Helping
create
the home
you love
ScS Group plc
Annual Report and Accounts
2023
Our strategy
Continuing to drive the business
forward.
Read more on page 16
Financial review
Delivering resilient results and
returns to shareholders.
Read more on page 50
Delivering value
Continuing to produce results.
Read more on page 13
ScS Group plc Annual Report and Accounts 2023
We continue
to take market
share and
make strategic
progress.”
Financial highlights
Underlying profit before tax*
Cash
£7.2m
2022: £13.8m
£69.5m
2022: £70.8m
Statutory earnings per share
Dividend**
12.8p
2022: 36.2p
14.5p
2022: 13.5p
* See alternative performance measures
on pages 55 to 56.
** Dividend includes 4.5p interim paid and 10.0p
proposed final dividend.
ScS Group plc
45-49 Villiers Street, Sunderland
SR1 1HA
Tel: 0191 731 3000
www.scs.co.uk
About ScS
ScS is one of the UK’s
leading furniture and
flooring retailers
Our mission is to be the UK’s best value home retailer.
Delivering outstanding value, quality and choice with
a seamless customer experience.
Gross sales*
£343.5m
2022: £344.7m
Gross margin*
44.4%
2022: 45.3%
* See alternative performance measures on pages 55 to 56.
Strategic report
IFC
03
06
08
10
13
16
24
26
38
48
50
55
57
59
65
Financial highlights
At a glance
Chair’s letter
Chief Executive Officer’s review
Our market
Our business model
Our strategy
Key performance indicators
Responsibility and sustainability report
Task Force on Climate-related
Financial Disclosures report
Section 172 statement
Financial review
Alternative performance measures (APMs)
Risk and risk management
Principal risks and uncertainties
Viability statement
Corporate governance
68
72
Board of Directors
Corporate governance statement
Introduction from the Chair
72
73 Compliance with the UK Corporate
Governance Code
75 Board leadership and company purpose
79 Division of responsibilities
82 Composition, succession and evaluation
Nomination Committee report
Audit Committee report
Directors’ remuneration report
86
89
97
120 Directors’ report
124 Statement of Directors’ responsibilities
Financial statements
126
Independent auditors’ report to the members of
ScS Group plc
133 Consolidated statement of comprehensive income
134 Consolidated statement of financial position
135 Consolidated statement of changes in equity
136 Consolidated statement of cash flows
137 Notes to the consolidated financial statements
156 Company statement of financial position
157 Company statement of changes in equity
158 Notes to the Company financial statements
162 Company information
ScS Group plc Annual Report and Accounts 2023
1
Strategic
report
03 At a glance
06 Chair’s letter
08 Chief Executive Officer’s
review
10 Our market
13 Our business model
16 Our strategy
24 Key performance indicators
26 Responsibility and
sustainability report
38 Task Force on Climate-related
Financial Disclosures report
48 Section 172 statement
Financial review
50
55 Alternative performance
measures (APMs)
57 Risk and risk management
59 Principal risks and
uncertainties
65 Viability statement
2
ScS Group plc Annual Report and Accounts 2023 At a glance
Helping create the
home you love
ScS Group plc is a sofa, flooring and furniture
specialist. We have over 125 years of furniture
and retailing experience and have established
ourselves as one of the leading furniture and
flooring retailers in the UK.
Where we are
100
showrooms across
the UK
Providing an engaging experience,
showcasing our latest great value
products and giving our customers
the chance to find the perfect
addition to their home.
9
distribution
centres across
the UK
Delivering to thousands
of customers every week.
26
Snug showrooms
Three standalone stores and 23
concessions (a mixture of internal
and external). Each showcasing
our Snug offering.
1
customer
support centre
Supporting the business
and customers from our
base in Sunderland.
C Customer
support centre
S SCS stores
S SCS stores with
Snug concession
S Snug stores
D Distribution centres
3
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSDDDDDDDDDCScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements At a glance continued
Our purpose
Helping create the home you love
Our values
Our RIGHT values, together with our purpose, shape
and bring our culture to life.
Our colleagues are key to our success, and we are
committed to creating a great place for them to
work.
Our responsibility
At ScS, we recognise that as a responsible business
we have an obligation to operate in a manner that
is both ethical and sustainable. We continue to
align our environmental, social and governance
(ESG) ambitions with our business strategy and have
commenced development of our Net Zero strategy.
See pages 26 to 37 for more information on ESG
Our clear purpose drives strategic priorities and
supports our ambitions and commitments. It guides
us in delivering the best combination of customer
service, value for money, quality and product choice
for our customers. Our customers and our people
are at the heart of everything we do and are central
to our purpose.
See pages 16 to 22 for more information on our
strategy
Highlights
• Delivered a resilient financial performance
despite a challenging macroeconomic
environment.
• Following significant quantitative and qualitative
customer research, launched our new ‘Feel the
hug of home’ brand creative.
• Acquired the business and assets of Snug which
complements the Group’s existing proposition,
diversifies our customer base and increases our
market share.
• Opened two new stores in Swindon and York.
•
Implemented our refreshed store design into
eight further stores taking the total to nine.
• Exceeded 440,000 reviews on Trustpilot and
maintained the maximum 5-star ‘Excellent’ rating.
• Completed £7m share buyback programme.
• Launched partnership with Shelter, the national
•
housing and homelessness charity.
Improved our employee satisfaction score and
colleague retention rates.
4
I
Inclusive
Working and communicating
with each other to achieve
common goals
R
Responsive
To our customers,
colleagues,
markets and new
ways of working
G
Get it right
Doing things right
first time
Our RIGHT Values
T
Trusted
Operating with
fairness, respect,
honesty and
integrity
H
Hard working
Passionate, committed
and driven with a
winning attitude
ScS Group plc Annual Report and Accounts 2023 Average number
of employees
1,801
(FY22: 1,802)
Store: 50% (2022: 51%)
Customer support centre:
25% (2022: 23%)
Distribution: 25%
(2022: 26%)
Gross
sales*
£343.5m
(FY22: £344.7m)
Trustpilot rating
‘Excellent’
* See alternative performance measures on pages 55 to 56.
In-store furniture sales:
£276.6m (2022: £279.9m)
In-store flooring sales:
£30.1m (2022: £32.6m)
Online sales: £36.8m
(2022: £32.2m)
5
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Chair’s letter
Dear Shareholder,
This is my final review and I would like to start by
thanking the talented people I have had the pleasure
and privilege to work with throughout my nine years. I
am extremely proud of what has been achieved during
this time.
I am equally pleased that ScS has maintained its core
identity, providing excellent value and delivering first-
class service to our customers, things I am certain will
be the foundations for future successes.
FY23 was a challenging year, impacted by the
continued economic pressures consumers and
businesses face across the UK. Profits fell in the
year, driven by a reduction in our gross margin in our
ScS business due to the increased cost of providing
credit to our customers. Whilst navigating the
uncertain external environment, the Group made
notable strides implementing our strategy. I was very
pleased with the progress Steve and his team made
in the year and would like to thank them for their
stewardship and determination, as well as thanking
all my colleagues for their continued commitment,
application of our RIGHT values and pursuit of our
ultimate purpose, ‘to help create the home you love’.
Following the year end, on 24 October 2023, a wholly-
owned subsidiary of Poltronesofà S.p.A. announced
a recommended cash offer for the Company of 270p
per share. In addition, the Group’s shareholders will
also be entitled to receive a final dividend in respect
of the year ended 29 July 2023 of 10p per share.
Purpose and strategy
I have been delighted with the progress made in
the second year of our refreshed strategy. I am
confident that this will ensure ScS is in a position
to weather the current turbulent economic
environment, continue to take market share and
prosper when the economy improves.
During the year the team delivered the Group’s first
acquisition in its long history, acquiring Snug. The
Board visited Snug’s contemporary Leeds store and
met the team, including CEO Rob Bridgman, and heard
about their exciting plans. Snug’s strong brand and
differentiated digital-first offering complements our
existing proposition, further diversifies our customer
base and increases our market share. I look forward
to watching the business grow in the coming years.
Together with other members of the Board I have
also visited a number of our new format stores and
was impressed with how the team has adapted the
design following the learnings gained from our initial
locations. It has been pleasing to see their strong
performance and we plan to continue to invest in
modernising our stores as long as we continue to
see the targeted returns.
I was excited to see the positive reaction to the
refresh of our ScS brand and modernised product
range, making the customer proposition more
welcoming and appealing to a wider audience.
None of this progress would have been possible
without a fully engaged team and the results of the
latest annual employee survey showed an increase
in colleague satisfaction by four points to 75, ahead
of the UK benchmark. This increase is reflected in our
improved employee retention rates.
We continue to recognise the importance of
embedding our purpose and strategy in both an
ethical and sustainable manner and have progressed
towards our ESG objectives. These efforts continue,
with our ESG committee establishing a Net Zero
strategy.
Shareholder returns
We continue to maintain a strong balance sheet, with
£69.5m of cash and no debt at the year end, providing
resilience in the current environment. Combined with
the strategic progress, the Board has confidence in
the Group’s future.
We continue to recognise
the importance of
embedding our purpose
and strategy in both an
ethical and sustainable
manner.”
6
ScS Group plc Annual Report and Accounts 2023 In the year we completed our share buyback
programme, returning a total of £7.0m to our
shareholders and in addition, completed the cash
acquisition of Snug. The Board actively reviews the
allocation of capital, considering potential external
and internal investment opportunities and returns to
shareholders.
As we reflect on the robust performance for the year,
the Board is pleased to propose a final dividend of
10.0p subject to approval at the AGM. Upon approval,
this would mean a full year dividend of 14.5p.
Board changes
Last year we reported the appointment of three
new Non-Executive Directors. Carol Kavanagh, who
joined the Board on 26 September 2022, Andy Kemp
who joined the board on 1 February 2023 and John
Walden who joined as Chair Designate on 1 March
2023. Additionally, I was pleased to welcome Swarupa
Pathakji to the Board as Non-Executive Director on
2 May 2023.
Carol, Andy, John and Swarupa have all held a number
of relevant senior positions and have extensive
listed company experience that will strengthen
the Board’s capabilities whilst playing a crucial role
in the advancement of our strategy. They have all
undertaken a comprehensive induction process and
are making valuable contributions to the Group.
The original plan was that both Ron McMillan and
I would step down from our positions upon the
conclusion of the AGM on 1 December 2023, both
having served nine years on the Board, the maximum
term recommended under the UK Corporate
Governance Code. The current intention is that
Ron and I will remain as Non-Executive Directors on
the Board for a short period post the AGM to assist
with the conclusion of the offer for the Company
that was announced on the 24 October 2023 and
further updates with regards to this will be made as
appropriate.
With the notification from Chris Muir of his intention
to step down as Chief Financial Officer (CFO), and
following a comprehensive recruitment process, I was
delighted to welcome Mark Fleetwood to the Group
as Chris’s successor on 4 September 2023. Chris has
been a vital part of the success of ScS since his
appointment in 2016 and I’d like to thank him for his
contribution. Chris will remain as an Executive Director
on the Board to assist with the conclusion of the offer
for the Company.
Offer for the Company
Following the year end, on 24 October 2023, a wholly-
owned subsidiary of Poltronesofà S.p.A. announced a
recommended cash offer for the Company of 270p per
share. In addition, the Group’s shareholders will also
be entitled to receive a final dividend in respect of the
year ended 29 July 2023 of 10p per share.
Established in Forli in 1995, Poltronesofà S.p.A. has
become the leading sofa retailer in Italy and one of
the leading sofa retailers in Europe. It designs and
sells sofas and armchairs, as well as sofa beds and
decorative accessories and retails them through
its 166 stores in Italy, 104 stores in France and 26
further stores across Europe (14 in Belgium, nine
in Switzerland, two in Cyprus and one in Malta).
Poltronesofà S.p.A. is widely recognised for its focus
on a high-quality customer experience while offering
Italian-manufactured products at affordable prices.
Poltronesofà’s customers appreciate the extensive
optionality for customisation, with the wide range
of models and versions being customisable through
Poltronesofà’s extensive range of upholsteries. This
customer-centric offering is made available at a very
convenient price range.
It is intended that the acquisition will be implemented
by way of a Court-sanctioned scheme of
arrangement under Part 26 of the Companies Act and
is expected to complete in the first quarter of 2024.
Summary
We enter the new financial year cautiously optimistic,
acknowledging the uncertain economic outlook and
the pressures currently and prospectively facing
household incomes. However, with the combination
of the resilient business model we operate and
the strategic progress we have made, alongside
targeted investments, we are confident that the
Group has improved its offering and is well positioned
to compete for market share and to continue to
deliver for our stakeholders.
On behalf of the Board, I would like to thank our
shareholders, suppliers and customers for their
continued support as well as our colleagues
for their loyalty and hard work. With our proven
steadfast operational resilience, continuing
strategic progress and strong future prospects, I am
confident in handing over the Chair to John Walden.
I do so certain in the knowledge that I am leaving ScS
and all of its stakeholders in good hands.
It only remains for me to say a very sincere thank you
to everyone who has supported me throughout my
time with ScS, and to wish you all the very best for the
future.
Yours sincerely,
Alan Smith
Chair
24 October 2023
7
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Chief Executive Officer’s review
The Snug acquisition presents
us with a great opportunity to
increase market share
Overview
The year ended 29 July 2023 marks the conclusion of
the second year of our refreshed strategy, mission
and purpose which has driven our priorities. Like most
companies, we have faced a challenging trading
environment resulting from the economic pressures
households are facing throughout the UK. Our strong
foundations and core values alongside diligent
responsive actions have enabled us to maintain a
resilient financial performance and gain market share.
I am proud to lead this special business which has
always had a family feel, and I would like to thank
all of our teams for their ongoing dedication,
enthusiasm and contributions in a challenging
year. Our colleagues continue to demonstrate the
Group’s values and put the customers at the centre
of everything we do. This hard work and dedication
continues to be recognised by our customers, and I
am delighted to see that come through in our 5-star
‘Excellent’ Trustpilot rating.
