope you find this report helpful and informative and we hope
to receive your support for our Annual Report on Remuneration
at our AGM on 23 November 2016.

George Adams
ChairmanoftheRemunerationCommittee
3 October 2016

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsD I R E C T O R S ’
R E M U N E R AT I O N R E P O R T
C O N T I N U E D

RoleoftheRemunerationCommittee
The Committee has responsibility for determining the Company’s
policy on remuneration of the Executive Directors and the Chairman
and to recommend and monitor the level and structure of remuneration
of other senior management of the Group.

The Committee’s terms of reference are available from the ScS
Group plc head office.

There will be an advisory vote on the Annual Report on Remuneration
for 2016 at this year’s AGM. The Remuneration Policy was approved
by shareholders at the 2015 AGM. No changes have been made to
our Remuneration Policy this year and as such there will be no
resolution on our Remuneration Policy at the 2016 AGM.

The Committee also welcomes feedback generally at any time which
will be considered as part of its annual review of remuneration policy.

AnnualRemunerationReport
Executive Directors remuneration in 2016
Elementsofremuneration
Salary
A benchmark review exercise was carried during 2016. As a
result of this exercise the CEO’s salary was increased in line with
the general increase awarded to employees in the Group effective
from 1 August 2016. The CFO’s salary remained unchanged.

The current basic salaries as at 3rd October 2016 are:

• David Knight: £306,000 (26 July 2015: £300,000)
• Chris Muir: £240,000 (26 July 2015: n/a)

Ron Turnbull left the Company on 12 August 2016, on that date his
basic salary was £200,000 (26 July 2015: £200,000).

The CEO’s salary and the current CFO’s salary benchmark broadly
in line with the market median.

Pensionandotherbenefits
The Executive Directors are eligible to pension benefits equating to
20% of their basic salary, which are non-contributory. The CEO and
the CFO receive £10,000 per annum of pension benefits into their
pension fund, the balance is paid as cash allowance.

The CEO receives a car allowance of £18,642 and the CFO receives
a car allowance of £17,000.

In light of performance in 2016, the Remuneration Committee
approved payments of £420,000 for David Knight (CEO) and
£80,000 for Chris Muir (CFO), representing a pay-out at 100% of
the maximum. Chris Muir joined the Group on 4 April 2016 and his
bonus was pro-rated to reflect the proportion of the performance
period served. Malus and clawback rules apply to all bonuses awarded.

For 2017 the maximum bonus opportunity is unchanged at 140%
of base salary for the CEO and 100% of base salary for the CFO. The
bonus is based on the achievement of stretching EBITDA targets.
The Committee does not disclose the targets in advance as they are
commercially sensitive. Retrospective disclosure of the EBITDA
targets will be included in next year’s report

Long-termincentives
There was no vesting in respect of performance in 2016 and
no long-term incentive plan was awarded in 2016, however, the
Committee has agree to award a long-term incentive plan in 2017.
The CEO and CFO will be awarded shares with a face value of 100%
of base salary subject to EPS targets being met. The awards have
a three-year vesting period (no holding period applies, but will be
considered for future awards) and are subject to the following targets:

EPS figure (in 2019)

Percentage of award that vests

Less than 27.3p
27.3p
Greater that 27.3p but
less than 34.4p
34.4p

Nil
25%
Straight-line basis between
25% and 100%
100%

All-employee share plans
The Company adopted an all-employee UK Share Incentive Plan (SIP)
immediately prior to admission. All employees on completion of six
months service become eligible to join. Under the SIP employees may
elect to acquire up to £150 worth of shares in the Company every
month or pay a maximum one-off lump sum of £1,800 in a tax year.

The Executive Directors are eligible to participate in the SIP on the
same basis as other employees.

Singlefiguretableoftotalremuneration
ExecutiveDirectors–audited
The audited table below shows the aggregate remuneration of the
Directors of the Company during 2016 and 2015:

Salary
£

Benefits***
£

Bonus
£

LTIP
£

Pension**
£

Total
£

The Executive Directors are also provided with private medical
insurance and Life Assurance that provides cover of up to four times
base salary.

DavidKnight
2015 300,000

20,183

–

2016 300,000

21,290 420,000

Annualbonus
The Executive Directors received annual bonuses in 2016.
The bonuses were based on EBITDA. No bonus was paid unless
a threshold level of EBITDA is achieved. The details of the targets
and how the bonus was calculated are set out below.

Post-Bonus
EBITDA
% maximum
David Knight
Chris Muir*
Ron Turnbull

£12,500,000 £13,800,000 £14,800,000 £15,800,000
100%
£420,000
£80,000
£200,000

50%
£210,000
£40,000
£100,000

75%
£315,000
£60,000
£150,000

12.5%
£52,500
£10,000
£25,000

Bonuses are calculated on a straight line basis for performance between target levels.
* Bonuses for Chris Muir are pro-rated to reflect his April 2016 start date.

–

60,000

380,183

60,000

801,290

–

12,372

175,546

ChrisMuir(Joined4April2016)
2015

–

2016

78,462

4,712

80,000

RonTurnbull****
2015 200,000

15,495

–

– 40,000*

255,495

2016 200,000

14,938 250,000

– 40,000*

504,938

Ron Turnbull has reached his lifetime limit and receives a payment in lieu of pension
contributions equating to 20% of his basic salary.

** David Knight and Chris Muir opt to receive part of their pension contributions

as a cash allowance.

*** Benefits of the Directors are discussed in detail on page 45.
**** Ron Turnbull resigned from the Board on 6 May 2016, however he remained

an employee of the Group throughout 2016. These figures represent his total
remuneration for 2016.

ScS Group plc Annual Report 2016Corporate GovernanceRecruitmentarrangementsforChrisMuir
Chris Muir joined the Group on the 4 April 2016, with a basic salary
of £240,000 reflecting his skills and experience. His remuneration
package was set in line with the approved remuneration policy, with
a maximum bonus opportunity of 100% of salary and an LTIP award
level of 100% of salary. He was entitled to a pro-rata bonus for 2016
as set out on page 42. No LTIP awards were made in 2016.

Director

Alan Smith
Ron McMillan
George Adams
Paul Daccus

TerminationarrangementsforRonTurnbull
Ron Turnbull stood down from the Board and as CFO on 6 May 2016
and left the Group on 12 August 2016, in accordance with the
Remuneration Policy. The LTIP award he was granted on IPO will
be pro-rated to reflect the portion of the vesting period during
which Ron was employed and will remain subject to the original
performance conditions and vesting schedule. He will not receive
any other payments in relation to the cessation of his employment.

Ron Turnbull is eligible for an annual performance-related bonus
for the year ending 30 July 2016 of up to 100% of base salary, paid
in cash. In light of the performance in 2016, the bonus due equates
to 100% of base salary.

As part of the arrangements for an orderly transition from
Mr Turnbull to his successor, the Remuneration Committee put
in place an additional bonus award within the parameters of
Remuneration Policy (which allows a bonus potential of up to
200% of salary). The amount of this additional bonus was £50,000
and was subject to performance conditions measured over 2016.
Having judged the performance conditions to have been fully met,
the Committee awarded a bonus of £50,000 to Mr Turnbull, which
was paid on 12 August 2016.

PaymentstopastDirectorsandlossofofficepayments–audited
There were no payments to past Directors for loss of office in the
year ended 30 July 2016.

RemunerationoftheChairmanandNon-ExecutiveDirectors
–audited
The structure of Non-Executive Directors fees, and their levels, were
set by the Board on Admission. No review is expected during 2017.

The fees of the Non-Executive Directors are set by the Board and
take account of the Chairmanship of Board committees and the
time and responsibility of the roles of each Director.

The fees paid for 2016 to the Non-Executive Directors were as follows:

Alan Smith
Ron McMillan
George Adams

2016
£

125,000
60,000
60,000

2015
£

95,192
46,846
3,923

There were no other amounts disclosable for the Non-Executive
Directors for the year.

PaymentstopastDirectors–audited
There were no payments to past Directors in 2016 other than
as set out above.

Directors’shareholdingandshareinterests–audited
The table below sets out the number of shares held or potentially
held by Directors (including connected persons or related parties
where relevant) as at the financial year end 2016.

Shares held
beneficially

Unvested
options

18,096
–
–
–

–
–
–
–

Totals

–

695,099

£1,018,320

Y/E 30.07.16

Share interests held
beneficially

Nil cost options
subject to
performance*

Option
awards vested
on admission**

David Knight
Number

1,476,958

171,428

22,772

1,671,158

£2,163,743

£251,142

£33,361

£2,448,246

Value at
year end

Chris Muir
Number

Value at
year end

–

Ron Turnbull
Number

Value at
year end

631,607

63,492***

£925,304

£93,016

* Awards vest subject to EPS performance over a three-year period.
** Option awards are vested and are exercisable until 20 January 2025 at an exercise price of £1.75.
*** Pro-rated award to reflect the portion of the vesting period which Ron Turnbull was employed.

The value of share interests at the year end is based on the closing
share price at 29 July 2016 of £1.465.

Ron Turnbull exercised 9,109 share options which had vested
on admission.

The Executive Directors are required to build and maintain a
shareholding equivalent to 100% of base salary. The shareholding
for David Knight and Ron Turnbull were significantly in excess of this
level at the year end. The shareholding for Chris Muir is currently nil,
but he is required to build up a shareholding, which will be achieved
by the retention of share options awarded under the LTIP.

Performancegraphandpaytable
The chart below illustrates the Company’s Total Shareholder Return
(TSR) performance against the performance of the FTSE Fledgling
Index, from the date of the IPO of the Company. This index was
selected as it represents a broad equity market index which includes
companies of a comparable size.

ScS

FTSE Fledgling Index

150
140
130
120
110
100
90
80
70
60
50

27 Jan 2015

27 A pr 2015

27 Jul 2015

27 O ct 2015

27 Jan 2016

27 A pr 2016

30 Jul 2016

This graph shows the value, by 30 July 2016, of £100 invested in ScS Group on 27 January 2015
compared with the value of £100 invested in the FTSE Fledgling Index.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsD I R E C T O R S ’
R E M U N E R AT I O N R E P O R T
C O N T I N U E D

ChangesintheremunerationoftheCEO
Total remuneration of individuals undertaking the role of CEO in
each of the past six years is as follows:

Salary
£

Bonus
£

Benefits
£

LTIP
£

Pension
£

Total
£

RemunerationCommittee
The members of the committee for the 2016 financial year were
George Adams (Committee Chairman), Alan Smith and Ron McMillan.
All of the current members are independent Non-Executive Directors.
Paul Daccus resigned from Committee on 18 November 2015.

DavidKnight

2016

2015

2014

2013

2012

2011

300,000

420,000 21,290

– 60,000

801,290

300,000

– 20,183

– 60,000

380,183

300,000

177,450 20,336

– 60,000

557,786

247,500

274,073 16,302

– 49,500

587,375

247,500

199,635 13,929

– 71,625

532,689

247,500

– 17,265

– 49,500

314,265

The table below shows the percentage changes in the CEO’s
remuneration between the financial year ended 30 July 2016 and the
year ended 25 July 2015 compared to the amounts for UK full-time
employees of the Group for each of the following elements of pay:

CEO
Salary
Benefits
Bonus

2016
£

2015
£

%
Change

300,000 300,000
20,183
–

21,290
420,000

–
5.5%
–

Averageperemployee(excludingtheCEO)
Salary
Benefits
Bonus

23,744
712
4,458

23,400
661
1,400

1.5%
7.7%
218.4%

Relativeimportanceofthespendonpay
The table below shows the movement in spend on pay for all
employees compared with the distributions to shareholders.