Results
Positive trading and effective cost management
have helped us to navigate a challenging
macroeconomic environment to deliver profit
ahead of market expectations.
The ScS like-for-like order intake* momentum
improved significantly throughout the year. The
first half saw a like-for-like order intake reduction
of 4.7%, largely due to the first 16 weeks of the
year experiencing a 9.1% reduction due to the
comparative period benefitting from strong pent-
up demand following the last national lockdown.
The 10 weeks to 28 January 2023 saw a return to
order intake growth of 2.6%, which included the key
winter sale. The ScS business refreshed its brand
in February 2023 and like-for-like order growth
subsequently improved to 5.9% in H2, resulting in FY23
order intake being in line with the prior year.
Whilst all market commentary indicates that big-
ticket discretionary purchases remain subdued
it was pleasing to see that for the second year
running, the ScS business continued to gain market
share, cementing its position as the UK’s second
largest upholstered furniture retailer.
Gross delivered sales was £343.5m (2022: £344.7m),
with the ScS business seeing a £5.4m reduction
due to a larger order book unwind in FY22. This was
partially offset by £4.2m of sales from Snug. Gross
profit was £152.4m (2022: £156.3m) with underlying
profit before tax*of £7.2m (2022: £13.8m), including a
£1.9m loss before tax from Snug.
Gross margin for the year was 44.4% (2022: 45.3%). This
was impacted by an increase in the cost of providing
credit to customers and the level of display stock
* This report includes alternative performance measures (APMs) which are defined and reconciled to IFRS information, where applicable, within
the Financial review on pages 55 to 56.
It was pleasing to see
that for the second
year running, the Group
continued to gain
market share.”
8
ScS Group plc Annual Report and Accounts 2023 sales as we completed the store ‘declutter’
programme to improve the look and feel of our
stores. The cost of credit and level of display stock
sales were partially offset by price rises in the year.
Strategic progress
The second year of our refreshed strategy has seen
solid progress across a number of areas and would
not have been possible without the commitment
and support of our colleagues across the Group. The
actions we have taken are designed to increase our
competitiveness in the marketplace and to position
the business to gain market share, doing so in a
measured way to ensure the Group remains resilient.
The prior year saw the Group implement a new
design concept at our existing Coventry store.
Two further stores were invested in at the start of
FY23, followed by a period of reflection to measure
and refine these initial design concepts. The three
concept stores have outperformed the rest of
the estate, seeing increased sales, employee
satisfaction and a reduction in employee turnover.
Taking learnings from the first three stores we then
invested in a further six stores in final quarter of the
year. Our intention is to invest in at least a further 12
stores in FY24, with the possibility of increasing this
if returns are as expected.
Following a period of detailed research, the
Group modernised the ScS brand and marketing
approach. Our updated marketing tone, style and
logo showcase our products in a warm, welcoming
manner which we believe is more aligned with our
customers and the market, and dovetails well with
our new store look and new product ranges. This
was a big decision given the positioning and tone
of the existing branding and marketing style and we
were pleased to see the sales response and market
share gain since launch at the start of H2.
To improve our product offering, we have elevated
and modernised the ranges on offer in our stores,
thus attracting a wider customer demographic as
we broaden our appeal. This comes on the back of
collaborations, including Ideal Home, with whom
we have launched eight exclusive Ideal Home
branded sofa ranges, and our new collection with
Paloma Faith. We have also expanded our hard floor
proposition across laminate, luxury vinyl tiling and
engineered wood. As well as improving the range
we offer, in recognition of our product quality,
we achieved Kitemark certification for domestic
furniture by the British Standards Institute. We are
one of only a handful of furniture retailers in the UK
to hold this stamp of approval.
I remain delighted with our acquisition of Snug
in January 2023. Snug is an exciting and young
business with great potential. It has a strong and
recognisable brand, a differentiated product
and targets a market that complements our
proposition. In that regard, it presents us with a
great opportunity to further increase market share.
We therefore view it as a fantastic strategic and
cultural fit, which reinforces our commitment to
helping our customers create the home they love.
Snug’s order growth was initially slower than we
had hoped, but I am encouraged to see current run
rates that are in line with our expectations.
Snug’s focus since acquisition has been on re-
establishing operations from an effective standing
start, including rebuilding supplier relationships,
restoring stock levels, re-launching the brand and
online presence, and building order momentum.
Snug’s strategy for the future closely aligns
with the wider Group, focused on the aims of
improving brand awareness and continuing to grow
sales. Alongside a focus on improving the online
experience for customers, Snug will also increase
its offline presence, both with new standalone
stores where the opportunity presents itself,
together with ScS’s new modernised store rollout
each incorporating a Snug concession.
Environmental, social and governance (ESG)
Since developing our ESG strategy last year, we
have made progress against the targets and
objectives set. I am particularly pleased with some
of the differences we have been able to make as
part of our work in this area. We have worked hard
to implement a number of wellbeing initiatives
throughout the year and it was particularly
gratifying to receive the Bronze ‘Better Health at
Work’ award along with the ‘Best Newcomer’ award
resulting from all of these fantastic initiatives.
Our ESG steering group has also been working with
external consultants on the development of a
roadmap towards achieving our Net Zero strategy.
Board changes
Alan Smith, Ron McMillan and Chris Muir will leave the
business in the coming year. All three have been
supportive and provided wise counsel during my time
in the business and I wish them well in their future
endeavours. Mark Fleetwood joined the Group in
September 2023 as CFO and I am very much looking
forward to working with him.
Current trading and outlook
We remain cognisant of the challenging economic
environment facing our customers which is
expected to continue throughout FY24. We
therefore believe that continuing to focus on our
value driven proposition is extremely important so
that everyone is able to create the home they love.
The Board is confident that the Group’s strategy and
strong balance sheet will enable ongoing trading
resilience and we continue to expect to grow
market share while investing in stores, in our digital
proposition, and other strategic growth opportunities.
Steve Carson
Chief Executive Officer
24 October 2023
9
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Our market
Strategic progress provides
solid foundations for the Group
to grow market share
Current UK market
We operate in both the furniture and flooring markets.
Consumer confidence
-31.9
-31.9
-38.5
2023
2022
2021
2020
2019
2018
-25.9
-14.5
-12.7
-9.5
-38.5000-33.6875-28.8750-24.0625-19.2500-14.4375-9.6250-4.81250.0000
GfK Consumer Confidence Index – Average of individual scores for each
year. Research carried out by GfK on behalf of the European Commission.
Market commentary
Both the furniture and flooring markets continue to
feel the challenges being faced across the wider
economy. Over the past year we have continued to
work closely with our manufacturing suppliers to
combat cost inflation and to improve product lead
times. We have also worked with our credit suppliers
to ensure that we are able to continue to provide
affordable interest free credit to our customers,
ensuring they can continue to ‘create the home
they love’.
latest market developments is yet to be seen, but
the most recent consumer confidence data should
be seen as a positive.
Similarly, following a 13.4% increase in the size of the
flooring market through 2021, growth slowed to 2.2%
in 2022. Likewise, whilst GlobalData are forecasting
inflationary pressures will have an impact on the
flooring market in 2023, predicting a contraction of
3.8%, there remains a sense of cautious optimism
going into Q4 of 2023.
Following a valiant recovery post the Covid-19
pandemic, which saw the upholstery market grow by
17.3% in 2021, growth slowed to 2.3% in 2022, reflecting
inflationary pressures which had an adverse impact
on both the supply chain and consumer spending
power. GlobalData’s analysis suggests that 2023
will see a 6.6% contraction in the market due to the
continuation of the cost-of-living crisis, leading
customers to defer non-essential big-ticket
purchases. However, with the Bank of England
holding interest rates in September 2023 after 14
consecutive rate hikes, in response to the rate
of inflation falling, there are signs that economic
sentiment and outlook could be getting close to a
turning point. How the consumer reacts to these
Highlighting the challenges of the current economic
environment noted above, GlobalData’s consumer
sentiment survey showed an increasing proportion
of shoppers intend to delay buying furniture
and floorcoverings in response to economic
pressures. However, the furniture and flooring
sector has historically returned similar results in
these surveys and yet has still seen growth in both
markets over the past two years. With a return
to real wage growth, there is cautious optimism
that the sector can continue to grow, albeit at a
subdued pace. Further, businesses, such as ours,
with strong design and value offerings look set to
be well positioned in what is set to become a key
battleground.
10
Housing market
-19.4%
2023
2022
2021
2020
2019
-19.4%
1.27m
-14.7%
-11.7%
1.48m
+43.3%
1.04m
-11.7%
1.18m
-1.1%
2018
0.00
0.36
0.72
1.19m
1.08
-2.8%
1.44
1.80
HMRC UK Property Transaction statistics – Total number of
residential property transactions completions with a value
over £40,000 within the UK, seasonally adjusted.
Net consumer credit lending
+7.5%
YTD 2023
-3.4%
-1.9%
2022
2021
2020
2019
2018
+7.5%
+6.1%
6.5%
9.2%
-4
-2
0
2
4
6
8
10
Bank of England – Average 12-month growth rate for the calendar
year of total (excluding the Student Loans Company) sterling
net consumer credit lending to individuals (in percent),
seasonally adjusted.
ScS Group plc Annual Report and Accounts 2023 Key drivers
Both of our core markets are heavily influenced by
similar key factors:
Consumer confidence
Consumer confidence is intrinsically linked to
consumer appetite for big-ticket purchases and GfK
monitor this through their Consumer Confidence
Index. Throughout the year this reflected ongoing
economic uncertainty and inflationary pressures,
reaching a record low of -49 in September 2022, the
same time as the pound fell to a 37 year low against
the dollar. Since then confidence has improved,
reaching -25 in August 2023. This is an improvement
of 19 points compared to the same point a year ago
and reflects improving economic stability despite
the impact of rising interest rates and higher food
and fuel costs.
Housing market
The purchase of new furniture and flooring often
emanates from a property move and as mortgage
approvals remain significantly down on pre-
pandemic levels, there is a risk of reduced demand.
Although property transaction levels to July 2023 are
down 19.4% compared to the same point in 2022, the
total number of housing transactions remain strong
when compared with historical data post-2007.
Further confidence should be taken from the Bank
of England’s decision to hold rates in September
2023, which could stimulate buyer confidence to
transact in the back half of the year.
Forecast 2023 market size:
Furniture**
£3,026m
-6.6%
Forecast 2023 market size:
Flooring**
£1,888m
-3.8%
2023 upholstery
market share*
2023 floor coverings
market share*
11.0%
(2022: 10.7%)
2.0%
(2022: 1.9%)
ScS
Other
ScS
Other
Retailer
2022 (%)
2023e (%)
Retailer
2022 (%)
2023e (%)
Competitor A
ScS
Competitor B
Competitor C
Competitor D
Competitor E
Competitor F
Competitor G
Competitor H
Competitor I
28.4%
10.7%
9.0%
7.1%
5.3%
4.9%
2.4%
1.7%
1.7%
1.6%
28.5%
11.0%
9.3%
7.5%
5.8%
5.0%
2.5%
1.8%
1.7%
1.5%
Competitor A
Competitor B
Competitor C
Competitor D
Competitor E
Competitor F
Competitor G
Competitor H
Competitor I
ScS (12th)
14.9%
9.3%
7.3%
4.6%
4.1%
3.3%
2.8%
3.2%
2.3%
1.9%
* Market share data provided by GlobalData.
** Source: GlobalData
(as of 20 September 2023).
14.6%
9.9%
7.3%
4.9%
4.3%
3.4%
3.2%
3.0%
2.4%
2.0%
11
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Our market continued
Consumer credit
The availability of consumer credit helps facilitate
sales, and provides opportunities for upselling, with
nearly half of our customers choosing to utilise
this option as a way to pay for their purchase. Given
the economic challenges seen throughout 2023,
there seems to be a consumer led uptake in finance
as consumers look for more affordable solutions.
The savings accumulated during the Covid-19
restrictions have also been eroded by the cost of
living challenges in the aftermath. We are continuing
to expand our finance offerings to facilitate
consumer purchases by introducing interest
bearing credit allowing our customers to spread the
cost over longer terms and reduce their monthly
payments. Within the year our approval percentage
of those requesting finance to purchase with us
continues to remain in line with prior years.
Our place in the market
Increasing market share
Following a challenging year which has seen
significant pressures on both the upholstered
furniture and flooring markets, it is encouraging that
we have been able to grow our market share. Our
share of the upholstery market grew by 0.3% to 11.0%,
despite the size of the market reducing by 6.6%. Our
flooring market share increased 0.1% to 2.0%, with the
size of the flooring market reducing by 3.8%.
Value retailer
We have a differentiated value-focused proposition
with a reputation for providing our customers with
a design led range of products at low to middle
entry price points. We have a clear view of our core
customer demographic, which consists of a broad
population of aspiring homemakers, families and
retired couples.
Opportunities for further growth
Our in-store offering remains the spine of our
business and provides the platform for our
continued success. Our strategy includes further
expansion and improvement to our store network
where appropriate, in line with our rebrand. We
also continue to invest in our online presence, with
sales this year up 14.3% through this channel and an
ongoing expectation that the significant majority
of our customers will begin their journey on our
website. The execution of our strategic plan will
provide further improvements to our people, our
product, our showrooms and our customer journey
which, in spite of a tightening economy, will provide
opportunities to continue to take market share.
12
ScS Group plc Annual Report and Accounts 2023 Our business model
Delivering outstanding value, quality and choice
with a seamless customer experience
What we do
Showrooms
• Our passionate and skilled retail professionals
utilise expert product knowledge to ensure
customers choose the right product to help
create a home they love.