Total pay for employees
Distributions to shareholders

59,115
5,801

49,141
5,524

2016
£’000

2015
£’000

%
Change

20.3%
5.0%

The responsibilities of the Committee are set out in the Corporate
Governance section of the annual report on page 34.

The Committee may invite the Executive Directors or other members
of the senior management to attend meetings and assist the Committee
in its deliberations as appropriate. No person is present during any
deliberations relating to their own remuneration or involved in
determining their own remuneration. During the course of the year
David Knight, Chris Muir, Ron Turnbull, Paul Daccus and Marie Liston,
Corporate Services Director, were in attendance as required.

The attendance of members of the Committee at meetings of it was
as follows:

Name

Alan Smith
Ron McMillan
Paul Daccus
George Adams

Attendance

3
3
1
3

AdviserstotheCommittee
During the year the Committee received independent advice on
executive remuneration matters from New Bridge Street, a trading
name of Aon Hewitt Ltd. New Bridge Street were appointed by the
Remuneration Committee following a selection process.

New Bridge Street is a member of the Remuneration Consultants
Group and as such, voluntarily operates under the code of conduct
in relation to executive remuneration consulting in the UK. The
Committee has received advice provided by New Bridge Street during
the year and is comfortable that it has been objective and independent.
Total fees received by New Bridge Street in relation to remuneration
advice provided to the Committee during 2016 amounted to £17,573,
excluding VAT, based on the required time commitment.

Shareholder Voting
At the Annual General Meeting on 18 November 2015, the total
number of shares issued with voting rights was 40,009,109.
The resolution to approve the Remuneration Policy and the
Remuneration Report received the following votes from shareholders.

Resolution

Percentage
of votes cast
in favour

Votes for

To approve the Directors’ Policy Report
To approve the Annual Report on Remuneration

35,219,888 100.00%
35,220,588 100.00%

Votes
against

1,344
644

Percentage
of votes cast
against

0.00%
0.00%

Votes
withheld

Total
votes cast

Percentage of
issued share
capital voted

–
–

35,221,232
35,221,232

88.03%
88.03%

This report has been approved by the Board of Directors of the
Company and signed on behalf of the Board by:

George Adams
ChairmanoftheRemunerationCommittee
3 October 2016

ScS Group plc Annual Report 2016Corporate GovernanceRemunerationPolicyReport
RemunerationPolicyoverview
Total remuneration packages for the Executive Directors established
at the time of the IPO will provide the basis for the structure of
Director Remuneration for the Group. Variable elements of reward
including performance-based annual bonuses and long-term
incentives will form a significant part of the overall remuneration
package for Executive Directors and senior management.

Howtheviewsofshareholdersaretakenintoaccount
The Committee recognises that developing a dialogue with
shareholders is constructive and informative in developing
and applying the remuneration policy.

TheDirectors’RemunerationPolicy
The Directors’ Remuneration Policy was approved by shareholders
at the 2015 AGM. For ease of reference it is set out below, although
some references which were specific to the Policy’s operation in 2015
and 2016 have been removed or updated for ease of reading.

Policy

REMUNERATION
ELEMENT

PURPOSE

Base salary

This is the basic pay and
reflects the individual’s
role, responsibilities and
contribution to the Group.

Benefits

To provide Benefits which are
valued by the individual and
assist them in carrying out
their duties.

OPERATION

MAXIMUM

Given the requirements under
current UK regulations for a
formal cap, the Committee
has limited the maximum
salary it may award to 120%
of the median salaries in the
benchmark group. In practice
though the Committee would
normally expect to keep it at
the median of this benchmark.

The cost of benefits paid
to an Executive Director in
any one year is capped at
£100,000, but this may be
exceeded in exceptional
circumstances, for example,
if the cost of a benefit were
to increase significantly.

Base salaries are reviewed annually with
changes typically taking effect from the
beginning of the relevant financial year.
On reviews, consideration is given by the
Committee to a range of factors, including
the Group’s overall performance, market
conditions and individual performance of
Executives and the level of salary increases
given to employees across the Group.

Base salaries are benchmarked against
companies both main and AIM listed
(excluding those in the financial services
sector) who are of a similar size, sector
and complexity.

Similarly, in practice, the Committee will
typically discount the data to recognise that
the cost of living in the North East is lower
than some other parts of the UK.

The Group will provide market competitive
benefits, which may periodically be reviewed.
Executives will generally be eligible to receive
those benefits on similar terms to other senior
Executives.

The Committee has the discretion to add or
remove benefits to remain market competitive
or to meet the needs of the business.

In addition, where the Committee considers
it appropriate to do so, additional relocation
expenses may be paid.

Executives are entitled to a car allowance or
a Company car, car insurance, other running
costs and fuel, death in service life assurance,
private medical care and any other Group-
wide benefits including employee discount.

Business travel and associated hospitality are
provided in the normal course of business.

Pension

Provide a market competitive
pension contribution (or
equivalent cash allowance).

Executive Directors may take pension benefits
as a contribution to defined contribution
personal pension plans, or on reaching the
lifetime limit for pension contributions the
Executive Director can receive cash in lieu.

A total maximum value
of 20% of base salary for
Executive Directors and
senior management.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsREMUNERATION
ELEMENT

PURPOSE

Bonus

Provide an incentive linked
principally to the financial
performance of the Group.

D I R E C T O R S ’
R E M U N E R AT I O N R E P O R T
C O N T I N U E D

OPERATION

MAXIMUM

The Committee intends all or the majority of
the bonus to be based on financial measures,
but has the discretion to introduce operational,
corporate, divisional and/or individual
performance measures if appropriate to
the business.

Performance conditions, once set, will
generally remain unaltered, but the Committee
has the right in its absolute discretion to make
adjustments during any performance period
to reflect any events arising which were
unforeseen when the performance conditions
were originally set by the Committee. Bonuses
are normally paid in cash.

Long-term
incentives

Awards may be made annually
of £nil-cost options based
on performance conditions.
The Committee may set
performance conditions
typically over a three-year
period.

Dividend equivalents will be made as either
a cash payment or delivery of Plan Shares
at exercise equal in value to the dividends
payable on the number of Plan Shares in
respect of which the Award is exercised
between the Award Date and the date on
which the Award vested.

Malus and Clawback provisions apply
to the awards made under the LTIP
from 28 January 2015 onwards.

Performance conditions, once set, will
generally remain unaltered, but the Committee
has the right in its absolute discretion to make
adjustments during any performance period in
case of events arising which were unforeseen
when the performance conditions were first set
by the Committee.

Where a holding period is imposed in the
discretion of the Committee in relation to
any LTIP award, the default position (unless
the Committee determines otherwise)
is for the holding period to expire on the
fifth anniversary of the date of grant
of the relevant award.

The Committee will review shareholding
annually against policy. The Committee
reserves the right to alter the shareholding
guidelines during the period of the policy
but without making the guidelines any less
onerous overall.

Executive Directors can participate in the
employee share incentive plan (SIP) on the
same terms as other employees of the Group
in the UK.

Shareholding
guidelines

Executive Directors are
expected to maintain their
shareholding levels once
they have been obtained.

To encourage share ownership
by employees and participation
in the long-term success of the
Group, the Group operates an
employee share incentive plan
for UK employees which was
adopted in April 2015.

Employee
share plan

The current annual bonus
potential for the CEO is 140%
of base salary and 100% of
base salary for the CFO and
senior managers. The threshold
bonus levels will be no more
than 25% of their respective
maxima. As the regulations
require a formal cap for a
three-year period, future bonus
potential will only increase
where appropriate against
market data and, in any event,
will be subject to an overall
maximum of 200% of salary
for any Executive Director.

The policy is to award Executive
Directors £nil-cost share
options equating to no more
that 100% of their basic salary.

No more than 25% of an
award can be earned for a
threshold performance.

The minimum required level
of shareholding is 100% of
base salary of the relevant
Executive.

Under the rules of the SIP
employees can purchase
a maximum of £1,800 worth
of shares per annum from
their pre-tax and pre-national
insurance salary through
a resident SIP trust.

ScS Group plc Annual Report 2016Corporate GovernanceExistingawards
In putting the Directors’ Remuneration Report to an advisory vote
of shareholders, the Company will honour any commitments already
entered into in 2016 with the Executive Directors, which are detailed
in the annual remuneration report.

Long-TermIncentivePlan(LTIP)
The Committee will regularly review the performance targets in
relation to the LTIP to take account of the Company’s strategic plan
and financial performance. Targets will be set by the Committee
at the time of the grant of each award.

Remunerationpolicyandotheremployees
As well as the Executive Directors, other senior management will
also participate in the performance based annual incentive plan
to be adopted under the remuneration policy above. A small group
of senior management also participate in the long-term incentive
plan for performance share awards.

The Company is committed to widespread share ownership.
Following the IPO the Company made a number of awards under
a long-term incentive plan which was adopted prior to admission.
Also the Company employee share incentive plan (SIP), which
was adopted prior to admission has been launched. Under the SIP,
Executive Directors are eligible to participate on a consistent
basis to all other employees.

In setting the remuneration policy going forward, the Committee
will also have regard to pay structures across the broader Group.
The Committee does not consult directly with employees when
reviewing Executive Directors’ remuneration, but take into account
the general base salary increase for the broader workforce when
undertaking annual salary reviews for the Executive Directors.

Operation of variable pay
AnnualIncentivePlan
The Committee will set the performance targets annually under the
annual incentive plan to take account of the Company’s strategic
plan and financial performance. The performance targets are set
by the Committee based on a range of factors including against the
budget for the financial year. The metrics adopted by the Committee
and the weighting of them may vary in relation to the Company’s
strategy each year.

The Committee sets a threshold pay-out, target and maximum
pay out target under the plan.

Clawback
The Annual Incentive Plan and the LTIP rules include provisions
for malus and clawback within a three-year period following
payment or vesting if the Committee concludes that there has
been a material mis-statement of financial results, or there are
circumstances which would have warranted summary dismissal
of the participant, or there are circumstances having an impact
on the reputation of the Company which justify clawback being
operated, or where the Committee discovers information from
which it concludes that a bonus or award was paid or vested
to a greater extent than it should have been.

Potentialrewardscenarios
The graphs below show an estimate of the Executive Directors’
remuneration package for the financial year ending 30 July 2017,
as a percentage of total potential remuneration and total value,
for the policy as it will be implemented for 2017. Share price
movements and dividend accrual have been excluded from the
indicative scenarios below.

Assumptions
• The minimum scenario reflects fixed remuneration only which

is base salary, pension and benefits.

• The on target scenario reflects the fixed remuneration plus 50%
of the maximum annual bonus under the annual incentive plan,
and 25% vesting under the LTIP being the threshold level (assuming
an award of 100% of salary to Executive Directors under the LTIP).

• The maximum scenario reflects fixed remuneration plus 100%
of the maximum annual bonus under the annual incentive plan
which is 140% of base salary for the CEO and 100% of base salary
for the CFO and 100% vesting under the LTIP (assuming an award
of 100% of salary under the LTIP).

£’000

1,200

1,000

800

600

400

200

1,122,890
27%

38%

679,190
11%
32%

35%

57%

388,490
100%

Maximum

Target

Minimum

£’000

1,200

1,000

800

600

400

200

786,261

30.5%

39%

486,261
12%
25%

63%

306,261

100%

Maximum

Target

Minimum

David Knight, Chief Executive Oﬃcer

Chris Muir, Chief Financial Oﬃcer

Fixed

Variable

LTIP

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial Statements
D I R E C T O R S ’
R E M U N E R AT I O N R E P O R T
C O N T I N U E D

Recruitmentandpromotions
The remuneration package for a new Executive Director would be
set in accordance with the terms of the Company’s remuneration
policy at the time of the appointment.

Additionally on appointment of any new Executive Director
(whether by external recruitment of internal promotion) the
remuneration policy will permit the following:

•

• The UK regulations do not require that caps on fixed pay apply to
a new recruit and the Committee reserves the right to set fixed
pay at such levels as it considers necessary although, in practice,
it envisages abiding by the caps set out in this policy.
If a new Executive Director’s salary is set on appointment below the
median market rates, phased increases (as a percentage of salary)
above those granted generally to other employees may be awarded
subject to the individual’s performance and development.
• The Company may compensate a new Executive Director for
amounts forgone from the individual’s former employer in
addition to ongoing remuneration provided under the policy
(as permitted under Listing Rules) taking account of the amount
forfeited, the extent of any performance conditions, the nature
of the award and the time period for vesting.

• The annual incentive plan would operate in accordance

with its terms pro-rated for the period of employment and
depending on the appointment timing, different performance
targets might be set as the Committee considers appropriate.
• On an internal appointment, any variable pay element awarded
in respect of the individual’s former role would be allowed to pay
out according to its terms, with any relevant adjustment to take
account of the appointment. Any other ongoing remuneration
obligations existing prior to the appointment would also continue.
• On any appointment, the Committee may agree that the Company

will meet the appropriate relocation expenses.

Servicecontractandpaymentsforlossofoffice
Main provisions on termination
The service contract for the CEO and CFO is indefinite but terminable
either by the Company or the Executive Director on 12 months’
notice. The service contract for the CEO is dated 19 December 2014
and for the CFO 8 January 2016.

An Executive Directors’ service contract can also be terminated
without notice or payment of compensation except for pay accrued
up to the termination date on the occurrence of certain events such
as gross misconduct.

Payment in lieu of notice equal to the base salary only for the
unexpired period of notice can be paid under the Executive
Directors’ Service agreements.

There are no enhanced provisions on a change of control under
the Executive Directors’ service contracts.

Any new contracts will be on similar terms.

The service contracts of the Executive Directors are available
for inspection at the registered office of the Company.

Annual bonus on termination
There is no contractual entitlement to annual bonus on termination
or if an Executive Director is under notice. Under the Annual
Incentive Plan, the Committee has absolute discretion to permit
a bonus to be paid to a leaver or under notice based on the full or
part-year performance, subject to consideration by the Committee
of the reasons for the individual leaving. A full or pro-rata time based
bonus may be awarded, and this may be paid either at or before the
normal payment date.

Performance share plans on termination
Share-based awards made under the Company’s share plans are
governed by the relevant plan rules. Under the rules of the LTIP,
awards lapse if they have not vested on giving or being given notice
of termination of employment for any reason, unless the Committee
in its discretion permits an award to vest in whole or in part and on
such terms as it may specify in its absolute discretion. Awards which
may have vested before giving or receiving notice of termination
of employment remain exercisable for a period of six months
after leaving or (if later) the expiry of any holding period which the
award was subject to. The Committee has the discretion to extend
this period.

ChairmanandNon-ExecutiveDirectors
Fees
The level and structure of fees for the Non-Executive Directors was
set by the Board from admission. The fees of the Non-Executive
Directors are set by the Board taking account of the Chairmanship
of Board Committees and the time and responsibility of the roles
of each of them. The fees are paid in cash. The Committee has
responsibility for determining fees paid to the Chairman of the
Board. All fees are subject to the aggregate fee cap for Directors in
the articles of association, which is currently £400,000 per annum.

Details of the fees paid to the Non-Executive Directors are set out
in the Remuneration Report. The Chairman and the Non-Executive
Directors are entitled to be reimbursed of all expenses reasonably
incurred by them in the performance of their duties. The Chairman
and Non-Executive Directors do not participate in any bonus
or share plans of the Company.

The Non-Executive Directors do not have service contracts. They are
appointed for an initial three year period subject to being re-elected
by members annually.

ScS Group plc Annual Report 2016Corporate GovernanceREMUNERATION
ELEMENT

PURPOSE

Non-Executive
Directors Fees

Helps recruit and retain high
quality, experienced individuals.

Reflects time commitment
and role.

OPERATION

MAXIMUM

The aggregate amount of
Directors’ Fees is limited
by the Company’s Articles
of Association.

The level and structure of fees was set by
the Board at admission. The fees consist of
an annual basic fee plus additional fees paid
for the Chairmanship of Board Committees.
Limited benefits relating to travel and
accommodation may be provided in relation
to the performance of any Director’s duties.

Non-Executive Directors fees are set by
the Executive Directors with reference
to external data on fee levels in similar
businesses, having taken account of the
responsibilities of individual Directors and
their expected annual time commitment.

Letters of appointment
All of the Non-Executive Directors of the Company have letters
of appointment dated 22 October 2014 for an initial period of three
years and are subject to three months’ notice of termination by
either side at any time and subject to annual re appointment as
a Director by the shareholders, save for George Adams whose
letter of appointment is dated 9 July 2015. The appointment letters
provide that no other compensation is payable on termination.
Paul Daccus is appointed under the terms of a Relationship
Agreement with Sun Capital Partners Management V, LLC dated
22 October 2014.

Insurance
All of the members of the Board have the benefit of Directors and
Officers liability Insurance which gives them cover for legal action
which may arise against them personally.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsD I R E C T O R S ’
R E P O R T

Activitiesandresults
The Directors have pleasure in presenting their annual report and
audited financial statements for the year ended 30 July 2016. Some
of the information required to be part of the Directors’ Report can
be found elsewhere in this document as detailed in the following
paragraphs and is incorporated into this report by cross-reference.

ScS is one of the UK’s leading furniture and flooring retailers,
operating from 97 ScS stores principally located in modern retail park
locations and 28 House of Fraser concessions across the country.

Share capital
Details of the Group’s issued share capital are shown in note 20
on pages 72 and 73.

The Group has one class of ordinary shares which carry no fixed
income. Each share carries the right to one vote at general meetings
of the Group. The ordinary shares are listed on the Official List and
are traded on the London Stock Exchange. No person has any
special rights over the Group’s share capital and all issued shares
are fully paid.

Management report
The Directors’ Report, together with the Strategic Report set out
on pages 1 to 29, form part of the Management Report for the
purposes of DTR 4.1.5R.

Strategic report
The strategic report sets out a review of the business of the Group
during the year ended 30 July 2016 and the position of the Group
at the end of that period to enable shareholders to assess how the
Directors have performed their duty under section 172 of the
Companies Act. The review also describes the principal risks and
uncertainties facing the Group and provides a fair review of the
Group’s business at the end of the financial year and the Group’s
future developments.

Risk management
The Board overseas the development of processes to manage
risks appropriately. The Executive Directors and Operating Board
Directors implement and oversee risk management processes and
report to the Board on them. The Board also identifies and reviews
key business risks. Further detail can be found on pages 21 to 25.

UKCorporateGovernanceCode
The compliance by the Company with the UK Corporate Governance
Code 2014 are set out in the Corporate Governance Report on pages
32 to 35, which form part of this report.

Corporatesocialresponsibility
Our CSR activity is set out in the Corporate Social Report on pages
26 to 29, which form part of this report.

Resultsanddividend
The financial statements set out the Group’s results for the year
ended 30 July 2016 and are contained in pages 58 to 75.

The Group’s profit after tax for the financial year ended 30 July 2016
of £8.7m (2015: loss £2.2m) is reported in the consolidated statement
of income on page 58.

The Board is recommending a final dividend of 9.83p per ordinary
share, which together with the interim dividend of 4.67p per ordinary
share paid in May 2016, resulting in a full-year dividend of 14.5p.
This dividend, if approved, will be paid on 28 November 2016 to
shareholders on the register on 4 November 2016. The ex-dividend
date is 3 November 2016.

Movements in reserves are shown in the Statement of Changes
in Equity on page 59.

Details of outstanding employee share options and the operation
of relevant schemes are shown in note 20 on page 73.

Going concern
Having considered the Group’s current trading and cash flow
generation, including severe but plausible stress testing scenarios,
the Directors have concluded that it is appropriate to prepare the
Group financial statements on a going concern basis.

Eventssincethebalancesheetdate
There have been no events since the balance sheet date that either
require adjustment to the financial statements or are important
in the understanding of the Company’s current position.

Directors and their interests
Details of the Directors of the Company as at 30 July 2016 are shown
on pages 30 and 31 and their interests in shares and share awards
made to them under share incentive schemes in the Company are
shown in the Directors’ Remuneration Report on pages 42 and 43,
which form part of this report. There have been no changes in the
Board of the Company since that date.

The Directors who served throughout the year in review were
as follows:

Alan Smith
George Adams
Paul Daccus
Ron McMillan
David Knight
Chris Muir
Ron Turnbull

Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer (appointed 4 April 2016)
Chief Financial Officer (resigned 6 May 2016)

Directors’ indemnities
As permitted by the Company’s Articles of Association, the
Directors have the benefit of an indemnity which is applicable in
certain circumstances. The Company also purchased and
maintained throughout the financial year Directors’ and Officers’
liability insurance.

Employeeinvolvement
The Group’s policy is to actively involve its employees in the
business and to ensure that matters of concern to them, including
the aims and objectives and the financial and economic factors
which impact thereon, are communicated in an open and regular
manner. This is achieved principally through three sales conferences
held at appropriate times during the year supported by regular
senior management meetings and briefings, both on a national
and regional basis, and a comprehensive weekly newsletter which
is made available to all employees.

ScS Group plc Annual Report 2016Corporate GovernanceThe Group is committed to providing equality of opportunity to
employees and potential employees. This applies to recruitment,
training, career development and promotion for all employees,
regardless of physical ability, gender, sexual orientation, religion,
age or ethnic origin. Full and fair consideration is given to
employment applications by disabled persons wherever suitable
opportunities exist, having regard to their particular aptitudes and
abilities. Training and career development support is provided
where appropriate. Should and employee become disabled, efforts
are made to ensure their continued employment with the Group,
with retraining being provided if necessary.

Charitable and political donations
During the year, the Group made charitable donations, including
funds raised by employees, of £44,000 (2015: £14,000). No political
donations have been made (2015: £nil).

Annual General Meeting
A notice convening the Company’s Annual General Meeting
on 23 November 2016 will be issued to shareholders separately.

Auditors
The Group’s independent auditors, PricewaterhouseCoopers LLP
(PwC), have indicated their willingness to continue in office and
the Audit Committee has recommended the PwC remain in office.
A resolution to re-appoint PwC as auditors will be put to the
members at the Annual General Meeting.

So far as the Directors are aware, there is no relevant audit
information of which the auditor is unaware. The Directors have
taken all steps that they ought to have to make themselves aware
of any relevant information and to establish that the auditor
is aware of that information.