• Our showrooms allow us to create an inspiring
experience for our customers, showcasing our
product ranges and giving our customers the
opportunity to purchase their furniture and
flooring under a single roof. Snug concessions
are integrated into 23 ScS showrooms and
third-party stores. Snug also has three stand
alone stores showcasing the brand’s innovative
and contemporary offering in fittingly stylish
environments.
• Our showrooms complement our online channel,
providing our customers with the opportunity
to engage with our products and explore our
ranges.
• We provide a free surveying service so that
flooring customers can be assured they have
ordered the correct quantity of floor covering for
their home.
Product
• We have established, long-term relationships
with leading furniture and flooring brands,
ensuring the quality and variety of our product
offering at a range of price points.
• The majority of our furniture products are made-to-
order and tailored to meet our customers’ needs.
product offering. Snug specialises in modular, re-
configurable sofas and sofa beds with a unique
delivery in a box proposal, offering customers
an alternative solution to the traditional sofa.
We hold stock of our Snug range enabling quick
delivery and ease of reconfiguration or expansion
tailored to our customers’ needs.
• Our flooring offering ranges from carpets and
rugs to wood, laminate and luxury vinyl tiling.
• Our variety of dining and occasional ranges offer
something for every home.
• We continuously refresh our product offering,
observing market trends and exploring new
design aesthetics and brands.
Digital
• We continue to expand our online offering,
enhancing digital growth through investment in
people, technology and working with carefully
selected partners, including collaborations with
social media influencers.
• We offer an extensive range of furniture and
flooring online, including web exclusive products
which extend our range beyond that available in
our showrooms.
• We have optimised our website to increase digital
engagement and enhance the customer journey
including the introduction of visualisation tools
to enable customers to picture how our products
will look in their homes.
network providing an omnichannel experience
necessary for the modern consumer. Snug uses a
digital-first approach built upon its strong online
brand with an excellent track record in digital
engagement and a social media audience of over
300,000.
Delivery
• ScS delivery teams provide an in-home two-
person delivery and installation service for
our furniture products from each of our nine
distribution centres across the UK, delivering an
efficient and friendly service as reflected in our
‘Excellent’ Trustpilot rating.
• Working with trusted partners we are able to
offer our customers reduced lead times through
contracting delivery partners and enabling home
delivery direct from the supplier.
• Snug offers a variety of quick-delivery, ‘stocked-
in’ models, a standout feature in an industry
typically associated with ‘made-to-order’ goods
that have lead times measured in weeks rather
than days. The modular nature of all Snug sofas
means they are designed to fit through even the
tightest doorways.
• Our flooring products are supported by a full
fitting service through our third-party network of
fitting experts. Our flooring is cut, delivered and
fitted to our customers’ specifications.
• Our acquisition of Snug has diversified our
• ScS’s online presence supports it’s showroom
13
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Our business model continued
Sustainability
In order to operate effectively and responsibly,
we ensure that sustainability underpins our
business model by:
• Reducing our impact on the environment.
• Taking care of our colleagues.
• Contributing to the communities in which
we operate.
• Delivering value through strong governance.
Employee satisfaction
score
Dividend
per share
75
Colleague survey score
(2022: 71)
14.5p
Dividend includes a 4.5p
interim paid and 10.0p
proposed final dividend
(2022: 13.5p)
Trustpilot
rating
5-star
Rating achieved from
over 440,000 reviews
(2022: 5-star)
Number of days
volunteered by
employees
365
including 94 days to
Shelter
(2022: metric not
tracked)
14
Digital
Supporting
omnichannel
consumer
experience
Prime
locations
High-quality
stores in prime
locations
Range of
price points
Our sofa ranges start
from £299 and go up to
over £6,500, offering
value and choice for
our customers
Our key
ingredients
Customer
experience
5-star service
delivered by our
passionate and
trusted colleagues
Easy ways
to pay
Long-term
credit options
making buying
affordable
Brands
Long-term
relationships with
leading furniture
and flooring brands
ScS Group plc Annual Report and Accounts 2023 The value we create for our stakeholders
Our people
We offer inspiring careers in a purpose-driven business
with a culture of inclusivity, where our colleagues are
motivated and encouraged to develop their skills in a
supportive environment.
Our customers
We provide our customers with a first-class experience
either in our showrooms or online. We take pride in ensuring
our customers get the right product together with a high
standard of aftercare service, helping them to create the
home they love.
Our suppliers
We have built strong and enduring relationships with our
long-standing suppliers. We also continue to develop our
supplier network, enhancing our product offering and
driving further improvements in quality and value. The vast
majority of products that we sell are exclusive to us. We are
delighted to be able to offer our customers a great range
of well-recognised third-party brands, alongside our own
in-house brands.
Our communities
As a responsible business, it is important to us that we give
back to our local communities where we live and work. We
do this through employment opportunities, donating funds
to a range of charities and supporting our colleagues with
the opportunity to volunteer their time to charities.
Our shareholders
We are committed to delivering long-term growth
and returns for our shareholders. This commitment is
demonstrated by the Group’s robust balance sheet and our
progressive shareholder returns.
Our regulators
We deliver and maintain high standards of business
conduct through full compliance with applicable laws and
regulations. We embrace co-operative and constructive
relationships with external regulatory bodies.
15
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Our strategy
Our mission is to be
the UK’s best value-
for-money home
retailer, delivering
outstanding value,
quality and choice
with a seamless
customer experience
To achieve our mission, we continue to deliver progress on
our strategy. The Board is pleased with the strategic progress
made in 2023 and looks forward to the year ahead.
D igit ally
o p ti m is e d
C
u
d
s
r
t
i
v
o
e
m
n
e
r
16
In
s
ra
n
pirin
g
e
g
s
S tr e n g t h e n t
h
e C
ore
g
s
m
gin
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o
a
r
g
w
n
o
E
h
s
Outstanding
team
ScS Group plc Annual Report and Accounts 2023
1. Outstanding team
Our colleagues are the cornerstone of our business and our aim is to ‘be a place
people love to work’, where our colleagues feel they belong, are listened to and
are given the opportunity to develop.
Ensuring our colleagues feel valued remains a top
priority for the Board and at the start of the year,
we invested £2.0m in our colleagues’ take home pay,
both through an increase in their basic salaries and
a one-off cost of living support payment.
Attracting and retaining talent is imperative to
ensure we have the capabilities within our teams to
deliver our strategy. We have:
• Welcomed 53 new colleagues from Snug into the
Group and supported the business through the
transition period to ensure the brand is set up for
growth;
• Achieved the Bronze ‘Better Health at Work Award’
as we continue to focus on health and wellbeing;
• Supported our colleagues’ participation in
charitable endeavours by launching a new
volunteering policy;
• Established a women’s leadership network,
encouraging support and collaboration between
our female leaders; and
• Reviewed our overall reward offering including:
• Overhauling our family friendly policies including
•
enhanced maternity and paternity pay;
Introducing a 24-hour virtual general
practitioner (GP) service;
• Offering access to low-cost health plans; and
Improving our colleague discount policy and
•
extending it to family and friends.
The skills, experience and development of our
colleagues are paramount to enabling us to provide
outstanding levels of customer service.
* Details of current workforce gender diversity can be found on pages 82-83.
We have invested in our people team, including
the appointment of a new Head of Learning and
Development and we have a comprehensive
catalogue of learning and development initiatives
ongoing throughout the business including:
• Our ‘Moving up’ programme, which has seen a
second year of colleagues progress to Business
Manager positions within our retail stores;
• Launching leadership development programmes
for our senior management team and distribution
centre teams; and
• Rolled out our ‘art of selling’ and flooring training
to ensure our sales colleagues feel equipped,
empowered and confident in advising customers
on the most suitable products to meet their
requirements.
Increasing engagement and enhancing our culture
continues to be a top priority for the Board. The
results of the latest annual employee survey
were encouraging, receiving a higher response
rate and containing more constructive ideas and
comments than ever before, demonstrating that
our colleagues are engaged and are confident
in sharing their thoughts and ideas. By reviewing
the feedback, we hope to implement meaningful
changes to drive improvements across the
business.
see page 24 for
further detail
KPI
Colleague survey score
75
(2022: 71)
Looking forward
•
Improve the diversity and mix of our retail base by
ensuring all stores have a blend of colleagues on
flexible working hours coupled with a workforce
reflective of the communities we serve.*
• Review of our retail operation, including
consideration of structure, reward and
succession planning.
• Launch our new performance review framework.
Introduce a new internal communication and
•
engagement platform for all our colleagues.
• Further investment into our learning and
development team and systems to support
investment in our colleagues’ knowledge
and development.
17
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Our strategy continued
2. Customer driven
For our customers, our refreshed brand and advertising, launched in the second half
of FY23, is likely to be the clearest indicator of the evolution of ScS and the direction
we are heading as a business.
The new branding and refined marketing messaging
showcases our products and offers following a
meticulous data collection and review process,
including a number of customer research groups,
receiving feedback on a range of topics such as
marketing and promotional style and store design.
We have seen improved trading since we launched
the new marketing campaign at the start of the
second half of the year.
As we aim to provide great product quality to our
customers, we were delighted in the year to achieve
Kitemark certification for domestic furniture from
the British Standards Institute (BSI). The BSI Kitemark
is a recognised symbol of outstanding quality,
safety and trust around the world and we are one of
only a handful of furniture retailers in the UK to have
this stamp of approval.
The year saw the Group implement a new end-to-
end technology solution that delivers significant
improvements to our aftersales processes, such
as a virtual queue in which customers have the
option for one of the team to call them back as
opposed to waiting on hold. The system allots calls
to an appropriate handler based on their skills. To
optimise efficiency, the system links into our social
media platforms thereby increasing visibility of
customer queries. It was pleasing to see that post-
order customer contacts reduced 23% in the year.
18
KPI
Trustpilot score
4.8
(2022: 4.8)
Further improvements to help our customers
included:
• Creating a central continuous improvement team,
dedicated to the customer journey, identifying
opportunities for improvement and delivering
change; and
• Expanding the breadth and depth of our
aftercare technician services through a new
nationwide provider.
A key part of delivering a seamless customer
experience is the monitoring of our customers’
reviews on Trustpilot in order to understand what
we are doing well and also identify areas for
improvement. We now have over 440,000 reviews
and we maintained our maximum 5 stars ‘Excellent’
rating. At a local store level, over 80% of our stores
achieved the full 5-star rating, with all other stores
attaining a minimum of 4.5 stars. This external
validation is critical to ensure the actions
we are taking are having the right impact.
Looking forward
• Target increased customer knowledge and brand
sentiment through use of ongoing customer
research and brand performance tracking.
• Use customer segmentation data to drive
marketing ‘tone of voice’ and media channels, in-
store training and range selection.
• Rebalance media mix using econometric
•
modelling.
Increase customer service levels in our customer
experience team following new technology
implementation in FY23.
• Continuous improvement programme to target
increased quality in product and delivery service.
ScS Group plc Annual Report and Accounts 2023 3. Inspiring ranges
We are always looking to build upon and enhance our product offering and have introduced
new design aesthetics mixing contemporary and stylish, chic and colour, whilst maintaining
our value focus. This has resulted in the launch of 125 new furniture models and 39 new
flooring options during the year.
Looking forward
• Continue to refine and expand our product
proposition, including increasing our range of
corner sofas and sofa beds.
• Develop and grow existing and new brands,
partnerships and collaborations.
• Review of sourcing arrangements.
• Drive increased sales in dining and occasional
through increased investment in store, online
and media.
• Further improve customer journey for flooring
customers.
• Development of complementary product
categories.
likelihood of cancellations. Cancellations have
fallen by over a third in the year.
We have focused our flooring products through
the introduction of 20 ‘star buy’ ranges, whilst also
streamlining our offering and supply base to deliver
unbeatable value for money for our customers.
We also launched a new hard flooring proposition
across laminate, luxury vinyl tiling and engineered
wood. We have worked to develop the expertise
and confidence of our retail colleagues in advising
upon and selling our flooring products including
producing additional training material for both
hard floor and carpet. In addition, we made
several enhancements to our customer
journey by upgrading the service provided
by our external fitters, leading to a
reduction in customer queries.
As part of the ongoing development of our product
ranges, we have been delighted to announce some
exciting collaborations in the year. Our partnership
with Ideal Home, the most popular home publication
in the UK, saw the launch of eight exclusive ‘Ideal
Home’ branded sofa ranges. Each range has been
developed in collaboration with the team at Ideal
Home bringing our customers affordably stylish
products. We also launched the ‘Paloma Home’
range – a collection of sofas, chairs, footstools and
cushions designed by singer and style icon, Paloma
Faith. The ‘Paloma Home’ line includes 5 ranges
exclusive to ScS, carefully created to add character
to any living space. Furthermore, throughout the
year, we have launched 112 new upholstery ranges
bringing our customers varied styles, fabrics and
colours.
Our acquisition of Snug has enhanced the Group’s
product portfolio and widened our target audience
with its modular and reconfigurable sofas with
quick delivery, excellent quality and customer
service.
Our ongoing commitment to help our customers
create the home they love continues to drive our
product procurement decisions.
We are delighted to have worked closely with
suppliers in the year to return our furniture lead
times to historic levels, ensuring our customers get
their made-to-order product as quickly as possible,
increasing their satisfaction and decreasing the
* This report includes alternative performance measures
(APMs) which are defined and reconciled to IFRS information, where
applicable, within the Financial Review on pages 55 to 56.
KPI
Gross sales*
£343.5m
(2022: £344.7m)
19
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Our strategy continued
4. Digitally optimised
To support our digital growth ambitions, in the prior year we invested to expand our team
and to improve our skills and capabilities in research and development, merchandising and
marketing. This included opening a hub in our Coventry concept store as a base for our digital
team and appointing a Chief Marketing and Digital Officer to lead the digital strategy.
In FY23, we have begun to see the rewards of this
investment and the subsequent actions taken by
the team in the year.
Online sales have increased 14.3% year-on-year
and now represent 10.7% (FY22: 9.3%) of gross sales,
with Snug being a key driver behind this increase.