Chris Muir
Company Secretary
3 October 2016

Employee Benefit Trust
The Company established the ScS Group plc Employee Benefit Trust
(EBT) with Sanne Fiduciary Services Limited as the Trustees in Jersey
in January 2015. The purpose of the EBT was to facilitate the winding
up of pre-admission management incentive arrangements, holding
ordinary shares in the Company which will be acquired by the
Executive Directors and relevant key management in accordance
with a put and call agreement within the period six to 12 months
following admission.

The EBT has waived any dividends which it may be entitled to
receive in respect of ordinary shares held by it, and has also agreed
to waive voting rights to such shares.

Going forward, the EBT may hold shares in trust to be used
in connection with the Group’s share incentive schemes.

Major interest in shares
As at 22 September 2016 the following shareholders have notified
the Company of their interest in 3% or more of the Company’s
issued share capital:

Number of
shares held

% of issued
share capital

Parlour Product Holdings (Lux Sarl)*
Artemis Investment Management
River and Mercantile
Asset Management
Milton Asset Management
Investec Asset Management
Columbia Threadneedle Investments
Henderson Global Investors
Mr David Knight

16,620,160
4,818,692

2,709,945
2,705,812
2,031,664
2,025,000
1,550,193
1,476,958

41.54
12.04

6.77
5.19
5.08
5.06
3.87
3.69

* A Sun Capital Partners company.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsS TAT E M E N T
O F D I R E C T O R S ’
R E S P O N S I B I L I T I E S

The Directors are responsible for preparing the Annual Report
and Accounts in accordance with applicable law and regulations.

Responsibilitystatement
We confirm to the best of our knowledge:

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 (EU) and Article 4 of the IAS Regulation
and have also chosen to prepare the Parent Company financial
statements in accordance with United Kingdom Accounting
Standards (UK GAAP) and Financial Reporting Standard 101
(FRS 101). 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 Group and the Company and
of the profit or loss of the Group for that period.

In preparing these financial statements, IAS 1 (Presentation
of Financial Statements) requires that Directors:

• Select suitable accounting policies and then apply them

consistently;

• Make judgements and accounting estimates that are reasonable

• The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and

• 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.

The Directors are responsible for preparing the annual report
in accordance with applicable law and regulations. Having taken
advice from the Audit Committee the Board considers the
report and accounts, taken as a whole, to be fair, balanced and
understandable and that it provides the information necessary
for shareholders to assess the Company’s performance, business
model and strategy.

and prudent;

By order of the Board

• State whether they have been prepared in accordance with IFRSs
as adopted by the EU and applicable UK accounting standards,
including FRS101 have been followed; and

• Prepare the financial statements on the going concern basis

unless it is inappropriate to presume the Company will continue
in business.

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 the Group 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 the Group 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
Group website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.

ChrisMuir
Company Secretary
3 October 2016

ScS Group plc Annual Report 2016Corporate GovernanceI N D E P E N D E N T A U D I T O R S ’ R E P O R T
T O T H E M E M B E R S O F S C S G R O U P P L C

Report on the Group financial statements
Our opinion
In our opinion, ScS Group plc’s Group financial statements (the ‘financial statements’):

• give a true and fair view of the state of the Group’s affairs as at 30 July 2016 and of its profit and cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

What we have audited
The financial statements, included within the annual report, comprise:

• the Consolidated Statement of Financial Position as at 30 July 2016;
• the Consolidated Statement of Comprehensive Income for the year then ended;
• the Consolidated Statement of Cash Flows for the year then ended;
• the Consolidated Statement of Changes in Equity for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European
Union, and applicable law.

Our audit approach
Overview

Materiality

• Overall Group materiality: £1,100,000 which represents 0.35% of revenue.

Audit scope

• We performed an audit of the complete financial information of the Group’s
trading entity A Share & Sons Limited, the holding company and all other
subsidiaries (excluding dormant entities).

Areas of
focus

• Completeness of stock provisions.

• Volume rebates from suppliers.

The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’).

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management
override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material
misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified
as ‘areas of focus’ in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an
opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context.
This is not a complete list of all risks identified by our audit.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial Statements

I N D E P E N D E N T A U D I T O R S ’ R E P O R T
T O T H E M E M B E R S O F S C S G R O U P P L C
C O N T I N U E D

AREA OF FOCUS

HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS

Completeness of stock provisions
Refer to page 37 (Audit Committee Report).

The Group holds £23.2m of inventory at year end. The nature of
the business is such that stock held at the stores to display certain
ranges will be more than one year old. Notwithstanding this, there
is a material balance of inventory greater than one year old which
gives rise to a risk that this aged stock may be unsaleable and
therefore not held at the lower of cost and net realisable value.

We recognise that there is judgement in arriving at any potential
value of provision for these items with management needing to
take into account future saleability of the item, potential proceeds
and underlying cost. As such the judgements involved were an
area of focus.

Volume rebates from suppliers
Refer to page 37 (Audit Committee Report).

Volume rebates are negotiated by ScS Group plc as part of its
dealings in the normal course of business with suppliers. The
judgement arises when the agreements are not coterminous with
the Group’s year end and contain spending thresholds or ‘hurdle
rates’ that, if hit, will change the rebate percentage offered for all
spend in the period. In mitigation, hurdle rates are not included
in all contracts, there is quarterly settlement of rebates and the
vast majority of non-coterminous agreements exceeded the
hurdle rate at the year end.

The integrity of the aged stock listing was tested, with the ageing
of a sample of stock items being checked against invoices to
confirm ageing. No exceptions were noted.

To check whether stock items were being sold at less than book
value, a sample of aged stock items sold in the year was selected
and the book value compared to proceeds. Whilst exceptions were
noted, they were not material in aggregate and we concurred with
management's assessment that stock is not materially misstated.

We sent confirmation requests to a sample of suppliers, asking them
to confirm the rebate terms and rebate percentage included in the
contract as well as the overall spend in the year. We did not receive
responses for the full population; where a response was not received,
we agreed terms to the underlying contract. For the total supplier
spend during the year, we tested on a sample basis to invoice and
settlement agreeing that the rebate was calculated in line with the
rebate agreement. We tested on a sample basis the year end debtor
amount to invoice and subsequent receipt post year end. No issues
were noted on any of the above procedures.

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.

The Group is based in and operates solely in the UK market from its 97 stores and 28 House of Fraser concessions. It has one trading entity,
A Share & Sons Limited, and three UK-based holding companies including ScS Group plc. The Group's accounting function and financial
reporting is managed from head office.

We performed an audit of the complete financial information of the Group’s trading entity A Share & Sons Limited, the holding company
and all other subsidiaries (excluding dormant entities).The timing of the audits for the statutory accounts for the Group, parent company
and the subsidiary companies took place at the same point in time and, as such, as at the date of this opinion we have audited all material
balances across the Group.

ScS Group plc Annual Report 2016Financial StatementsMateriality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the
financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall Group materiality

£1,100,000 (2015: £1,380,000).

How we determined it

0.35% of revenue.

Rationale for benchmark applied

Based on our professional judgement and our knowledge of the
client our materiality was based on 0.35% (2015: 0.5%) of revenue
giving an overall materiality of £1,100,000 (2015: £1,380,000).
We used 0.35% of revenue as the benchmark for our materiality
calculations due to the low margin nature of the business and our
judgement around what would affect the decisions of the users of
the financial statements.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £55,000 (2015: £69,000)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Going concern
Under the Listing Rules we are required to review the Directors’ Statement, set out on page 50, in relation to going concern. We have nothing
to report having performed our review.

Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the
Directors’ Statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements.
We have nothing material to add or to draw attention to.

As noted in the Directors’ Statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing
the financial statements. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the
Directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded
that the Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these
statements are not a guarantee as to the Group’s ability to continue as a going concern.

Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, 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.

ISAs (UK & Ireland) reporting

Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

• information in the annual report is:

We have no exceptions to report.

– materially inconsistent with the information in the audited financial statements; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge

of the Group acquired in the course of performing our audit; or

– otherwise misleading.

• the statement given by the Directors on page 52, in accordance with provision C.1.1 of the UK

We have no exceptions to report.

Corporate Governance Code (the ‘Code’), that they consider the annual report taken as a whole
to be fair, balanced and understandable and provides the information necessary for members
to assess the Group’s position and performance, business model and strategy is materially
inconsistent with our knowledge of the Group acquired in the course of performing our audit.

• the section of the annual report on page 37, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.

We have no exceptions to report.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsI N D E P E N D E N T A U D I T O R S ’ R E P O R T
T O T H E M E M B E R S O F S C S G R O U P P L C
C O N T I N U E D

The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency
or liquidity of the Group

Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:

• the Directors’ confirmation on page 21 of the annual report, in accordance with provision

C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future performance,
solvency or liquidity.

We have nothing material to add
or to draw attention to.

• the disclosures in the annual report that describe those risks and explain how they are being

managed or mitigated.

• the Directors’ explanation on page 25 of the annual report, in accordance with provision

C.2.2 of the Code, as to how they have assessed the prospects of the Group, over what period
they have done so and why they consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing material to add
or to draw attention to.

Under the Listing Rules we are required to review the Directors’ Statement that they have carried out a robust assessment of the principal
risks facing the Group and the Directors’ Statement in relation to the longer-term viability of the Group. Our review was substantially less
in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with
the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.

Adequacy of information and explanations received
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. We have no exceptions to report arising from this responsibility.

Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified
by law are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the
Code. We have nothing to report having performed our review.

Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 52, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.

What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

• whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.

ScS Group plc Annual Report 2016Financial StatementsWe test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a
reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.

In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.

Other matter
We have reported separately on the Company financial statements of ScS Group plc for the year ended 30 July 2016 and on the information
in the Directors’ Remuneration Report that is described as having been audited.

Jonathan Greenaway (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
3 October 2016

•

The maintenance and integrity of the ScS Group plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsC O N S O L I D AT E D S TAT E M E N T
O F C O M P R E H E N S I V E I N C O M E
F O R T H E Y E A R E N D E D 3 0 J U LY 2 0 16

Gross sales

Revenue
Cost of sales

Gross profit
Distribution costs
Administrative expenses

Operating profit

Analysed as:
Operating profit before exceptional items
Exceptional items

Operating profit after exceptional items

Finance costs
Finance income

Net finance costs

Profit/(loss) before taxation
Taxation

Profit/(loss) for the year

Attributable to:
Owners of the parent
Profit/(loss) and total comprehensive income/(expenses) for the year

Earnings/(loss) per share (expressed in pence per share):
Basic earnings/(loss) per share

Diluted

All results arise from continuing operations. There are no other sources of comprehensive income.