Supporting this, in addition to rolling out our new
branding across our digital portfolio, we have
increased digital engagement with our customers
and, to improve the customer journey and
conversion, we have:
• Enhanced our item visualisation enabling
customers to add multiple items into one image
via our ‘visual bundling solution’;
• Redesigned and relaunched brand pages with our
refreshed brand creative;
• Expanded product content and data visible on
•
product pages;
Included a ‘question and answer’ section to the
product pages on our website; and
• Developed an online wish list allowing customers
to save their favourite products which can be
shared with our retail teams to create a more
seamless customer journey.
Our approach to digital marketing has also
continued to develop and we continue to build
our social media presence with increased
collaborations with influencers throughout the
year as we continue to see increasing engagement
through this channel. We have also been trialling
competitions on our social media platforms,
which have also seen pleasing engagement. As a
result of these, the second half of the year saw
our highest ever brand engagement across our
social platforms. The team at Snug bring with
them a wealth of knowledge in this area, with a
large social media following and excellent track
record in social commerce through the use of
innovative and creative ways to further customer
engagement such as the UK’s first ‘Extreme Relaxing
Championship’ held in August. We look forward to
the digital team at ScS working closely with the team
at Snug and both brands taking advantage of the
resulting synergies.
We have continued to implement our integrated
channel strategy, using data to track customers
researching online and then visiting offline as
we continue to evolve our customer relationship
management to aid the customer journey and
improve our conversion rates. Our retail colleagues
within our stores have been working hard to
ensure that customers remain informed about
any product they are interested in but may not be
ready to purchase by taking their details, allowing
for targeted and focused marketing. The digital
team has also launched a clearance section on our
website to improve the visibility of discounted store
stock, and excess distribution centre stock, to
anybody accessing the site.
During the period we engaged the support of a
third-party specialist to work with our teams as
we look to invest in the future technology
stack to support the Group. We view this
upgrade as key to enhancing business
20
capability with the ultimate aim of increasing
efficiency within our teams, allowing for improved
data analysis and enhanced system agility. We are
excited to see the benefits of the project as it
progresses.
Looking forward
• Continue to develop our understanding of the
needs of our customers by reviewing customer
feedback and improving data collection.
• Generate increased high-quality digital PR and
content.
• Accelerate social media drive to increase
followers and engagement, learning from Snug.
• Enhance our internal analytics tools and
capabilities, aligning channel data to enrich our
view of customer trends.
• Commence the implementation of our future
technology stack across the Group including an
enriched view of customer data and integration
layer.
• Continue to improve our website through
completion of a site taxonomy project and
customer journey enhancements.
KPI
Online sales
£36.8m
(2022: £32.2m)
ScS Group plc Annual Report and Accounts 2023 Looking forward
•
Invest in at least a further 12 new format stores in
FY24, (increasing this if returns are as expected).
• Continue to seek further opportunities to expand
our store footprint in line with our demographic
profiling. We currently have a handful of options
being considered and progressed, for potential
openings in FY24.
• Actively consider relocations to improved retail
parks if returns support this.
• Continue to focus on actively managing rent
costs as part of lease negotiations.
5. Engaging showrooms
During FY22 and FY23 a key focus for the business related to the launch of our
concept stores where we could trial improvements to the look and feel of our
showrooms, new technology and ideas.
During the year we reviewed our store network to
ensure our showrooms are in the best possible
locations. We were pleased to open two new stores
in York and Swindon on Boxing Day. The year also
saw us relocate our Northampton store to a more
modern unit in an improved location and take an
opportunity leave our underperforming Cambridge
store. We continue to consider further expansion
through utilising customer demographic data and
a purpose-built model which helps us to identify
the optimum store footprint, location and likely
performance of potential new stores.
In addition to the initial Coventry store we launched
in July FY22, we refitted two further stores
during the year in Gateshead and Uddingston.
All three concept stores have seen higher sales
performance when compared to the rest of the
store network. We were equally delighted by the
increase in staff engagement and staff retention
levels. We obtained valuable insights from the
concept stores, through performance and
customer feedback, such as understanding which
layouts are most successful, where certain brands
are best displayed and how technology can support
the customer journey.
Following the success of our initial concept stores,
we built upon the insights gained to develop a
refined concept store model. The refined model
intends to deliver the positive outcomes of the
initial concept stores in a more cost-effective
manner. At the end of the financial year we
implemented this revised design in six of our stores,
bringing our total refreshed store portfolio to nine.
At the start of the financial year, and to enhance
our in-store experience, we took the decision to roll
out the ‘declutter’ programme that we successfully
trialled in FY22 across the entire store network. This
included reducing the amount and size of the point
of sale materials and being more selective around
some of the ranges on display to appropriately
showcase our quality products.
Highlight
New format stores
9
(2022: 1)
21
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements
Our strategy continued
6. Strengthen the core
The success of our product ranges are regularly reviewed and we have continued to advance
our line level margin analysis tools. This allows us to better manage the profitability of our
product offering as well as optimise our customer experience.
These tools are increasingly useful as we contend
with inflationary challenges and are invaluable when
comparing performance as we progress in other
areas of our strategy.
We have strengthened our retail team, including
senior management, through recruitment,
structural changes and investment in training.
These measures, coupled with increased analytical
support, have contributed to improved conversion
rates, with in-store furniture conversion increasing
by 8% and flooring by 7%.
As we strive to deliver a seamless customer
experience we have delivered significant operational
and supply chain improvements including:
22
•
Implementation of ‘track my driver’ technology
into our final mile delivery provision;
• Reduction in delivery lead times from 14 weeks to
8 weeks;
• On time and complete deliveries improved from
57% to 75%; and
• Reduction in cancellations by 36%.
Faced with inflationary cost pressures, we
have operated strict cost control and budget
management across the business. We reviewed
internal and external resourcing requirements,
particularly within the distribution operation, and
took measures to maximise cost efficiency. We
have seen significant improvements in distribution
staff turnover which is reflective of our increased
colleague survey score and has the added benefit
of significant cost reductions.
A number of measures have been implemented in
the year to mitigate the impact of the rising cost of
finance on our gross margin, whilst still delivering
the best possible value for money for our customer.
Despite these improvements and focus, we have not
* This report includes alternative performance
measures (APMs) which are defined and reconciled
to IFRS information, where applicable, within the
Financial Review on pages 55 to 56.
KPI
Profit before tax
£6.0m
(2022: £16.4m)
been able to fully mitigate inflationary pressures,
resulting in a reduction in margin. Measures taken
include:
• Refining our finance house partner mix to achieve
best value;
• Reduced our interest-free credit option from 48
months to 36 months, whilst still maintaining our
market leading offer;
Introduction of interest-bearing credit up to
60 months for customers who wish to spread
payments over a longer period;
•
• Option of monthly finance intervals offered
to customers, resulting in a reduction to the
average finance period taken; and
• Revised our pricing strategy whilst maintaining
our entry price point to drive value for our
customers.
We remain focused on improving the success of the
core business model we have operated for many
years, with strong cost management as reflected
in the achievement of a 44.4% gross margin* despite
cost pressures; a resilient balance sheet with cash
of £69.5m; and informed decision making.
Looking forward
• Drive lead capture and conversion rates via
refined resource plans, increased training and
the use of CRM.
• Build on FY23 supply chain improvements,
including lead times and on time deliveries.
• Embed joint business plans with all suppliers.
• Deliver +45% gross margin via retail price
increases, improved sourcing, landed cost
reductions and quality of sale metrics.
• Target further distribution efficiencies, including
site space optimisation, mix of LCV to HGV in fleet,
driving first time delivery success, enhanced
route planning, damage reduction and resource
planning.
• Continued diligent cost management to budget
across all functions, identify and execute
efficiencies from new technology stack.
ScS Group plc Annual Report and Accounts 2023 Strategic report
Governance report
Financial statements
23
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Key performance indicators (KPIs)
The KPIs set out in this summary are fundamental to understanding the progress we are making with
our strategy, and to monitor the ongoing performance of the business over time. The definition of
these KPIs and our performance over the last three years is detailed below, as well as how each KPI
links to our strategic priorities.
Non-financial KPIs
Trustpilot customer satisfaction
Colleague survey score
4.8
2023
2022
2021
75
2023
2022
2021
4.8
4.8
4.7
CO2 emissions (tonnes)
6,376t
75
71
73
2023
2022
2021
6,376t
6,836t
6,527t
Why it’s important
Customers want confidence that their retailer of choice can
deliver on their promises. We focus on our TrustScore to ensure
we maintain our ‘Excellent’ rating.
What we measure
Our TrustScore, marked out of 5, is a measure provided by
Trustpilot, an independent review platform used by our
customers which asks them to rate our customer service.
Why it’s important
Our colleagues play a pivotal role in the success of our business,
and we aim to ensure they benefit as we do. It is of utmost
importance for us to listen to our colleagues and to get their
thoughts and opinions to ensure that our colleagues are
engaged. We take pride in being a place where colleagues can
thrive and progress whilst feeling supported.
What we measure
Our ‘Colleague survey score’ measures the overall eSAT score
of the annual survey sent to all colleagues for their feedback.
The eSAT score is an average score used to provide insight into
how happy our colleagues are working at ScS. We measure our
performance against an external benchmark and are pleased to
be ahead by four points.
Why it’s important
As a retailer we recognise that our operations will impact the
environment, and we have a duty to ensure that both now and in
the future we seek to minimise this.
What we measure
Scope 1 (direct), Scope 2 (indirect) and Scope 3 (business travel)
as reported under the TCFD report.
(Note: actual data updated from previous disclosure for FY22)
See further detail on page 45
Link to strategic priorities
Link to strategic priorities
Link to strategic priorities
1
2
3
4
5
6
1
2
3
4
5
6
1
2
3
4
5
6
* This report includes alternative performance measures (APMs) which are defined and reconciled to IFRS information, where applicable, within the Financial Review on pages 55 to 56.
1 Outstanding team
2 Customer driven
3 Inspiring ranges
4 Digitally optimised
5 Engaging showroom
6 Strengthen the core
Key
24
ScS Group plc Annual Report and Accounts 2023 Financial KPIs – Group
Revenue
£325.9m
2023
2022
2021
Like-for-like order intake*
-0.3%
-0.3%
2023
2022
2021
-1.5%
£325.9m
£331.6m
£305.2m
Profit before tax (PBT)
£6.0m
3.9%
2023
2022
2021
£6.0m
£16.4m
£22.7m
Why it’s important
Sustainable growth in delivered sales is key to our long-term
success, increasing market share and creating opportunities.
What we measure
Revenue is a measure taken directly from our primary statement
of accounts, and is the combined total of all furniture and
flooring delivered sales made, excluding VAT and the costs of
interest-free credit, both online and across all of our showrooms.
Why it’s important
Whilst overall delivered sales growth is important, understanding
how the same showrooms perform year-on-year provides a guide
to underlying showroom performance. Due to lead times, order
growth also gives a view as to future delivered sales performance.
What we measure
Like-for-like order intake* growth compares year-on-year trading
performance from comparable showrooms. It therefore excludes
new and closed showrooms. Order value is a combined total of all
furniture and flooring orders booked, including VAT, both online
and across all of our showrooms.
Why it’s important
Delivering profitable growth is essential as we aim to create value
for all stakeholders over the long term. Movements since prior
year are explained in this report. The 2021 result was exceptional
as it included £10.2m (2023: £nil) of business rates relief and £4.3m
of impairment reversal (2023: charge of £2.4m).
What we measure
Profit before tax reflects the performance of the Group before
tax is deducted.
Link to strategic priorities
Link to strategic priorities
Link to strategic priorities
1
2
3
4
5
6
1
2
3
4
5
6
1
2
3
4
5
6
Gross margin % of gross sales*
44.4%
Online sales
£36.8m
Earnings per share (EPS)
12.8p
2023
2022
2021
44.4%
45.3%
46.1%
2023
2022
2021
£36.8m
£32.2m
12.8p
2023
2022
2021
£46.5m
36.2p
50.4p
Why it’s important
To grow profitably, the Group must ensure that sales growth is
supported by maintaining or growing the gross margin.
Why it’s important
The Group needs to maximise its share of customers wanting to
transact online.
Why it’s important
EPS is key to the business to understand the return being
generated from profits to our shareholders.
What we measure
Gross margin % of gross sales is a measure taken directly from our
primary statement of accounts and is the total margin made from
sales of product, excluding VAT, as a proportion of total gross sales*.
What we measure
Online sales growth is the portion of the gross sales* figure
attributable to our website and telesales.
What we measure
EPS is calculated by dividing profit attributable to shareholders
by the average number of outstanding shares.
Link to strategic priorities
Link to strategic priorities
Link to strategic priorities
1
2
3
4
5
6
1
2
3
4
5
6
1
2
3
4
5
6
25
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Responsibility and sustainability report
We are committed to operating the business in a way that all our
stakeholders can be proud of. At the core of our ESG strategy lies our
purpose of helping customers create the home they love and our RIGHT
values. Our ESG strategy centres on delivering not only good value
products but also upholding our values in all aspects of our operations.
Progress during the year
During the past year, we have made significant
progress in advancing our ESG initiatives. In the
prior year, we conducted a thorough materiality
assessment and have continued to develop a
robust ESG strategy throughout the current year.
With the guidance of specialist consultants,
we embarked on our journey to establish a
comprehensive roadmap towards achieving net-
zero emissions.
ESG is an ever-evolving field and we are committed
to maintaining the momentum we have built. We
will consistently align and review our ESG strategy,
ensuring sustainability is seamlessly integrated into
all areas of our operations and is embedded in our
wider strategy.
Looking forward
Our ability to generate sustainable social and
economic value hinges upon embracing a long-
term perspective. Sustainability is increasingly
a key factor in the decision-making processes
of our customers. With this understanding, we
are dedicated to continuously prioritising and
advancing our sustainability efforts, ensuring they
remain integral to our business strategies and
operations.
26
Materiality assessment
Strategy area Material issue
Definition
Environmental
Climate change and
Net Zero strategy,
greenhouse gas
emissions (Scope 1,2 & 3)
Monitoring emissions produced by our operations, with the aim to reduce our impact.
Developing and embarking on a Net Zero strategy to address climate change and
reduce carbon emissions.
Environmental Waste management and
circular economy
Reducing waste from our operations, including plastic and packaging. Improving the
volume of waste recycled and diverted from landfill alongside continuing to develop an
end-of-life process (circular approach) for our products.
Environmental,
Governance
Responsible sourcing,
ethical business
practices, policy and
compliance
Carefully selecting and working closely with our suppliers to improve sustainability
within the supply chain. All suppliers are expected to adhere to the guidelines set out in
our supplier handbook, including specific details on modern slavery and human rights.
Social
Social
Social
Community engagement
and economic impact
Investing in our people through employment, charitable donations, and volunteering to
make a positive contribution and improve the quality of life in our communities.
Employee development
and wellbeing
Nurturing a culture where our colleagues feel supported to achieve their potential,
take pride in their work, and understand how their role contributes to our success.
Prioritising colleague wellbeing and ensuring senior members of the team lead by
example and live by the Group’s values.
Customer satisfaction
and quality
Continuously listening to customers and utilising data to determine satisfaction,
allowing us to improve our services and products.
Social,
Governance
Diversity and inclusion
Creating an inclusive and diverse team where all colleagues are treated with respect
and there are equal opportunities for all.
Governance
Health and safety
Monitoring guidelines, improving procedures, and continuous improvement of training
programmes to protect the safety and welfare of our colleagues and customers
throughout our operations.
Governance
Compliance and ethical
business practices and
monitoring thereof
Promoting high levels of compliance to existing business practices. Applying new
guidance and best practices to support strong governance throughout the Group.
ScS Group plc Annual Report and Accounts 2023
In the prior year we conducted a materiality
assessment, which was a crucial step in shaping our
ESG strategy, aiming to pinpoint the most significant
issues that hold relevance for both our business
and our stakeholders. This initial assessment, which
is shown on the materiality assessment on the
previous page, has been reviewed over the last year.
To maintain a strategy that is credible, meaningful,
and aligned with global sustainability priorities, we
have closely aligned our focus areas with the United
Nations Sustainable Development Goals (UN SDGs).
By doing so, we ensure our efforts are targeted
towards addressing the most pressing challenges
and achieving sustainable outcomes that matter to
our stakeholders and the wider society.
Our Group ESG targets
During the year the Group has set the below targets to ensure the business continues to develop and stays on track to meet its long-term ESG objectives.
Target
100% renewable electricity used across the Group
Initial
target
date
July 2022
Progress
(against
initial target)
Revised/
additional
target
Comment
Achieved
Achieve Furniture Industry Sustainability Programme (FISP) certification
July 2022
Achieved
100% of laminate flooring timber to be from responsible sources
95% post-consumer waste diverted from landfill for recycling
Environmental
100% post-consumer recyclable waste for all ScS delivered product including the
removal of polystyrene from all packaging
100% of leather to be from certified sources via the Leather Working Group
Replace all gas-fired appliances with energy-efficient air source heat pumps
July 2022
July 2022
July 2022
July 2023
July 2026
Continue to work with our suppliers to ensure all sofas, dining and flooring containing
timber are from responsible or certified sources
December
2026
Achieved
Achieved
Achieved
Achieved
On track
On track
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Deliverable was first achieved by initial
target date. The Group has an ongoing
commitment to continually meet these
objectives.
Work towards a 25% increase in the number of females in management retail roles
July 2023
Behind
July 2024
Social
5% increase in the value of donations and support to local and national charitable
and community organisations
July 2023
Achieved
July 2024
A minimum of 1,000 volunteering days to be completed by colleagues
Over 30% of Board positions to be held by a woman
ESG measures to be introduced into remuneration performance targets
Governance
Obtain ISO 14001 Environmental management certification for head office
At least one of the senior Board positions (including Chair, CEO, CFO or Senior
Independent Director roles) is held by a woman
July 2026
July 2022
July 2022
July 2024
July 2023
On track
Achieved
Achieved
On Track
Behind
–
Ongoing
Ongoing
–
Dec 2023
Considerable progress has been made
since setting this objective. The increase
was at 21% at July 2023. The initial target is
expected to be achieved by the revised
date.
Achieved in FY23. We aim to deliver a
further increase of 5% in FY24.
Excellent progress in FY23.
Deliverable was first achieved by initial
target date. The Group has an ongoing
commitment to continue to meet this
objective.
Good progress has been made to date.
This will be achieved on 1 December 2023
when Angela Luger is appointed as Senior
Independent Director.
27
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Responsibility and sustainability report continued
Our environment
The environment remains a paramount concern
for both our colleagues, customers and wider
stakeholders, with climate change posing
increasing challenges. Recognising the urgent
climate emergency we all face, it is imperative that
we acknowledge our environmental impact and
work towards achieving net-zero emissions.
As we progress on our sustainability journey,
we have established interim targets that will
serve as stepping stones towards developing
a comprehensive Net Zero strategy. By actively
addressing our environmental footprint, we aim
to contribute to mitigating climate change and
safeguarding the planet for future generations.
Sustainable supply chain
Ensuring a sustainable supply chain is crucial,
particularly for our furniture and flooring products
which rely on materials such as timber, leather
and textiles. We acknowledge the significance of
traceability throughout our supply chain and are
fully committed to advancing sustainable sourcing
practices whilst reducing our environmental
impact. By prioritising responsible and ethical
practices within our supply chain we aim to
improve sustainable sourcing, whilst minimising our
ecological footprint.
Furniture Industry Sustainability Programme
(FISP)
FISP is an independently certified sustainability
initiative designed specifically for the furniture
industry’s supply chain. FISP focuses on promoting
best practices that drive positive social, economic
and environmental changes through continuous
improvement in business operations.
We take pride in being the first national upholstery
and carpet retailer to obtain FISP certification,
demonstrating our commitment to sustainability.
ScS has diligently adhered to the stringent
requirements outlined by FISP, maintaining our
certification status. We actively collaborate with
our suppliers, encouraging their participation in
FISP and supporting their certification journey. By
fostering broader FISP membership, we aim to adopt
industry-wide sustainability and drive collective
positive change in the furniture sector.
Sustainable timber supply – from forest to
front room
Our commitment to sustainable timber supply is
evident in our increased sales of FSC-certified
timber. This year, we achieved 83% sales growth
in products containing FSC timber, highlighting
our dedication to promoting responsible forest
management.
PEFC (the Programme for the Endorsement of Forest
Certification) and FSC® (Forest Stewardship Council®)
are renowned international forest certification
programmes that prioritise the preservation
of forests through sustainable practices.
Certification from these organisations provides
added assurance that our products originate from
environmentally and socially responsible sources.
In 2023, 100% of our wood flooring was from certified
sources, ensuring that it adheres to the highest
sustainability standards. Additionally, three of our
furniture brands feature FSC® certified timber. We
remain committed to offering customers products
that align with their environmental values.
Sustainable leather sourcing
We are committed to sustainable leather
sourcing and are active members of the Leather
Working Group (LWG), a not-for-profit community
organisation focused on promoting excellence in
sustainable leather production.
As a member of the LWG, our objective is to ensure
that all leather sourced by our Group adheres
to ethical practices. To achieve this, we have
established partnerships with tanneries in our
supply chain that are certified by the LWG.
2828 ScS Group plc Annual Report and Accounts 2023
ScS Group plc Annual Report and Accounts 2023 All leather used in our products now originate from
these certified tanneries. This commitment allows
us to contribute to raising industry standards and
reducing environmental impacts associated with
leather production. This ensures our entire leather
supply chain aligns with the LWG’s sustainability
principles.
Additionally, our Group actively participates in
the LWG traceability working group, collaborating
with other industry stakeholders to enhance
transparency and traceability throughout the
leather supply chain.
Other production initiatives
In line with our sustainable flooring initiatives, we
offer our customers the choice of SpringBond
underlay. This innovative underlay is composed of
85% recycled materials, predominantly sourced from
plastic bottles. During the year, approximately 10% of
our flooring customers opted for SpringBond when
purchasing their carpets.
We remain dedicated to exploring further
advancements in upholstery interiors and textile
production and incorporating sustainable practices
into our business operations.
Engagement with suppliers
Collaborating with our suppliers is crucial in
delivering on our ESG strategy and we are therefore
committed to working closely with them to align
our ESG targets and drive sustainable practices
throughout our supply chain.
We have updated our supplier handbook
to incorporate our Net Zero and long-term
environmental strategy. This ensures that our
suppliers are fully aware of our sustainability goals
and are actively involved in their implementation.
Our supplier handbook not only requires suppliers
to adhere to the labour standards outlined in the
Ethical Trading Initiative Base Code, but it also
includes additional reporting requirements for
enhanced transparency.
During the year, we held an annual supplier
conference. The conference provided a platform to
discuss quality assurance, supply chain processes,
and, importantly, communicate our ESG strategy and
how it will be implemented throughout our supply
chain.
As members of Sedex, one of the world’s most
renowned ethical data platforms, we actively
participate in promoting ethical practices and
responsible supply chain management.
By engaging with our suppliers and upholding high
standards of ethical and sustainable practices,
we create partnerships that align with our ESG
objectives.
Human rights and modern slavery
Our responsibilities for the welfare of people goes
beyond those we employ directly. We aim to ensure
that roles we support directly and through our
supply chain, are decent, fair and safe and that
human rights are always respected.
We leverage insights from our Sedex risk
assessment tool and collaborate with industry
associations to identify and assess areas of risk.
This collaborative effort enables us to stay informed
and responsive to emerging challenges. While
external audits play a crucial role, we recognise
their limitations in uncovering deeply entrenched or
systemic issues such as modern slavery that may
exist further upstream in our supply chain.
In 2022 we established our own internal supplier audit
programme to gain a comprehensive understanding of
our supply chain, support us in identifying any potential
hidden risks, and ensure compliance with our ethical
standards. In line with our strategy, we have allocated
additional resources in 2023 and implemented
enhanced due diligence processes to address the
evolving risks associated with our supply chains.
29
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Responsibility and sustainability report continued
This proactive risk-based approach ensures we
remain vigilant and focused on mitigating potential
risks. The supplier audit process is subject to review
by our audit, risk and compliance function. In line with
our rolling audit programme we have completed 13
supplier audits in the year.
Sustainable packaging
Packaging is essential to safeguard our products.
However, we recognise our responsibility to
minimise its environmental impact. Striking the
right balance between sustainability and product
protection is key. Throughout the year, we have
taken significant steps towards more sustainable
packaging, including:
• Eliminating unnecessary or problematic
packaging, such as polystyrene. This has been
achieved through our product specification
policies and rigorous packaging audits;
• All of our sofa packaging is now 100% recyclable;
• Our customers continue to support our
•
packaging recycling scheme, which is provided as
part of our home delivery service, where we offer
to remove and recycle all packaging. We have
been offering this service for over 20 years; and
In accordance with our requirements, our
suppliers have sourced plastic packaging with
a minimum of 30% post-consumer recycled
content. By incorporating recycled materials
into our packaging, we reduce reliance on virgin
resources promoting a more circular approach.
By implementing these measures, we are actively
working towards sustainable packaging solutions
that align with our commitment to environmental
responsibility.
Fleet
The Group has continued to focus on reducing
the environmental impact of our delivery and
company car fleet. Progress in increasing the
proportion of electric cars in our fleet has been
slower than expected. This has been driven by
the well-publicised challenges impacting electric
car adoption across the UK including, vehicle
availability, increasing purchase costs and the
underdeveloped UK charging infrastructure. Despite
the macro challenges, we have continued to focus
our efforts in the following areas:
• Continued investment in our light and heavy
goods vehicles, ensuring the fleet is operating
efficiently, safely and is compliant with latest
emissions standards. This practice allows
the business to maintain a modern and
environmentally friendly fleet. Additionally, we
leverage route optimisation software to minimise
the distance travelled by our trucks and vans,
thereby reducing our CO2 emissions;
Increased focus, monitoring and performance of
driver behaviour. Through our fleet management
system, we closely track and evaluate the driving
performance of our drivers. They are assessed
against predefined targets, and both drivers and
management are incentivised to improve their
adherence to our high standards of safe and
responsible driving; and
Introduction of electric car options for all
categories of our car fleet.
•
•
Over the next 12 months, we will conduct a
comprehensive review of our entire fleet. This
evaluation aims to identify opportunities for
further sustainability improvements, particularly
in the realm of electric vehicles. Our commitment
is to reduce carbon emissions and transition to a
greener fleet.
30
ScS Group plc Annual Report and Accounts 2023
Waste
In conjunction with our facilities management
partners, we have taken concerted steps to assess
our environmental impact, with a particular focus
on water and waste management. Our ongoing
collaboration with industry experts ensures we
stay at the forefront of energy conservation and
waste management, consistently improving our
environmental performance.
Our commitment to responsible waste practices
remains steadfast, as we strive to maintain a high
percentage of waste diversion from landfill. We
continuously re-evaluate our waste management
processes, seeking opportunities to enhance
efficiency and minimise our environmental footprint.
The Group also introduced waste reduction as one
of the 2023 ESG targets for the senior management
bonus scheme.
Energy
Throughout the year, we have remained committed
to enhancing our energy efficiency through
an ongoing initiative focused on LED lighting
installations and the replacement of outdated
equipment with energy-efficient alternatives. These
investments contribute to reducing our overall
energy consumption and carbon footprint.
We have continued to maintain a sustainable energy
supply by sourcing 100% renewable electricity
for all ScS sites. This significant step allows us to
operate on a zero-carbon basis, aligning our energy
usage with our commitment to environmental
sustainability.