Notes

2016
£’000

2015
£’000

7
8

334,660

292,163

317,305
(168,177)

149,128
(15,491)
(122,622)

11,015

11,015
–

11,015

(217)
86

(131)

10,884
(2,155)

8,729

276,734
(149,583)

127,151
(14,041)
(110,343)

2,767

6,420
(3,653)

2,767

(4,515)
20

(4,495)

(1,728)
(496)

(2,224)

8,729

(2,224)

21.8p

21.3p

(5.6)p

ScS Group plc Annual Report 2016Financial StatementsC O N S O L I D AT E D S TAT E M E N T
O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 0 J U LY 2 0 16

At 27 July 2014
Total comprehensive income
Share-based payments
Proceeds from shares issued
Capital reduction
Share buyback
Group re-organisation
Dividend paid

At 25 July 2015

At 26 July 2015
Total comprehensive income
Share-based payments
Proceeds from shares issued
Dividend paid

At 30 July 2016

Share
capital
£’000

–
–
–
50
–
(13)
–
–

37
–
–
3
–

Share
premium
£’000

–
–
–
70,000
(70,000)
–
–
–

–

–
–
–
16
–

Capital
redemption
reserve
£’000

–
–
–
–
–
13
–
–

13
–
–
–
–

Merger
reserve
£’000

–
–
–
–
–
–
25,511
–

25,511

25,511
–
–
–
–

25,511

Retained
earnings
£’000

4,253
(2,224)
234
–
–
–
–
(1,044)

1,219

1,219
8,729
437
–
(6,349)

4,036

Total
equity
£’000

4,253
(2,224)
234
70,050
(70,000)
–
25,511
(1,044)

26,780

26,780
8,729
437
19
(6,349)

29,616

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsC O N S O L I D AT E D S TAT E M E N T
O F F I N A N C I A L P O S I T I O N
A S AT 3 0 J U LY 2 0 16

Non-current assets
Intangible assets
Property, plant and equipment

Total non-current assets

Current assets
Inventories
Trade and other receivables
Cash and cash equivalents

Total current assets

Total assets

Capital and reserves attributable to the equity shareholders of the parent
Share capital
Share premium
Capital redemption reserve
Merger reserve
Retained earnings

Equity shareholder’s funds

Total equity

Non-current liabilities
Trade and other payables
Deferred tax liability

Total non-current liabilities

Current liabilities
Current income tax liabilities
Trade and other payables

Total current liabilities

Total liabilities

Total equity and liabilities

Notes

2016
£’000

2015
£’000

11
12

13
14

18
18

16
17

1,145
23,501

24,646

23,188
9,014
22,379

54,581

79,227

40
16
13
25,511
4,036

29,616

6,068
1,101

7,169

210
42,232

42,442

49,611

79,227

1,291
25,005

26,296

20,705
8,887
21,055

50,647

76,943

37
–
13
25,511
1,219

26,780

5,668
530

6,198

675
43,290

43,965

50,163

76,943

The notes on pages 62 to 75 are an integral part of these consolidated financial statements.

The financial statements on pages 58 to 75 were approved by the Board and authorised for issue on 3 October 2016 and signed on its behalf by:

David Knight
Chief Executive Officer

ScS Group plc: Registered number 03263435

ScS Group plc Annual Report 2016Financial StatementsC O N S O L I D AT E D S TAT E M E N T
O F C A S H F L O W S
F O R T H E Y E A R E N D E D 3 0 J U LY 2 0 16

Cash flows from operating activities
Profit/(loss) before taxation
Adjustments for:
Depreciation of property plant and equipment
Amortisation of intangible assets
Share-based payments
Finance costs
Finance income

Changes in working capital:
Increase in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables

Cash generated from operating activities
Interest paid
Income taxes paid

Net cash flow generated from operating activities

Cash flows used in investing activities
Purchase of property, plant and equipment
Payments to acquire intangible assets
Interest received

Net cash flow used in investing activities

Cash flows used in financing activities
Repayment of borrowings from related party
Dividends paid
Proceeds of share issue

Net cash flow used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Notes

2016
£’000

2015
£’000

10,884

(1,728)

12
11
20
7
8

13
14

12
11
8

4,478
556
437
217
(86)

16,486

(2,483)
(127)
(658)

13,218
(217)
(2,049)

10,952

(2,974)
(410)
86

(3,298)

–
(6,349)
19

(6,330)

4,185
596
234
4,515
(20)

7,782

(704)
(571)
3,492

9,999
(731)
(1,088)

8,180

(3,666)
(480)
20

(4,126)

(799)
(1,044)
50

(1,793)

1,324

2,261

21,055

18,794

22,379

21,055

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S T O T H E C O N S O L I D AT E D
F I N A N C I A L S TAT E M E N T S

1. General information
ScS Group plc (the ‘Company’) is a Company incorporated and domiciled in the UK (Company registration number 03263435). The address
of the registered office is 45-49 Villiers Street, Sunderland, SR1 1HA. The Company and its subsidiaries’ (the ‘Group’) principal activity is the
provision of upholstered furniture and flooring, trading under the name ScS. The shares in the Company were admitted to the Official List
of the London Stock Exchange (LSE) on 28 January 2015.

2. Accounting policies
Basis of preparation
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the
European Union (IFRS) as they apply to the financial statements of the Group for the year ended 30 July 2016 and applied in accordance
with the Companies Act 2006 as applicable to companies using IFRS and interpretations issued by the IFRS Interpretations Committee
(IFRS IC) and under the historic cost convention. The accounting policies which follow set out those policies which apply in preparing the
financial statements for the year ended 30 July 2016. These policies have been consistently applied to all of the years presented, unless
otherwise stated.

The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£’000) except when
otherwise indicated.

Going concern
The Group generates strong cash flows, reflecting the negative working capital requirements of the business model. In addition the Group
has a committed £12.0m revolving credit facility in place. The Group’s forecasts and projections show that the Group has adequate
resources to continue to operational existence for the foreseeable future.

Having considered the Group's current trading and cash flow generation, including severe but plausible stress testing scenarios, the Directors
have concluded that it is appropriate to prepare the Group Financial Statements on a going concern basis.

New standards, amendments and interpretations
Standards, amendments and interpretations effective and adopted by the Group:

The following new standards and amendments to standards, which are mandatory for the first time in the financial period beginning
26 July 2015, are relevant for the Group but have not had a material impact on the financial statements:

•

IAS 19 (amendment) ‘Employee benefits’ – clarification for accounting of employee and third party contributions (effective for periods
beginning on or after 1 February 2015); and

• The ‘2010-2012 Improvement projects’ (effective from 1 February 2015).

At 30 April 2016, a number of new standards and interpretations and amendments to existing standards were issued but not yet effective
nor adopted by the EU, and have not been applied in preparing these consolidated financial statements. None of these is expected to have
a material impact to the Group, except for the following:

•

IFRS 16 ‘Leases’ (effective for periods beginning on or after 1 January 2019).

Basis of consolidation
The Group financial statements consolidate the financial statements of ScS Group PLC and the entities it controls (its subsidiaries) drawn
up to within seven days of 31 July each year.

Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that
presently are exercisable or convertible are taken into account. Control is generally accompanied by a shareholding of more than one-half
of the voting rights. The financial information of subsidiaries is included in the consolidated financial information from the date that control
commences until the date that control ceases.

Transactions eliminated on consolidation
Intra-Group balances, and any gains and losses or income and expenses arising from intra-Group transactions, are eliminated in preparing
the consolidated financial information. Gains arising from transactions with jointly controlled entities are eliminated to the extent of the
Group’s interest in the entity. Losses are eliminated in the same way as gains, but only to the extent that there is no evidence of impairment.

Segmental reporting
Segments are reported in a manner consistent with the internal reporting to the Board of Directors (see note 3 – Segment information).

ScS Group plc Annual Report 2016Financial StatementsRevenue
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied,
stated net of discounts, charges associated with interest free credit sales, returns and value added taxes. The Group recognises revenue
when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when
the significant risks and rewards of ownership of the goods and warranty contracts have passed to the buyer. This is deemed to be when the
goods and any associated warranty contracts have been delivered to the customer. Warranty services, once sold, are subsequently provided
by third parties.

Intangible assets
Intangible assets purchased separately are capitalised at cost and amortised on a straight-line basis over their useful economic life.
The useful economic lives used are as follows:

Computer software – 20% to 33% straight-line per annum.

The carrying value of intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value
may not be recoverable.

Property, plant and equipment
Property, plant and equipment are stated at historic purchase cost less accumulated depreciation and accumulated impairment losses. Cost
includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.
Depreciation is provided on all tangible fixed assets, at rates calculated to write off the cost, less estimated residual value, of the tangible
fixed assets over their anticipated useful lives at the rates shown below:

Fixtures and fittings
Computer equipment
Leasehold property improvements straight-line per annum
Freehold land and buildings

10% to 20% straight-line per annum
20% to 33% straight-line per annum
The shorter of the term of the lease or 2% straight-line per annum
2% straight-line per annum

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable.

Inventories
Inventories are stated at the lower of cost and net realisable value and consist of finished goods held for resale. Where necessary provision
is made for obsolete, slow moving and defective stocks. Cost comprises the purchase price of goods and other directly attributable costs
incurred in bringing the product to its present location and condition. Net realisable value is the estimated selling price reduced by all costs
of completion, marketing, selling and distribution.

Trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If collection
is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they
are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method,
less provision for impairment.

Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts
payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the
period of the borrowings using the effective interest method.

Cash and cash equivalents
In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand and deposits held at call with banks.

Share capital
Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax,
from the proceeds.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial Statements

N O T E S T O T H E C O N S O L I D AT E D
F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

2. Accounting policies continued
Pre-opening and launch costs
Pre-opening and launch costs are charged to the income statement in the year they are incurred.

Advertising expenditure
All routine and general advertising costs are expensed as incurred. Advertising costs paid to media companies are recognised as a
prepayment until the advertising is placed in the media and communicated to the public, at which point the expenditure is expensed
to the income statement.

Supplier contributions
Contributions received from suppliers towards the cost of displaying and promoting their product are recognised as a reduction in the
advertising and marketing costs to which they relate.

Supplier rebates
Rebates receivable from suppliers are based upon the volume of business with each supplier and are recognised in the income statement
in cost of sales or credited to stock as appropriate on an earned basis, by reference to the supplier revenue.

Leases
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term.

Lease incentives
The aggregate benefit of lease incentives is recognised as a reduction of rental expense. The benefit is allocated on a systematic basis over
the period to the end of the lease. The balance is carried forward within accruals.

Lease premiums
Premiums paid on entering into a lease are classified as short leasehold property within property, plant and equipment and depreciated over
the life of the lease.

Exceptional items
The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because
of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand
better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in
financial performance.

Pension costs
Contributions to the defined contribution scheme are charged to the income statement in the year in which they become payable. The assets
of the scheme are held separately from those of the Group in an independently administered fund.

Taxation
Deferred tax is recognised using the liability method, on all temporary differences at the balance sheet date between the tax base of assets
and liabilities and their carrying amounts for financial reporting purposes, with the following exception:

• Deferred tax assets are recognised only to the extent that the Director considers that it is more likely than not that there will be suitable

taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the average tax rates that are expected to apply in the periods in which timing
differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Foreign currency
Transactions in foreign currencies are translated at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. All exchange differences are taken to the income
statement in the period in which they arise.

Share-based payments
The Company operates an equity-settled, share-based payment plan for Directors of the trading subsidiary undertaking, A. Share & Sons
Limited. The fair value of the Directors’ services received by the Group in exchange for the issue of shares in the Company is recognised as
an expense in the financial statements of the subsidiary company to which services have been supplied. The total amount to be expensed
over the vesting period is determined by reference to the fair value of the shares issued, excluding the impact of any non-market vesting
conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the
number of shares that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of shares that are
expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity.

ScS Group plc Annual Report 2016Financial StatementsProvisions
Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that a transfer of economic
benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

Critical accounting judgements and estimates
The preparation of the financial statements under IFRS requires the Director to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated
and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates. The Directors consider that the following estimates and judgements are
likely to have the most significant effect on the amounts recognised in the consolidated historical financial information.

Volume rebates
The Group receives income from suppliers via volume rebates which are based on agreed rates based on the level of spend with suppliers
in the year. Where these arrangements are not coterminous with the year end these are accrued based on management’s judgement as
to whether the turnover targets will be achieved for the individual supplier.