As part of our sustainability initiatives, all new
format store investments deploy modern energy-
efficient lighting and we have initiated a programme
to replace all gas-fired appliances with energy-
efficient air source heat pumps by the end of FY26.
Additionally, we plan to replace outdated appliances
with modern energy-efficient alternatives. To
further support and guide our energy reduction
endeavours, we maintain active collaborations with
the Carbon Trust and other advisors.
By securing a renewable electricity contract,
we have effectively avoided the emission of
approximately 2,582 tonnes of carbon.
C A S E S T U D Y
Waste
“Here at ScS, we want to create a business that
cares not only about quality, value and service
but the environment we operate in. That’s why our
ESG strategy incorporates waste management.
Whilst we already had recycling processes
in place, we took the time to re-evaluate
how we did things and understand areas for
improvement. We have since refreshed and
refocused colleagues on the importance of
recycling and how can we all can play our part.
We want everyone here at ScS to be waste
aware – by ensuring our colleagues know which
bins to place their recycling in and that waste is
segregated correctly, we as individuals and as a
business are taking responsibility for the waste
we generate through our operations and how
this impacts our environment.
As part of my role as Internal Communications
Advisor, I was able to produce guidance
toolkits, Company-wide communications and
help to introduce the facilities to enable our
colleagues to play their part and support clear
waste recycling processes. Our aim was to have
engaged colleagues that share our commitment
and values towards environmental stewardship
and I think we have made great progress.
I really enjoyed bringing this to life and seeing
colleagues’ passion and enthusiasm for a
greener future at ScS.”
Louise Marshall
Engagement and Internal Communications
Manager
31
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Responsibility and sustainability report continued
Our colleagues
Our people are what makes our business successful
and developing an outstanding team is at the
forefront of our business strategy. At ScS our aim is
to ‘Create a workplace where people love to work’,
where colleagues feel they belong, are listened
to and are given the opportunity to develop.
Attracting, developing and retaining colleagues with
the appropriate skills, behaviours and attitudes and
from a variety of backgrounds is the focus of our
people strategy.
32
Recruitment and induction
Strengthening our employer brand has been a key
area of focus for the Group in the year. We have now
implemented a digital solution for the recruitment
and on-boarding journey via a new careers website
and applicant tracking system. It is important to
us that our colleagues feel valued from day one
and on joining, colleagues now receive their very
own welcome pack and attend our foundation
workshops to get to know all about ScS.
Learning and development
To support our ambition of developing and retaining
colleagues with the appropriate skills, behaviours
and attitudes, we have strengthened our learning
and development team, delivering a number of key
programmes throughout the year, including:
• A senior leadership programme enabling
senior managers to gain 360 feedback, focus
on key areas for development and build strong
relationships to support our strategy and
leadership ambitions for the future;
• A management development programme being
run across our distribution centres;
• Our ‘Moving up’ programme continued, aimed at
helping those wishing to be future retail managers;
• A behavioural training programme ‘The
difference is you’ has been developed which has
impacted positively on colleague turnover and
engagement;
• Refreshing our on-boarding with the introduction
of foundation workshops has seen all of our
new colleagues joining the business get the
best possible start, learning all about how we do
things here at ScS, setting them up for success in
their role;
• We held a number of ‘Know more to grow more’
sessions to help improve awareness and
colleague knowledge in a wide range of areas; and
• Working with our apprenticeship provider, we
currently have 25 active apprentices and we plan
to increase this during FY24.
Talent
To enable our colleagues to be the best they can be
we have reviewed both our talent and performance
approach and are launching new frameworks as we
head into the new financial year. We have clearly
defined our leadership and behaviours framework
throughout every level of our business, which will
integrate into all aspects of our people operations
from attraction, performance and reward. This will
underpin our talent pipeline and support our future
succession. We have also invested in new senior
hires to help support our strategy plans including
the appointment of a Director of Retail Operations
and a Head of Learning and Development. In
addition, we have strengthened the support in retail
by introducing a divisional structure.
Wellbeing
In order to add rigour to our approach to improving
the health and wellbeing of our colleagues, we
signed up to the ‘Better Health at Work Award’. The
award recognises the efforts of North East and
Cumbria based employers in addressing health
issues within the workplace. A number of wellbeing
initiatives across the business were introduced,
focusing on physical and mental health. This
included educational campaigns covering mental
health, cancer and the menopause. In addition,
we signed up and are committed to being a
‘menopause friendly employer’ and have a policy
and education sessions in place. We continue
to have mental health first aiders supporting
colleagues across the business alongside our
health advocates to help us raise more awareness
and make positive steps towards fostering a
better place to work. Our colleagues have access
to further support through a free, confidential
employee assistance programme which is available
24/7.
ScS Group plc Annual Report and Accounts 2023 We were delighted to achieve the Bronze ‘Better
Health at Work Award’ and the ‘Best Newcomer’
Special Recognition Award and now have our sights
set on achieving the Silver Award.
Engaging with colleagues
To help shape our plans to making ScS a great place
to work it is key that we actively take on board
feedback we receive from colleagues. Throughout
the year we have engaged with our colleagues in a
number of ways:
• Conducted two colleague engagement surveys.
We were pleased to see an increase in our eSat
score from 71 to 75;
• Kept our colleagues well informed via our ‘ScS
Essentials’ communications cascade, which
provides updates on key strategy progress and
any other matters across the business;
Implemented face-to-face colleague listening
groups, hosted by Non-Executive Directors
providing an opportunity for open and honest
feedback in a relaxed environment;
•
• Engaged external consultants to facilitate
conversations with colleagues in order to further
understand feedback from our engagement
survey; and
• Held multiple campaigns across the business
to engage colleagues, including supporting a
number of key charities that are important to our
people.
We have acted on feedback received throughout
the year and made a number of changes, including:
Introducing improved family friendly policies
•
increasing maternity and paternity leave
payments, promoting part-time opportunities
and improving benefits;
• Reviewing opening hours (including promotional
event days) which has helped support our
colleagues’ work-life balance; and
• Reducing the amount of manual handling required
by store colleagues, improving wellbeing and
enabling more customer focus.
We will continue to engage with and listen to our
people to drive our thinking on key changes needed
to support being a great place to work.
Gender diversity
Our gender pay gap report is available on our
corporate website. From data we can see that
stores being led by female managers, on average
perform better than their male counterparts.
To highlight the focus on this, we set a specific
ESG target to increase female representation
in management roles by the end of FY23 by 25%
against a September 2021 baseline. We achieved
a 21% increase and have revised our target date
of achieving 25% to the end of FY24. Details of our
current gender diversity split are set out on pages
82 to 83.
In support of our ESG strategy, we launched our
female leadership group whereby 25 female leaders
across the business came together to celebrate
and discuss key topics supporting females in the
workplace. The insights gained will help us progress
towards our targets in the year ahead.
C A S E S T U D Y
Moving up
programme
Suzanne Coyle, Business Manager, has been
part of the ScS team for an incredible 19
years. After a successful year on our ‘Moving
up’ programme, Suzanne was one of our first
cohorts to take over the running of our store
in Edinburgh. Suzanne tackled it with the
same drive and determination she has shown
throughout her whole career at ScS; you can
see this in the significantly improved results.
Since taking over, the store’s employee
satisfaction score has jumped from 79 to
83, one of the highest in the Group. Suzanne
not only fosters an inclusive and friendly
work environment, but a fun one as well
where accomplishments are celebrated and
colleagues are rewarded for their hard work.
The ‘Moving up’ programme has been
an integral part of my career at ScS. It
helped give me the tools to be the best
manager I can be. It gave me a greater
understanding of how to get the best out
of people and how to work together in
order to achieve a common goal.
It showed me that it was ok to be pushed
out of my comfort zone and that this is
where you can achieve great results.”
33
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Responsibility and sustainability report continued
Our customers
Our customers remain at the heart of everything
we do and as a business we seek to offer our
customers outstanding value, quality and choice
with a seamless customer experience.
Seamless customer experience
To ensure we deliver the highest levels of customer
service we invest significantly in training and
developing our colleagues. We are members of
the Furniture and Home Improvement Ombudsman,
giving additional assurance to our customers.
The year saw the business invest in leading
edge contact centre technology operated by
our customer experience team, delivering more
functionality to our team and improving our service
to customers. We have also reviewed our upholstery
services and have outsourced the delivery of this
service to a specialist provider, who are committed
to delivering a swift, efficient and effective service
for our customers.
We strive to provide an excellent customer
experience and our customers are encouraged
to rate their experience with us on Trustpilot. We
regularly review our customers’ feedback and
use it to reward our colleagues, identify areas for
improvement and discuss with suppliers to drive
further product quality. We are proudly, one of the
most reviewed businesses in the UK.
The year saw a number of improving customer
metrics across the business, including maintaining
our Trustpilot TrustScore. We maintained our 5-star
‘Excellent’ rating. At a local level, the number of
stores rated as five stars increased 65% meaning
over 80% of our stores are rated at the maximum.
Modernising the range has been a key focus in the
year and we have launched 125 furniture ranges
and 39 flooring options. This has included the
introduction of new suppliers from the UK, Europe
and the Far East as we aim to provide the best
value products we can source. Pleasingly, we saw
product lead times reduce significantly and are now
operating at lead times in line with those seen pre-
pandemic.
Customer engagement
The year saw the business invest time and
resources in increasing its understanding of
existing customers but also those consumers who
chose not to shop with the Group. This included
detailed qualitative and quantitative research
covering the in-store experience, our product
offering and our promotional and advertising style.
This feedback has helped shape our new store
format and has played an important part in our
new branding and advertising campaign. We are
now starting to collect more customer data and
feedback that will help shape our customer strategy
in the future.
34
ScS Group plc Annual Report and Accounts 2023 Our Communities
Making a meaningful contribution to our
communities has been a key focus at ScS and for
our colleagues. As a socially responsible business
and with operations spread across the UK we have
been supporting in many different ways.
Our partnerships with charities continues to be
successful, partnering with three key charities to
help and make a difference in the communities we
serve.
Shelter partnership
We are delighted to now be officially supporting
Shelter as a corporate partner. Our ‘It all starts
with home’ partnership builds on the work we did
with Shelter in FY22. Shelter’s purpose of ‘home is
everything’ aligns to ScS’s of ‘Creating the home
you love’ perfectly, and we look forward to the
opportunities this will provide for families within our
communities.
As part of our partnership with Shelter, we donate
surplus and returned stock to the charity. The
charity are able to resell the stock through
their own store network or utilise it to support
their service users. This contributes to Shelter’s
charitable purposes but also ensures that stock we
no longer need is repurposed rather than disposed
of. For FY23 we donated 483 products which has
generated £56,000 in sales of donated goods for
Shelter.
The Group has also supported our colleagues
who have spent 94 days in total across the year
volunteering, supporting different Shelter causes
such as delivery of donated stock, supporting in
stores/pop up stores and finally with their charity
supermarket.
Step up for Shelter
Our colleagues embarked on our annual May
wellbeing challenge. Throughout the month we
challenged colleagues to ‘Step up for Shelter’ and
take part in activities such as walking, cycling,
running – you name it, to achieve a combined
total of 27,000 miles. Our colleagues embraced
the challenge with 100 more colleagues than FY22
participating. The target was achieved a week
ahead of schedule and by the end of the month we
had a grand total of 34,305 miles.
One of the best parts of the challenge (despite all
of the health benefits and colleagues enjoying the
outdoors) was seeing the chat section in our app
where colleagues were sharing stories and pictures
of their adventures. This activity supported our
focus on mental health during May and will support
our ‘Better health at work’ silver campaign.
Colleagues raised £1,325 in fundraising and the
Group donated £27,000 to Shelter to support
this great cause and really make a difference to
supporting their purpose of ‘It all starts with home’.
Our first year of partnership with Shelter has seen
us raise £100,000 for the charity.
Foundation of Light
As a business we have partnered with the
Foundation of Light for over a decade and we
extended our long-standing relationship with the
Foundation (the official charity of Sunderland
AFC) supporting the charity’s ‘Wear Together’
programme. The programme is aimed at supporting
those over 50 within the local Sunderland, South
Tyneside and County Durham communities help
feel more connected. A number of colleagues have
volunteered their time to help facilitate and join in
on many activities as part of the programme during
FY23.
35
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Responsibility and sustainability report continued
St Oswald’s
ScS partnered with St Oswald’s hospice in FY23 for
a three-year period as a supporter of their charity
fundraising programme, including their biggest
event in the calendar, The Great North Run. In
September, a number of ScS colleagues took part
on behalf of St Oswald’s and we were please to raise
money to support this great cause.
Charity fund
Across the year we have supported 25 charities,
donating a total of £67,000. Some of these donations
have arisen following colleague nomination, which
makes it even more special. Donations have been
made to Marie Curie, Alzheimer’s society, SeeScape,
Bright Red Charity and many more.
Volunteering
As part of our ESG strategy, we are encouraging
all ScS colleagues to get involved in volunteering
activity. ScS aim to support a minimum of 1,000
volunteering days before the end of FY26.
A total of 365 days of activity have taken place this
year and we are really proud of how our colleagues
have stepped up to support some amazing
community work. Some examples include:
• Royal British Legion – supporting selling poppies
and manning a stall on 11 November 2023;
• The MCA Trust with building a Santa’s grotto to
support a children’s party;
• A number of food banks within local communities;
• RSPCA – supporting with painting chicken coops,
fixing flooring and taking dogs for a walk;
• Alderhey – supporting with collections of large
furniture from house clearances;
• Shelter – supporting with stock donation
deliveries, volunteering in store and with their
pop up events;
• Love Amelia – supporting with raising money
and preparing donations to support babies and
children experiencing hardship; and
36
• Changing lives – supported in various locations
with cleaning, decorating and gardening.
Other activities continue to be planned in by
colleagues and we take great pride in
sharing these stories across
the business in our weekly
newsletter – ScS news.
C A S E S T U D Y
Shelter partnership
Everyone deserves the right to a safe place to
call home, so this year we created a partnership
with Shelter, supporting their efforts to tackle
homelessness and provide help and support to
those that need them. We share the belief that
home is everything.
As well as monetary donations to Shelter we
worked alongside their team in a number of
ways. We have donated furniture and flooring
stock to Shelter. Shelter have been able to retail
this stock through their stores, raising £56,000
during the year. These products were priced to
be affordable to Shelter customers and service
users.
When delivering product to Shelter stores our
distribution colleagues have been delighted
to assist Shelter teams; moving stores round to
accommodate product as needed. Across our wider
business we have contributed 94 volunteer days to
Shelter, and aim to increase this number next year.
In May over 300 colleagues took up the challenge
to ‘Step-Up for Shelter’. A team target was set of
27,000 miles. The team exceeded the target and
£27,000 was donated to Shelter in recognition of the
challenge the team took on.
Our first year of partnership has seen ScS donate
over £100,000 to Shelter and provide meaningful
volunteer time to the organisation. It has been
wonderful to see this partnership start to flourish
and we are excited to continue to grow our
partnership with this amazing charity.
ScS Group plc Annual Report and Accounts 2023 Our Shareholders
Achieving sustainable long-term growth and
returns is a key objective of the Group and our
shareholders. We aim to secure these outcomes
by delivering our strategy and making informed
decisions. We have two main shareholder groups;
institutional investors and individual shareholders.
The majority of our shareholders are institutional
investors.
ScS Group plc has just one class of share in issue
and so all shareholders benefit from the same
rights as set out in the Company’s Articles of
Association and the Companies Act 2006. The
Board recognises it’s legal and regulatory duties
and does not take any decisions or actions, such
as selectively disclosing confidential or inside
information that would provide any shareholder or
group of shareholders with any unfair advantage or
position compared to the shareholders as a whole.
Engaging with our shareholders
We engage with our shareholders through a range
of channels including:
• The Annual Report and trading updates through
our dedicated corporate website;
• Our Annual General Meeting (AGM) in which
shareholders can direct questions to the Board;
• The Group’s CEO and CFO participate in both
virtual and face-to-face investor (existing
and potential) meetings throughout the year,
including store visits with investors if requested;
• Face-to-face analyst/investor presentations
covering the interim and preliminary results. A
webcast of these meetings is published on our
website for those unable to attend;
• The Board receives investor views through the
Group’s corporate brokers who provide feedback
on market reaction and investor views after full
and half year results announcements; and
•
Independent investment research analysts have
access to our Executive Directors as part of their
investment advisory roles. The analysts’ research
publications provide timely feedback on financial
performance, strategy and share valuation.
Investors’ views were taken into consideration
as part of the Board’s decision-making process
throughout FY23 including:
• The purchase of the business and assets of Snug
out of administration;
• The Board’s proposal for a final dividend of 10.0p
per share taking the full-year dividend to 14.5p;
• The decision to complete the £7m buyback
scheme and to not launch a new programme; and
• The investment in a refreshed store design
across a further eight stores in the year, taking
the total to nine.
“Achieving sustainable
long-term growth and
returns is a key objective
of the Group and our
shareholders.”
37
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Task Force on Climate-related Financial Disclosures (TCFD)
Statement of Compliance
The Financial Stability Board’s Task Force on
TCFD has set out an important framework for
understanding and analysing climate-related risks,
and we are committed to regular, consistent and
transparent reporting to help communicate our
performances and track our progress. We have
outlined our key climate-related disclosures in this
report. We recognise that further work lies ahead as
we continue to develop our reporting capabilities,
but we have made some progress and enhanced
our disclosures.
We considered our compliance obligation
under the UK’s Financial Conduct Authority (FCA)
Listing Rules and can confirm that we have made
disclosures consistent with all TCFD pillars and
recommendations, however we accept that there
are areas where we feel the disclosure we have
made can be improved on.
We have complied with the governance
recommendation but there are improvements to
be made to enhance Board oversight on climate-
related risks and opportunities. On the strategy
pillar, we have identified compliance gaps in
describing the impact of climate-related risks and
opportunities to the Group and financial planning as
well as the procedures in place to identify emerging
risks, and as such have not completely met the
recommended disclosure, but work is in progress to
address this.
Climate risk is part of our supplier chain audit
criteria and the risk assessment of our supply chain
has been subject to senior management oversight.
However, there is a scope for improvement here,
particularly with having a formal process for
integrating, identifying and assessing climate-
related risks, and we are working towards defining
and implementing that process. Although we
report on risks, we have not fully adopted the risk
38
taxonomies aligned with TCFD recommendations.
We are working to address all of this and to ensure
that our disclosure under this pillar is consistent
with the TCFD recommended disclosures on risk
management.
In terms of the recommended disclosures under the
metrics and targets pillar, while we have not entirely
met the requirements consistent with TCFD under this
pillar, we have fully disclosed where we are and are
working towards improving the metrics used to assess
and manage relevant climate risks and opportunities,
where such information is material, and have set
quantifiable targets against specific metrics.
We have disclosed our emissions across scopes 1,
2 and 3, and aim to implement recommendations
and targets from our recently completed Net Zero
strategy work.
This FCA compliance statement is only set out in our
standalone TCFD report.
Climate-related disclosures
Disclosure of the actual and potential impacts
of climate-related risks and opportunities on an
organisation is fundamental to understanding how
the business strategy may be influenced. Climate-
related issues are top of regulatory, investor and
corporate agendas and climate-related risks
make up four of the five biggest risks faced by
businesses. It can affect several important aspects
of an organisation’s financial performance and
position, both now and in the future.
The Task Force provides recommendations for
climate-related financial disclosures structured
around four thematic areas:
1. Governance
2. Risk management
3. Strategy
4. Metrics and targets
The four overarching recommendations are
supported by 11 specific recommended disclosures
focusing on assessing climate-related risks
and opportunities. The Group recognises the
importance of adopting the TCFD recommendations
and reports climate-related information consistent
with this framework to ensure high-quality and
decision-useful disclosures that enable users to
understand the impact of climate change on the
organisation.
Governance
The governance disclosure considers an
organisation’s governance around climate-related
risks and opportunities.
The strategic oversight of action on climate change
is owned by the Board, with decision-making
delegated to the Executive Board. Climate change
is addressed in a standing agenda item of Executive
Board meetings on a monthly basis.
The Group’s day-to-day governance of climate
change is overseen by our ESG steering group,
which is comprised of cross-functional senior
representation, including the Chief Financial Officer.
The ESG steering group meets on a monthly basis.
Climate change is covered within the remit of the
ESG steering group under four working themes:
1. Operational carbon
2. Value chain
3. Climate change and business strategy
4. Engagement and accountability
ScS Group plc Annual Report and Accounts 2023 The ESG steering group reports on its activities to
the Executive Board. Executive remuneration at ScS
includes links to progress on our environmental,
social and governance (ESG) targets, including
targeted reductions in waste for the Executive
Board and senior managers.
We retain a specialist consultant on an ongoing
basis who supports our sustainability ambitions
and provides any specific technical advice that is
required in relation to climate-related risk, as well
as mitigation, adaption and transition.
Board oversight
The Group considers climate change to be a
significant Board-level strategic issue.
Overall responsibility for climate-related risks
and opportunities sits with the Board. As part of
our activities to address risk, climate change is a
standing Board agenda item included within the ESG
update.
Climate-related financial issues fall in scope of
the Audit Committee, which will review and take
action as required on risk management policies and
business planning. The Audit Committee will meet
four times per year.
The Board has undertaken carbon literacy training
to support understanding in this area and its risks
and opportunities.
Management’s role
At management level, the climate change agenda is
managed as part of the delivery of our ESG strategy.
It is now being driven by our Net Zero strategy, which
is currently being finalised, and has clear goals,
metrics and targets to operationalise our approach.
The ESG steering group and Net Zero strategy is
coordinated by the People Director, who presents
monthly updates and reports to the Executive
Board.
Each year we will undertake a planning cycle to
assess climate-related issues and ensure that our
Net Zero strategy is fit for purpose in addressing
climate-related risk and to deliver for the business.
Next steps
We are committed to disclosing information
relating to our governance approach, the
Board’s oversight of climate-related risks
and opportunities, and management’s role in
assessing and managing climate-related risks and
opportunities on an ongoing basis in line with the
TCFD recommendations. We will continue to engage
at both Board and management level on climate-
related issues, considering how we can fully
integrate best practice into our internal governance
structure and processes.
Strategy
The strategy disclosure looks at the actual and
potential impacts of climate-related risks and
opportunities on the organisation’s businesses,
strategy and financial planning.
We acknowledge that climate-related risks and
opportunities have an impact on our business. We
are therefore implementing a clear strategy to
respond to that. Our focus is on:
• Mitigation of our impact, by reducing our
emissions; and
• Managing any transition or physical risks in
relation to adaptation.
We have finalised our Net Zero strategy, and this
will provide us with a clear framework of how we
manage our climate-related risks and opportunities,
going forward.
Emissions reduction strategy
As part of our Net Zero strategy, we will adopt six key
principals to guide our approach:
1. Make sustainability central to everything we do;
2. Take proactive action by incorporating the Net
Zero strategy into our business strategy and
applying the improvement recommendations
to our business to reduce our impact on the
environment;
3. Engage with and report to our key stakeholders;
4. Become environmentally efficient and
sustainable by design (including products,
packaging and buildings);
5. Renew our approach and leverage on technology
where required to address the climate
sustainability challenge; and
6. Rebalance our impact (through carbon
offsetting) where the other actions taken do not
address it sufficiently.
We have two headline commitments in relation to
emissions reduction:
• We have committed to Net Zero by 2050 across
all three scopes of emission. As we get more
confident with climate reporting and data
gathering strategies, there is a possibility that we
could bring this target date forward. We believe
that this will provide us the right framework for
managing our transition to Net Zero and support
our reputation by aligning with best practice; and
• We have finalised and aligned our Net Zero
strategy with climate science and will look
to have this validated externally by relevant
initiatives as soon as possible.
These are reinforced by resource level targets,
which are further detailed in the metrics and
targets section. We have estimated the cost of
implementing our Net Zero strategy as approximately
£500,000 per annum between now and 2030. We also
expect to be able to achieve an interim target date
of Net Zero for Scope 1 and 2 by 2038.
39
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Task Force on Climate-related Financial Disclosures (TCFD) continued
Our most significant climate-related risks and opportunities identified from our process are:
Top risks
Top opportunities
Top risks
Top opportunities
Top risks
Top opportunities
Supply chain
The transition to Net Zero
Reputation
Resilience to physical
impacts (sea level rise/
flood risk)
Resilient supply chain and
business continuity
Increased costs
associated with carbon
pricing and taxes
Products efficiency
policy and standards
New market opportunities
and customer base
expansion
Cost of decarbonisation
Carbon footprint
reduction/reducing
operating costs/reduced
carbon tax impact
Positive environmental
impact through improved
efficiency and reduced
carbon footprint
Changing consumer
behaviour
Supporting consumers in
their transition
Negative perception from
stakeholders
Attractiveness to
stakeholders
We have conducted a risk assessment based on three climate change scenarios:
Scenario
Early
Late
Business as usual (BAU)
Description
Smooth transition whereby global warming
is <2°C
Disruptive transition whereby global warming is <2°C
No acceleration of action whereby global
warming is >3°C
Overview
Outcomes of
our analysis
Transition to a carbon-neutral economy
starts early and the increase in global
temperatures stays well below 2°C, in line
with the Paris Agreement.
Global climate goal of keeping temperatures well
below 2°C is met but the transition is delayed and
must be more severe to compensate for the late
start.
No policy action beyond that which has already
been announced is delivered, resulting in above
3°C of warming. Therefore, the transition is
insufficient for the world to meet its climate goal.
We experience a high level of impact from
transition risks in this scenario, with higher
levels of policy and legislation impacting
the business in the short to medium term.
The physical risks are least extreme, and
these mitigates medium to long-term
challenges across our supply chain.
Physical risks under this scenario are higher than
the smooth transition as there are significant
differences in the impact on the environment,
impacting our supply chain more severely. The
transition risks are high and disruptive and are likely
to have a material impact because of the pace and
nature of the interventions required.
Whilst we experience much more limited
transition risks in this scenario, the physical
risks are much more severe. This has significant
impacts on our supply chain in the medium to long
term as the world will have to adjust to much more
significant change and environmental damage
from the impacts of the global temperature rise
and the consequent effects on our climate.
Assumptions
There is early and decisive action to
reduce global emissions gradually, with
clearly signposted government policies
and initiatives implemented relatively
smoothly.
To compensate for the delayed start a deeper
adjustment is required, as evidenced by a steeper
increase in global carbon prices in a late attempt to
meet climate target. Under this scenario, physical
risks rise more quickly than in the early policy action
scenario and transition risks are severe.
This scenario tests organisations’ resilience to
both chronic changes in weather (e.g. rising sea
levels), as well as more frequent and extreme
weather events (e.g. flash floods). Therefore,
under this scenario, there are limited transition
risks, but physical risks are significant.
40
ScS Group plc Annual Report and Accounts 2023 Integrating risk
To assess, manage and integrate risk, we maintain
a climate-related risks and opportunity register
and we plan to fully align to all the risk taxonomies
recommended by the TCFD. The risk taxonomy
structure is aligned to the ‘We Mean Business’
structure and is described below. The register
summarises our actions in relation to each areas of
the risks identified. Quantified figures are included
in the risk and opportunity table for those risks and
opportunities considered most material (>£1m per
year materiality threshold).
Risk management
The risk management disclosure looks at the
processes used to identify, assess and manage
climate-related risks.
Identifying and assessing risk
The Group identifies climate-related risks and
opportunities and defines materiality based on the
‘We Mean Business’ risk taxonomy, TCFD guidance
and our existing climate-related risk and opportunity
assessments.