Stock provisions
The Group's policy in relation to stock provisioning is to provide for obsolete, slow moving and defective stocks.

3. Segment information
The Directors have determined the operating segments based on the operating reports reviewed by the senior management team (the
Executive Directors and the other Directors of the trading subsidiary, A. Share & Sons Limited) that are used to assess both performance and
strategic decisions. The Directors have identified that the senior management team are the chief operating decision makers in accordance
with the requirements of IFRS 8 ‘Segmental reporting’.

The Directors consider the business to be one type of business generating gross sales and revenue from the retail of upholstered furniture
and flooring. All gross sales and revenue (loss)/profit before taxation, assets and liabilities are attributable to the principal activity of the
Group and other related services. All gross sales and revenues are generated in the United Kingdom.

An analysis of gross sales is as follows:

Sale of goods
Associated sale of warranties

Year ended
30 July
2016
£’000

312,776
21,884

334,660

Year ended
25 July
2015
£’000

273,491
18,672

292,163

Charges associated with interest-free credit are deducted from gross sales in arriving at revenue. Charges for interest-free credit in 2016 and
2015 were £17,355k and £15,429k respectively.

4. Operating profit
Operating profit is stated after charging:

Fees payable to the Company auditors for the audit of parent company and consolidated financial statements
Fees paid for other services:
– audit of the Company’s subsidiaries
– tax compliance
– other assurance services
– other non-audit services
Depreciation of property, plant and equipment – owned
Amortisation of computer software
Operating lease rentals – plant and machinery
Operating lease rentals – land and buildings

Other non-audit services in year ended 25 July 2015 above principally relate to the Group’s initial public offering.

Year ended
30 July
2016
£’000

101
–
15
13
4,478
556
2,204
23,802

Year ended
25 July
2015
£’000

85
13
–
960
4,185
596
2,180
23,262

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S T O T H E C O N S O L I D AT E D
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5. Employees and Directors
5.1 Staff costs

Wages and salaries
Social security costs
Other pension costs
Share-based payments (note 20)

The average monthly number of employees (including Executive Directors) during the year was as follows:

Sales
Office and managerial
Services and warehousing
Cleaning

5.2 Directors’ emoluments

Aggregate emoluments
Other pension costs

Highest paid Director

Aggregate emoluments
Other pension costs

Year ended
30 July
2016
£’000

52,858
4,829
991
437

59,115

Year ended
25 July
2015
£’000

43,901
4,077
929
234

49,141

Year ended
30 July
2016
Number

Year ended
25 July
2015
Number

714
724
382
30

704
682
352
27

1,850

1,765

Year ended
30 July
2016
£’000

1,614
112

Year ended
30 July
2016
£’000

741
60

Year ended
25 July
2015
£’000

682
100

Year ended
25 July
2015
£’000

320
60

These have been disclosed in the Remuneration Report. The highest paid Director did not exercise any shares during the year.

5.3 Key management compensation
Key management comprises the Directors of the trading subsidiary, A. Share & Sons Limited, and excludes the Group Directors and
Non-Executive Directors disclosed in 5.2 above.

The key management compensation is as follows:

Year ended
30 July
2016
£’000

1,213
106
437

Year ended
25 July
2015
£’000

636
112
86

Aggregate emoluments
Deferred contribution pension cost
Share-based payments

ScS Group plc Annual Report 2016Financial Statements6. Exceptional items
Exceptional costs comprise:

Management fees
IPO deal fees
Bank facility fees

Year ended
30 July
2016
£’000

–
–
–

–

Year ended
25 July
2015
Administrative
expenses
£’000

1,100
2,553
–

3,653

Year ended
25 July
2015
Finance costs
£’000

–
–
555

555

Notes

6(a)
6(b)
6(c)

6 (a) Management fees payable to an affiliate of the former parent undertaking, Sun Capital Partners, Inc. in relation to the termination of a management service agreement due to the IPO.
6 (b) Legal and professional fees related to the IPO.
6 (c) Banking and legal fees related to the committed £12.0m revolving credit facility.

7. Finance costs

Foreign exchange losses on amounts owed to related parties
Interest payable on amounts owed to related parties
Bank facility fees
Other finance costs

8. Finance income

Bank interest received

Year ended
30 July
2016
£’000

–
–
71
146

217

Year ended
30 July
2016
£’000

Year ended
25 July
2015
£’000

2,829
955
555
176

4,515

Year ended
25 July
2015
£’000

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S T O T H E C O N S O L I D AT E D
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9. Taxation
(a) Analysis of tax charge in the year

Current tax:
UK corporation tax on profits/(loss) for the year
Adjustments in respect of prior years

Total current tax

Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of prior years

Total deferred tax (note 17)

Income tax charge in the statement of comprehensive income

Year ended
30 July
2016
£’000

Year ended
25 July
2015
£’000

1,776
(192)

1,584

571
–

571

2,155

1,492
43

1,535

(489)
(550)

(1,039)

496

(b) Factors affecting tax expense for the year
The tax charge assessed on the profit/(loss) for the year is lower (2015: higher) than the standard rate of corporation tax in the UK of 20.00%
(2015: 20.67%). The differences are explained below:

Profit/(loss) before taxation

Profit/(loss) before tax at 20.00% (2015: 20.67%)
Effects of:
Other expenses not deductible
Depreciation not eligible for tax purposes
Foreign exchange loss not deductible
Adjustment in respect of prior years
Impact of changes in tax rates

Total taxation charge in the statement of comprehensive income

Year ended
30 July
2016
£’000

10,884

2,177

134
94
–
(192)
(58)

2,155

Year ended
25 July
2015
£’000

(1,728)

(357)

796
82
585
(507)
(103)

496

(c) Factors that may affect future tax charges
The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Further reductions in the corporation
tax rate from 20% to 19% from 1 April 2017, then 18% from 1 April 2020 were announced in the Summer Budget 2015 and enacted in Finance
(No 2) Act 2015. The March 2016 Budget announced a revision to the rate of corporation tax applying from 1 April 2020 to 17%, but this has
not yet been substantively enacted. Accordingly, the profits for this period are taxed at an effective rate of 20.00% and deferred taxation has
been calculated based on a rate of 19%.

10. Earnings per share

Profit/(loss) attributable to owners of the Company

Year ended
30 July
2016
£’000

8,729

Year ended
25 July
2015
£’000

(2,224)

Weighted average number of shares in issue for the purposes of basic earnings per share

40,006,654

40,000,000

Effect of dilutive potential ordinary shares:

– Share options

965,889

–

Weighted average number of ordinary shares for the purposes of diluted earnings per share

40,972,543

40,000,000

Basic earnings/(loss) per share (in pence per share)

Diluted earnings/(loss) per share (in pence per share)

21.8p

21.3p

(5.6)p

A total of 1,085,791 potential ordinary shares have not been included within the calculation of diluted earnings per share for the year ended
25 July 2015 as they are antidilutive.

ScS Group plc Annual Report 2016Financial Statements11. Intangible assets

Cost
At 26 July 2015
Additions

At 30 July 2016

Accumulated amortisation
At 26 July 2015
Charge for the year

At 30 July 2016

Net book amount
At 30 July 2016

At 25 July 2015

Cost
At 27 July 2014
Additions

At 25 July 2015

Accumulated amortisation
At 27 July 2014
Charge for the year

At 25 July 2015

Net book amount
At 25 July 2015

At 26 July 2014

30 July
2016
£’000

Computer
software

4,193
410

4,603

2,902
556

3,458

1,145

1,291

25 July
2015
£’000

Computer
software

3,713
480

4,193

2,306
596

2,902

1,291

1,407

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S T O T H E C O N S O L I D AT E D
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12. Property, plant & equipment

Cost
At 26 July 2015
Additions
Disposals

At 30 July 2016

Accumulated depreciation
At 26 July 2015
Charge for the year
Disposals

At 30 July 2016

Net book amount
At 30 July 2016

At 25 July 2015

Cost
At 27 July 2014
Additions

At 25 July 2015

Accumulated depreciation
At 27 July 2014
Charge for the year

At 25 July 2015

Net book amount

At 25 July 2015

At 26 July 2014

The net book value of leasehold properties is as follows:

Short leaseholds
Long leaseholds

13. Inventories

Finished goods

Freehold land
and buildings
£’000

159
–
–

159

82
3
–

159
–

159

79
3

Leasehold
property
£’000

46,438
1,705
(448)

47,695

26,332
2,896
(448)

28,780

18,915

20,106

44,429
2,009

46,438

23,612
2,720

26,332

20,106

20,817

Computer
equipment
£’000

Fixtures and
fittings
£’000

11,941
428
–

12,369

11,287
480
–

11,767

602

654

11,556
385

11,941

11,028
259

11,287

654

528

26,484
841
(56)

27,269

22,316
1,099
(56)

23,359

3,910

4,168

25,212
1,272

26,484

21,113
1,203

22,316

4,168

4,099

30 July
2016
£’000

18,843
72

18,915

Total
£’000

85,022
2,974
(504)

87,492

60,017
4,478
(504)

63,991

23,501

25,005

81,356
3,666

85,022

55,832
4,185

60,017

25,005

25,524

25 July
2015
£’000

20,029
77

20,106

30 July
2016
£’000

25 July
2015
£’000

23,188

20,705

The cost of inventories as an expense and included in cost of sales amounted to £175,731,000 (2015: £156,194,000).

The charge for the year relating to inventories written off amounted to £508,000 (2015: £353,000).

ScS Group plc Annual Report 2016Financial Statements14. Trade and other receivables – current

Trade receivables
Other receivables
Prepayment

30 July
2016
£’000

1,981
2,290
4,743

9,014

25 July
2015
£’000

3,376
2,180
3,331

8,887

The fair value of trade and other receivables is approximate to their carrying value. Trade and other receivables are considered due once
they have passed the contracted due date.

The carrying amounts of trade and other receivables are all denominated in Pounds Sterling.

The majority of the trade receivables are due from finance houses with which there are existing relationships and no history of default.

The bad debt provision is not considered material for disclosure.

15. Trade and other payables – current

Trade payables
Payments received on account
Other taxation and social security payable
Accruals

30 July
2016
£’000

14,430
12,825
4,862
10,115

42,232

25 July
2015
£’000

24,356
7,247
3,449
8,238

43,290

The fair value of financial liabilities approximates their carrying value due to short maturities. Financial liabilities are denominated in
Pounds Sterling.

16. Trade and other payables – non-current

Lease incentives

17. Deferred tax
Deferred tax liability
The Group’s movements in deferred taxation during the current financial year and previous year are as follows:

Opening deferred tax liability
Charged/(credited) to profit and loss account arising from the origination and reversal of temporary

differences (note 9)

Closing deferred tax liability

Deferred taxation has been fully provided for in respect of:
Accelerated capital allowances
Losses
Other timing differences
Capital gains held over

Closing deferred tax liability

30 July
2016
£’000

6,068

25 July
2015
£’000

5,668

30 July
2016
£’000

530

571

1,101

1,123
(113)
(22)
113

1,101

25 July
2015
£’000

1,569

(1,039)

530

1,609
(119)
(1,079)
119

530

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S T O T H E C O N S O L I D AT E D
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C O N T I N U E D

18. Called-up share capital

At 28 July 2014
Share sub-division
Shares issued/proceeds
Capital reduction
Consolidation of shares
Share sub-division
Share re-designation and buyback
Shares issued/proceeds
Shares issued/proceeds

At 25 July 2015

At 26 July 2015

Shares issued/proceeds

At 30 July 2016

Notes

18(a)
18(a)
18(a)
18(b)
18(b)
18(b)
18(c)
18(d)

Number of
shares
Number

Ordinary
shares
£’000

1
99,999
5,000,000,000
–
(4,963,079,840)
37,020,160
(37,020,160)
257,277
2,722,563

40,000,000

9,109

40,009,109

–
–
50
–
–
–
(13)
–
–

Share
premium
£’000

–
–
70,000
(70,000)
–
–
–
–
–

–

Total
£’000

–
–
70,050
(70,000)
–
–
(13)
–
–

Authorised, allotted and fully paid share capital is 40,009,109 of £0.001p each (2015: 40,000,000 of £0.001p each).

18(a) As part of the Group reorganisation on 21 January 2015 the existing £1 share capital which consisted of one ordinary share was subdivided into 100,000 (£0.00001) ordinary shares.

A further 4,999,900,000 (£0.00001) ordinary shares were issued to the principal shareholder for cash.

A further 100,000 (£0.00001) ordinary shares were issued to the principal shareholder as consideration for the acquisition of the entire ‘A’ ordinary shares in issue in Parlour Product
Topco Limited. The value attributable to the acquisition was £70,000,000 thereby creating a share premium of £69,999,999. This was subsequently reduced through a capital reduction.

18(b) The shares in issue were consolidated down to 37,020,160 ordinary shares of £0.001351 per share and subdivided into 37,020,160 ordinary shares of £0.001 per share and 37,020,160

ordinary shares of £0.000351 per share.

The ordinary £0.000351 shares were redesignated as deferred shares and bought back out of distributable reserves for total consideration of £0.01 and held as treasury shares.

18(c) On 22 January 2015 the Company issued 257,277 ordinary (£0.001) shares in exchange for the 750 ‘C’ ordinary shares held by a senior manager in Parlour Product Topco Limited.

18(d) On 28 January 2015 the Company issued a further 2,722,563 ordinary shares of £0.001 each to the ScS Group plc Employee Benefit Trust (refer to Directors’ Report).

19. Dividends
A final dividend for year ended 25 July 2015 of 11.2p was paid on 25 November 2015. It has been recognised in shareholders’ equity in the
year to 30 July 2016.

An interim dividend of 4.67p per ordinary share was declared by the Board of Directors on 12 April 2016 and paid on 27 May 2016. It has
been recognised in shareholders’ equity in the year to 30 July 2016.

A final dividend of 9.83p per ordinary share was proposed by the Board of Directors.

At 30 July 2016 the retained earnings of the parent company amounted to £66.5m.

20. Share-based payments
The Group operates equity-settled share schemes for certain employees that are intended to act as a long-term incentive to help retain key
employees and Directors who are considered important to the success of the business.

Post-admission incentive arrangements
The ScS Group plc Long-Term Incentive Plan (LTIP) was adopted on 21 January 2015 conditional upon admission. The LTIP allows for various
types of awards and the following grants over shares in ScS Group plc were made during the year:

(i) £nil cost options conditional on the IPO taking place (approved on 21 January 2015).
(ii) Market value options under a HMRC approved Company Share Option Plan conditional on the IPO taking place (approved on 21 January 2015).
(iii) Unapproved market value options conditional on the IPO taking place (approved on 21 January 2015).
(iv)

Performance-based £nil cost options granted on 30 March 2015 (the performance condition is based on EPS as set out in the consolidated
audited financial statements of the Group for the 2017).

ScS Group plc Annual Report 2016Financial Statements

Fair value of awards
The awards granted have been valued by an independent third party using the Black-Scholes model. No performance conditions were
included in the fair value calculations.

The expected life is the estimated time period to exercise. The expected volatility is calculated by reference to the historic volatility of the
Company from the period between admission and the date of grant and historic volatilities of comparator companies measured over a period
commensurate with the expected life. The dividend yield is based on the target dividend yield set at IPO (with the exception of awards that
give an entitlement to receive dividend equivalents). The risk-free interest rate is the yield on UK government bonds of a term consistent with
the expected life. The level of vesting is estimated at the balance sheet date and will be trued up until the vesting date.

LTIP (pre-IPO nil cost options)

LTIP (CSOP market value options)

LTIP (Directors’ awards)

LTIP (all awards)

Outstanding as at 27 July 2014
Granted
Forfeited
Exercised
Expired

Outstanding as at 25 July 2015
Granted
Forfeited
Exercised
Expired

Share awards

–
571,421
–
–
–

Average
exercise price

Share awards

Average
exercise price

Share awards

Average
exercise price

Share awards

Average
exercise price

–
£0.000001
–
–
–

–
68,659
–
–
–

–
£1.75
–
–
–

–
445,711
–
–
–

–
–
£0.000001 1,085,791
–
–
–
–
–
–

571,421

£0.000001

68,659

£1.75

445,711

£0.000001 1,085,791

(20,000)
–
–

–
–
–

–
(9,109)
–

–
£1.75
–

(90,793)
–
–

–
–
–

(110,793)
(9,109)
–

Outstanding as at 30 July 2016

551,421

£0.000001

59,550

£1.75 354,918

£0.000001 965,889

Exercisable at 30 July 2016
Exercisable at 25 July 2015

–
–

£0.000001
£0.000001

59,550
68,659

£1.75
£1.75

–
–

£0.000001
£0.000001

59,550
68,659

Note: Weighted average share price for all LTIP awards during the year.

The fair value of share options issued and the assumptions used in the calculation are as follows:

–
£0.11
–
–
–

£0.11

–
£1.75
–

£0.10

£1.75
£1.75

Grant date
Share price at grant date
Exercise price
Number of employees
Shares issued
Expected volatility
Expected life (years)
Risk-free interest rate
Expected dividend yield
Fair value per share
Estimated vesting

2015

21 January 2015
£1.75
£nil
25
571,421
33.7%
3
0.70%
8%
£1.38
100%

21 January 2015
£1.75
£1.75
6
68,659
36.2%
5
1.06%
8%
£0.24
100%

30 March 2015
£2.05
£nil
6
445,711
33.7%
3
0.69%
0%
£2.05
0%

The total charge for the year relating to employee share-based payment plans was £437,000 (2015: £234,000) which is in relation
to equity-settled share-based payment transactions. There are no liabilities arising from share-based payment transactions.

21. Capital commitments
Capital commitments contracted for but not provided amounted to £1,082,000 (2015: £nil).

22. Pension commitments
The Group operates several defined contribution pension schemes for the benefit of its staff. The assets of the schemes are held separately
from those of the Group in independently administered funds. The pension charges represent contributions payable by the Group to these
funds and are shown in note 5. Amounts outstanding at the year end were £118,000 (2015: £114,000) and are held in accruals.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S T O T H E C O N S O L I D AT E D
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C O N T I N U E D

23. Financial commitments
The future aggregate minimum lease payments under non-cancellable operating leases as set out below:

Operating leases which expire:
Within one year
Within two to five years
After five years

Land and buildings

Plant and machinery

2016
£’000

2015
£’000

2016
£’000

2015
£’000

525
17,303
163,225

181,053

–
13,641
184,665

198,306

384
2,784
–

3,168

312
3,930
–

4,242

24. Financial instruments – risk management
Financial risk management policy
The Group’s principal financial instruments comprise cash and cash equivalents. The main purpose of these financial instruments is to
provide funds for the Group’s operations. The Group has other financial instruments being trade receivables and trade payables that arise
directly from its operations.

It is, and has been under review throughout the year, the Group’s policy that no trading in financial instruments shall be undertaken. The Group
has not entered into derivative transactions during the years under review. The Group does not undertake any speculative transactions and
continues to pursue prudent treasury policies by investing surplus funds only with reputable UK financial institutions.

Credit risk
The finance for all Group’s credit sales is provided from external financing companies who bear the whole risk of customer defaults on repayment.
The Group’s financial assets which are past due and not impaired are deemed not material for disclosure. The remaining balance is deemed fully
recoverable due to the use of finance houses to mitigate the risk of recoverability. There have been no gains/losses on financial liabilities.

Cash and deposits are invested with Lloyds Bank plc.

Liquidity risk
The Group’s exposure to liquidity risk is low, as historically working capital requirements have been funded entirely by inter-company debt
and self-generated cash flow. The Group has a £12.0m committed revolving credit facility.

Financial instruments by category
Financial assets and liabilities are classified in accordance with IAS 39. No financial instruments have been reclassified or derecognised
in the year. There are no financial assets which are pledged or held as collateral. The Group does not hold any financial assets or liabilities
held as fair value through the income statement, defined as being in a hedging relationship or any available for sale financial assets.

All financial assets are deemed to be loans and receivables at amortised cost and their carrying value equal to their fair value.

All financial liabilities are held at amortised cost and their carrying value equal to their fair value and there is no variance between this
at initial recognition and the transaction price.

All financial assets and liabilities are based on readily observable prices and market data (level 1).

Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and retain financial flexibility
to provide returns for shareholders and benefits for other stakeholders. The Group considers capital to be equity and cash. Equity and
cash are disclosed in the Consolidated Statement of Financial Position.

The Group manages its capital through continued focus on free cash flow generation and setting the level of capital expenditure and
dividend in the context of the current period and forecast free cash flow.

25. Related parties
Loans from related parties
In prior years the Group had the following loans from Parlour Product Holding (Lux) Sarl, the principal shareholder:

• Unsecured interest free loan of US$6,125,000 payable on maturity at 12 August 2068;
• 23,987,885 Series 1 – 8% unsecured payment in kind notes of US$1.00 payable on demand;
• 9,233,000 Series 2 – 8% unsecured payment in kind notes of US$1.00 payable on demand; and
• 18,076,284 unsecured payment in kind notes of US$1.00 payable on demand in recognition of interest accrued and capitalised at each

balance sheet date.

ScS Group plc Annual Report 2016Financial StatementsThe movement on the amounts outstanding are as follows:

Series 1 payment in kind notes
Opening balance
Issued
Repaid
Foreign exchange loss
Capitalised in period

Closing balance

Series 2 payment in kind notes
Opening balance
Issued
Foreign exchange loss
Capitalised in period

Closing balance

30 July
2016
£’000

25 July
2015
£’000

–
–
–
–
–

–

–
–
–
–

–

13,987
593
(748)
1,756
(15,588)

–

8,539
362
1,073
(9,974)

–

The amounts capitalised in the prior year as part of the Group reorganisation.

Purchases of goods and services
Management fees and expenses have been paid to an affiliate of the principal shareholder under the terms of a Management Services
Agreement as follows:

Management fees and expenses
Termination fee (note 6 (a))

Year ended
30 July
2016
£’000

–
–

–

Year ended
25 July
2015
£’000

152
1,100

1,252

Holdings in subsidiaries are disclosed in the parent company accounts in note 2. Only ScS Furnishings Limited is not included in the
consolidation on the grounds of materiality.

26. Contingent liabilities
The subsidiary undertakings of the Group are party to a debenture with Lloyds Bank plc which grants fixed and floating charges over the
assets of each subsidiary undertaking.

27. Post-balance sheet events
There have been no events since the balance sheet date that either require adjustment to the financial statements or are important in the
understanding of the Company’s current position.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsI N D E P E N D E N T A U D I T O R S ’ R E P O R T
T O T H E M E M B E R S O F S C S G R O U P P L C

Report on the Company financial statements
Our opinion
In our opinion, ScS Group plc’s Company financial statements (the ‘financial statements’):

• give a true and fair view of the state of the Company’s affairs as at 30 July 2016 and of its cash flows for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

What we have audited
The financial statements, included within the Annual Report, comprise:

• the Statement of Financial Position as at 30 July 2016;
• the Statement of Cash Flows for the year then ended;
• the Statement of changes in Equity for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are
cross-referenced from the financial statements and are identified as audited.

The financial reporting framework that has been applied in the preparation of the financial statements is United Kingdom Accounting Standards,
comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law (United Kingdom Generally Accepted Accounting Practice).

Other required reporting
Consistency of other information
Companies Act 2006 reporting
In our opinion, 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.

ISAs (UK & Ireland) reporting
Under International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’) we are required to report to you if, in our opinion,
information in the annual report is:

• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course

of performing our audit; or

• otherwise misleading.

We have no exceptions to report arising from this responsibility.

Adequacy of accounting records and information and explanations received
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 Company, or returns adequate for our audit have not been received from

branches not visited by us; or

• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting

records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.

Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified
by law are not made. We have no exceptions to report arising from this responsibility.

ScS Group plc Annual Report 2016Financial StatementsResponsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 52, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.

What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in
the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether
caused by fraud or error. This includes an assessment of:

• whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and

adequately disclosed;

• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable
basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination
of both.

Other matter
We have reported separately on the Group financial statements of ScS Group plc for the year ended 30 July 2016.

Jonathan Greenaway (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
3 October 2016

•

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsPA R E N T C O M PA N Y I N F O R M AT I O N
S TAT E M E N T O F F I N A N C I A L P O S I T I O N
A S AT 3 0 J U LY 2 0 16

Investments

Current assets
Trade and other receivables
Cash at bank and in hand

Total current assets

Total assets

Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Retained earnings

Equity shareholders’ funds

Total equity

Current liabilities
Trade and other payables

Total current liabilities

Total liabilities

Total equity and liabilities

Notes

2016
£’000

2015
£’000

7
7

70,000

25
–

17
–

70,025

70,017

40
16
13
66,511

66,580

3,445

37
–
13
67,188

67,238

2,779

70,025

70,017

The notes on pages 81 to 83 form an integral part of these financial statements.

The financial statements on pages 78 to 83 were approved by the Board and authorised for issue on 3 October 2016 and signed
on its behalf by:

David Knight
Chief Executive Officer

ScS Group plc Annual Report 2016Financial StatementsPA R E N T C O M PA N Y I N F O R M AT I O N
S TAT E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 0 J U LY 2 0 16

At 27 July 2014
Group reorganisation
Capital reduction
Dividend paid
Total comprehensive income

At 25 July 2015

At 26 July 2015
Total comprehensive income
Proceeds from shares issued
Dividends paid

At 30 July 2016

Share
premium
account
£’000

–
70,000
(70,000)
–
–

–

–
–
16
–

Capital
redemption
reserve
£’000

Called-up
share
capital
£’000

–
13
–
–
–

13
–
–
–

–
37
–
–
–

37
–
3
–

Profit
and loss
account
£’000

–
–
70,000
(1,044)
(1,768)

67,188

67,188
5,672
–
(6,349)

66,511

Total
2015
£’000

–
70,050
–
(1,044)
(1,768)

67,238

67,238
5,672
19
(6,349)

66,580

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsPA R E N T C O M PA N Y I N F O R M AT I O N
S TAT E M E N T O F C A S H F L O W S
F O R T H E Y E A R E N D E D 3 0 J U LY 2 0 16

Cash flows from operating activities
Profit/(loss) before taxation

Changes in working capital:
Increase in trade and other receivables
Increase in trade and other payables

Cash generated from operations
Net cash flow generated from operating activities

Net cash flow used in investing activities

Cash flows used in financing activities
Dividends paid
Proceeds of share issue

Net cash flow used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Notes

2016
£’000

2015
£’000

5,672

(1,768)

(7)
665

6,330
6,330

–

(6,349)
19

(6,330)

–

(17)
2,779

(994)
(994)

–

(1,044)
50

(994)

–

ScS Group plc Annual Report 2016Financial StatementsN O T E S T O T H E PA R E N T C O M PA N Y
F I N A N C I A L S TAT E M E N T S

1. Accounting policies
Statement of compliance with FRS 101
These financial statements were prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ (‘FRS 101’).
The Company meets the definition of a qualifying entity under FRS 100, ‘Application of Financial Reporting Requirements’ as issued by the
Financial Reporting Council.

Basis of preparation
These financial statements, for the year ended 30 July 2016 of ScS Group plc are the first to be prepared in accordance with Financial Reporting
Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). For years up to and including the year ended 26 July 2015 the Company prepared
its financial statements in accordance with the UK Generally accepted accounting practice (‘UK GAAP’) that was applicable at that time.
The financial statements have been prepared under the historical cost convention and in accordance with the Companies Act 2006.

The Company’s date of transition to FRS 101 was 27 July 2014.

No exemptions from the requirements of IFRS have been applied in the preparation of these financial statements. The Company intends to
continue reporting under FRS 101 in the next financial year.

The transition is not considered to have a material effect on the financial statements. There were no adjustments noted on the transition to FRS101.

Critical accounting estimates and judgements
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Company’s accounting policies. However, due to the nature of the
Company we do not consider there to be any critical accounting estimates or judgements made in the preparation of these financial statements.

Capital management
The Company follows the same capital management as the Group – see page 74 in the Group Accounts.

New standards, amendments and interpretations
For the latest amendments and interpretations, please refer to page 62 in the Group Accounts.

Fixed asset investments
Fixed asset investments in subsidiary undertakings are recorded at cost plus incidental expenses less any provision for impairment.

Taxation
The tax charge for the financial period is based on the profit for the financial period.

2. Income Statement exemption
The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the Income Statement
of the parent company. Total comprehensive income for the parent company for the year was £5,672,000 (2015: loss £1,768,000).

3. Directors emoluments
No Executive Directors received any remuneration for their services to the Company (2015: £nil). All Executive Directors remuneration was
borne by another Group company, A Share and Sons Limited. These costs have been consolidated into the Group’s financial statements and
are disclosed along with the Non-Executive Directors fees, within the Remuneration Report on pages 40 to 49.

4. Investments

Cost and net book value
At 30 July 2016 and 25 July 2015

Subsidiary
undertaking
£’000

70,000

The subsidiaries, which were owned and incorporated in the United Kingdom were are as follows:

Name

Principal activity

Class of shares held

% of Holdings

Parlour Product Topco Limited

Holding company

Held by subsidiary undertakings
Parlour Product Holding Limited
A. Share & Sons LImited
ScS Furnishings Limited

Holding company
Specialist retailer of upholstered furniture
Dormant Company

Ordinary

Ordinary
Ordinary
Ordinary

All shares carry equal voting rights and are deemed to be controlled by ScS Group plc.

The Directors believe that the carrying value of the investments is supported by their underlying net assets.

ScS Furnishings Limited is exempt from audit as it is dormant. It’s aggregate amount of capital and reserves is £1.

100%

100%
100%
100%

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S T O T H E PA R E N T C O M PA N Y
F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

5. Trade and other receivables – current

Prepayments and accrued income

6. Trade and other payables – current

Amounts owed to Group undertakings
Accruals and deferred income

Amounts owed to Group undertakings are unsecured, interest free and repayable on demand.

7. Called-up share capital

At 28 July 2014
Share sub-division
Shares issued/proceeds
Capital reduction
Consolidation of shares
Share sub-division
Share re-designation and buyback
Shares issued/proceeds
Shares issued/proceeds

At 25 July 2015

At 26 July 2015
Shares issued/proceeds

At 30 July 2016

Notes

6(a)
6(a)
6(a)
6(b)
6(b)
6(b)
6(c)
6(d)

Number
of shares
Number

Ordinary
shares
£’000

1
99,999
5,000,000,000
–
(4,963,079,840)
37,020,160
(37,020,160)
257,277
2,722,563

40,000,000

40,000,000
9,109

40,009,109

–
–
50
–
–
–
(13)
–
–

37
3

2016
£’000

3,360
85

3,445

Share
premium
£’000

–
–
70,000
(70,000)
–
–
–
–
–

–

–
16

2015
£’000

2,661
118

2,779

Total
£’000

–
–
70,050
(70,000)
–
–
(13)
–
–

37
19

Authorised, allotted and fully paid share capital is 40,009,109 of £0.001p each (2015: 40,000,000 of £0.001p each).

6(a) As part of the Group reorganisation on 21 January 2015 the existing £1 share capital which consisted of one ordinary share was subdivided into 100,000 (£0.00001) ordinary shares.

A further 4,999,900,000 (£0.00001) ordinary shares were issued to the principal shareholder for cash.

6(b) The shares in issue were consolidated down to 37,020,160 ordinary shares of £0.001351 per share and subdivided into 37,020,160 ordinary shares of £0.001 per share and 37,020,160

ordinary shares of £0.000351 per share.

The ordinary £0.000351 shares were redesignated as deferred shares and bought back out of distributable reserves for total consideration of £0.01 and held as treasury shares.

6(c) On 22 January 2015 the Company issued 257,277 ordinary (£0.001) shares in exchange for the 750 ‘C’ ordinary shares held by a senior manager in Parlour Product Topco Limited.

6(d) On 28 January 2015 the Company issued a further 2,722,563 ordinary shares of £0.001 each to the ScS Group plc Employee Benefit Trust.

ScS Group plc Annual Report 2016Financial Statements

8. Dividends
A final dividend for year ended 25 July 2015 of 11.2p was paid on 25 November 2015. It has been recognised in shareholders’ equity in the
year to 30 July 2016.

A final dividend of 9.83p per ordinary share was proposed by the Board of Directors.

9. Financial Instruments
The Company has financial instruments, being trade receivables and trade payables, that arise directly from its operations. The financial
instruments – risk management policy has been included in note 24 of the Group financial statements.

10. Related parties
There is not deemed to be any one controlling party.

ScS Group plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsN O T E S

ScS Group plc Annual Report 2016Financial StatementsC O M PA N Y I N F O R M AT I O N

Registered office
ScS Group plc
45-49 Villiers Street
Sunderland
SR1 1HA
Tyne & Wear

Tel: 0191 514 6000
www.scsplc.co.uk

Company number
Registered in England: 03263435

Listing
Ordinary shares of ScS Group plc are
listed with a premium listing on the
London Stock Exchange.

Share registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA

Tel: 0871 384 2030
www.equiniti.com

Independent Auditor
PricewaterhouseCoopers LLP
5th & 6th Floor
Central Square South
Orchard Street
Newcastle Upon Tyne
NE1 3AZ

Tel: 0191 232 8493
www.pwc.co.uk

Brokers
Investec Bank Plc
2 Gresham Street
London
EC2V 7QP

Tel: 020 7597 4000
www.investec.co.uk

Principal bankers
Lloyds Banking Group PLC
10 Gresham Street
London
EC2V 7AE

Tel: 020 7616 1500
www.lloydsbankinggroup.com

Financial PR
Buchanan
107 Cheapside
London
EC2V 6DN

Tel: 020 7466 5000
scs@buchanan.uk.com

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ScS Group plc
45-49 Villiers Street
Sunderland
SR1 1HA
Tyne and Wear

Tel. 0191 514 6000
www.scs.co.uk