Risks are grouped into two categories; transition
risks, which relate to the transition to a low-carbon
economy and physical risks, which relates to the
physical impacts of climate change. These are then
grouped into further sub-categories. We consider
our climate change risk between now and 2050 as a
timeframe.
Managing risk
Our risk management process in relation to climate-
related risk can be summarised by the following
steps:
•
Identify risks and opportunities and define
materiality based upon:
•
• TCFD guidance; and
• Existing climate-related risks and opportunity
‘We Mean Business’ taxonomy;
assessments.
• Assess the risks and opportunities and any
required action in a short-term timeframe (<5
years).
• Model through scenario analysis (where
relevant) the potential impact of the risks and
opportunities against three climate change
scenarios.
• Manage by way of developing and implementing
internal risk control measures.
• Monitor risks on an ongoing basis and improve
management controls.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Task Force on Climate-related Financial Disclosures (TCFD) continued
Risk taxonomy and assessment
Our risk taxonomy (in relation to climate-related risk) is shown below, with the underlying level of risk we believe that they present.
Key
Timeframes
Scenario analysis
S
M
L
Next 3 years
Between 3 and 10 years
#
After 10 years, and before 2050
Quantitative/detailed
High level assessment
Risk and opportunity table
Strategic risk/
opportunity
Risk/opportunity
category
Description
Significant
Timeframe
impacted
Scenario
analysis
Transition risk – Risks associated with transitioning to a low-carbon economy, e.g. new regulations or reporting requirements, disruptive technology,
changing consumer preferences
Brand and
reputation
Reputation
The potential impacts of stakeholder perceptions of our carbon performance and climate change
position. Real or perceived inaction on climate change may affect the Group’s access to funding
and investment and its ability to attract and retain talent, causing loss of revenue and damaging the
reputation the Group has with its customer base and other stakeholders. The quantified maximum
probable loss from reputational impacts on share prices is £3.0m.
Economic
environment
Customer
demand
The change in demand for a product or service due to a shift in preferences because of climate change
and sustainability. Customers may change demand to lower-emission and sustainable products, such as
alternatives to leather goods and ethical products with lower carbon footprints or higher sustainability
ratings.
Regulation and
compliance
Policy
Changes or improvement to regulation, standards or incentives relating to climate change including
decarbonisation and adaptation could see additional operational changes and costs borne by the
Group.
Yes
S, M, L
M, L
S, M
#
Regulation and
compliance
Transition
to Net Zero
costs/taxes
Increased costs associated with decarbonisation ambitions and requirements to offset our emissions
footprint that are increasingly expensive and unreliable. The quantified implications for capex and other
investments to achieve our Net Zero strategy is a probable maximum of £8.1m.
Yes
S, M
There is a risk that carbon taxes will continue to be introduced in the future, which will increase the
cost of products and services both purchased and sold by the Group. This risk has been quantified as a
probable maximum loss of £150,000.
Actions or targets for companies determined by internationally binding agreements within United
Nations international conventions or any other internationally recognised protocol or agreement setting
specific emissions targets may impact the Group’s Net Zero strategy and result in increased costs.
-
S, M, L
Regulation and
compliance
International
treaties/
sector
agreements
42
ScS Group plc Annual Report and Accounts 2023 Strategic risk/
opportunity
Risk/opportunity
category
Description
Significant
Timeframe
impacted
Scenario
analysis
Physical risk – Increasing global surface temperatures and changing weather patterns can lead to the increased intensity of flooding in some areas,
impacting the supply chain
Economic
environment
Social
impacts
Changes to social order, culture and prosperity of our communities because of physical climate or
regulation change. There may be an increase in the number and intensity of hot days impacting the
physical health of our colleagues, partners and suppliers. There may be workforce shortages hampering
productivity and communities impacted if operations are forced to relocate, resulting in supply chain
disruption.
-
M, L
Responsible
sourcing and
supply
Supply chain The effect of the changing climate may trigger extreme weather events including flooding and snow/ice,
Yes
M, L
#
which may result in damage to key supplier locations and general logistics.
The assessment of the supply chain indicates a long-term risk due to the physical impacts of climate
change on three of the 22 strategic facilities reviewed. Some key supplier locations and general logistics
are expected to be impacted. We are monitoring the proportion of our supply chain that this could
impact and considering the mitigation actions that may be necessary. The quantified probable average
loss is £6.9m.
Responsible
sourcing and
supply
Access
to natural
resources
Changes in the availability of natural resources, e.g. water and food, because of climate change may
impact our ability to source raw materials.
-
M, L
Opportunities associated with transitioning to a low-carbon economy, e.g. increasing resource efficiency, developing low-carbon products/business
models, access to green capital
Responsible
sourcing and
supply
Supply chain Enhancing our supply chain standards can create opportunities to: deploy lower emission technologies
in our manufacturing process; identify the most efficient transport routes; and source raw materials
from markets most resilient to the physical impacts of climate change. The quantified opportunity
arising from the reduction in operating costs is a probable maximum gain of £1.75m.
Economic
environment
Customer
demand
Development of low-emission and ethical products from low-carbon production facilities and
sustainable materials may result in increasing demand for products. This will open up new markets and
expand our customer base, translating to revenue growth.
-
-
M, L
M, L
Strong climate change management can help strengthen relationships with investors, customers,
consumers and other stakeholders, and potentially lead to new opportunities.
Regulation and
compliance
Energy
Investment in renewable energy technologies across our stores and distribution network could help the
Group increase its resilience to future energy/price shocks as well as reduce emissions and impact the
environment positively.
-
S, M, L
Brand and
reputation
Reputation
Making clear our commitment to climate action may increase our attractiveness to our stakeholders and
enhance our reputation amongst out customers.
S, M, L
43
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Task Force on Climate-related Financial Disclosures (TCFD) continued
Metrics and targets
The metrics and targets disclosure looks at the metrics and targets used to assess and manage relevant climate-related risks and opportunities.
Metrics used
Our operational management of climate-related risk is measured through the metrics below. We have made good progress towards four of the six metrics, including
continuing to purchase 100% renewable energy, diverting 100% of waste from landfill, engaging actively with our suppliers, and reducing the carbon impact per product sold.
While we continue to seek energy efficiencies across our operations and improve our logistics performance, we still have work to do in these areas to meet our targets.
Metric
Supply chain engagement (% of suppliers active in programme)
Renewables (% renewable)
Waste targets (% landfill avoidance)
Energy efficiency (kwh/m2 building floor area)
Logistics performance (kgCO2e per km)
Product lifecycle (kgCO2e per product sold)
2021-22
46.02%
100%
100%
155.40
0.0226
122.31
2022-23
46.02%
100%
100%
153.33
0.0231
113.42
Net Zero strategy
target (2022-23)
40.00%
100%
100%
Net Zero annual
reduction target*
-2.15%
-4.60%
-4.00%
Variance
+6.02%
0.0%
0.0%
Variance
-1.33%
+2.25%
-7.27%
On track for Net
Zero by 2050?
Y
Y
Y
Y
Y
Y
* Target represents linear progress year on year. Despite being slightly behind on a linear basis, we expect to achieve all targets by 2050. Our actions in our strategy towards achieving Net Zero are not linear and varying levels
of progress will be seen year on year.
44
ScS Group plc Annual Report and Accounts 2023 Greenhouse gas emissions
Emissions data in respect of the 2022-23 reporting period, based on operational control, are disclosed as follows:
Scope
Category
Scope 1
Scope 1
Combustion
F Gas***
Scope 1
TOTAL
Scope 2
Electricity/heat/steam/cooling
Scope 2
TOTAL
Scope 3
Business travel
Scope 3
Employee commuting
Scope 3
Fuel and energy-related activities
Scope 3
Purchased goods and services
Scope 3
Waste generated in operations
Scope 3
Transportation/distribution
Scope 3
Capital goods
Scope 3
All
TOTAL
TOTAL
* Actual data updated from previous disclosure for FY21-22.
** Current year footprint includes estimated data to end of FY.
*** F Gas included in disclosure as data sources confirmed.
Current year** tCO2e (Location)
Current year** tCO2e (Market)
Previous year* (Location)
Variance (+/-)
Variance (%)
2,796
156
2,952
2,582
2,582
842
1,270
1,520
84,310
58
4,087
2,448
94,535
100,069
2,796
156
2,952
-
-
842
1,270
1,520
84,310
58
4,087
2,448
94,535
97,487
2,712
589
3,301
2,941
2,941
594
1,259
1,696
83,960
67
5,113
1,900
94,589
100,831
(349)
(10.5)
(359)
(12.2)
(54)
(762)
(0.05)
(0.75)
(Location) refers to location-based reporting; (Market) refers to market-based reporting. Both definitions are in line with the Greenhouse Gas Protocol. All stated
variances are of our location-based emissions.
The UK emissions, in relation to Scope 1 combustion, Scope 2 electricity/heat/steam/cooling and Scope 3 business travel, measured in kWh total 28,072,887 (2022:
28,899,091). The Group has no overseas usage therefore the global energy use is nil (2022: nil).
45
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Task Force on Climate-related Financial Disclosures (TCFD) continued
Greenhouse gas emissions intensity ratio
Total footprint (Scope 1, Scope 2 and expenses claims) – CO2e tonnes
Turnover (£m)
Intensity ratio (tCO2e/£100,000)
Emission reporting notes
• Our methodology has been based on the
Statement of exclusions
• Business acquisition (Snug) – We have excluded
Previous year (2021-22)
Current year (2022-23)
Year-on-year variance
344,710
29.3
343,457
29.1
-0.4%
-0.7%
emissions from Snug. The exclusion is based
on Snug’s operational strategy, materiality
assessment and revenue screening approach
to determine the significance of its emissions.
Snug is determined to be immaterial due to falling
beneath the revenue percentage threshold for
materiality and inclusion (currently representing
1% of revenue). Snug has not recorded any
previous emissions data and falls outside of
mandatory reporting requirements due to its size.
Depending on materiality Snug will be considered
for inclusion in FY24.
principals of the Greenhouse Gas Protocol, taking
account of the 2015 amendment which sets out
a ‘dual reporting’ methodology for the reporting
of Scope 2 emissions. In the ‘Total footprint’
summary above, purchased electricity is reported
on a location-based method.
• We have reported on all the measured emissions
sources required under The Companies Act
2006 (Strategic Report and Directors’ Report)
Regulations 2013 and The Companies (Directors’
Report) and Limited Liability Partnerships (Energy
and Carbon Report) Regulations 2018 except
where stated.
• The period of our report is 1 August 2022 to 30 July
2023.
• This report includes emissions under Scope 1 and
2, except where stated, and includes emissions
from Scope 3 sources relating to business travel,
purchased good and services, capital goods,
employee commuting, fuel- and energy-related
activities, water and waste.
• All material emissions have been included within
this disclosure.
• Conversion factors for UK electricity (location-
based methodology), gas and other emissions
are those published by the Department for
Environment, Food and Rural Affairs for 2021-22.
• Conversion factors for UK electricity (market-
based methodology) are published on the fuel mix
disclosures on each supplier’s website.
46
ScS Group plc Annual Report and Accounts 2023 Energy efficiency actions
During this reporting year, we have undertaken
several energy efficiency actions across our asset,
property portfolio and estate in general. These
include:
• Replacement of gas fired air conditioning systems
with all electric air conditioning systems at
multiple sites;
• Continued rollout of LED lighting;
• All our sites use 100% renewable energy;
• All non-recyclable waste is diverted from landfill
and used in energy production;
• Efficiency initiatives and actions to decarbonise
our fleet and make business travel more
sustainable; and
• We intend to deploy air source heat pumps as a
replacement for traditional boilers going forward.
Our ambitions and targets
Although we face some technological dependencies
to realise some of our Net Zero ambitions, most
importantly, advancements in fleet and shipping
decarbonisation, we are committed to achieving our
goals. Our new ESG and Net Zero strategy will drive
our work towards the below targets:
• Achieve Net Zero date of 2050; and
• Align our Net Zero strategy with climate science
and look to have that validated externally by the
relevant initiatives.
Next steps
We will continue to drive forward to deliver
significant carbon reductions and improve our
climate resilience wherever we can. We are on
track for all of the decarbonisation targets (shown
above) and will continue to reduce our impact on
the environment across all three emission scopes in
line with climate science, whilst demonstrating good
environmental stewardship to our stakeholders.
47
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Section 172 statement
The Board recognises the importance
of engaging with stakeholders
The Board recognises the importance of engaging
with stakeholders and taking their views into
account when making decisions, although the Board
acknowledges that not every decision it makes will
necessarily result in a positive outcome for all of
the Group’s stakeholders. Details on how the Board
operates and the way in which it reaches decisions
are set out on pages 68 to 123.
Details of our key stakeholders and engagement
with these stakeholders are set out on pages 26 to
Section 172 duty
37. Examples of how the Directors have oversight
of stakeholder matters and had regard for these
matters when making decisions are included in the
table below and discussed throughout the Strategic
report and in the Governance section on pages 2 to
123.
members as a whole but having regard to a range
of factors set out in section 172(1)(a)-(f) in the
Companies Act 2006. This report is presented in
compliance with The Companies (Miscellaneous
Reporting) Regulations 2018 and the UK Corporate
Governance Code July 2018.
Section 172 of the Companies Act 2006 requires a
director of a company to act in the way he or she
considers, in good faith, would most likely promote
the success of the company for the benefit of its
The table below identifies where, in the Annual
Report, information on the issues, factors and
stakeholders the Board has considered in respect
of Section 172(1).
(a) The likely consequences of any decision in the long term
Example: The Board reviewed the progress made in year two of the Group’s three-year strategy and ensured that both decisions taken
and future plans continued to support the long-term success of the Group, with regard to allocating the Group’s capital in the most
beneficial way.
(b) The interests of the company’s employees
Example: To enable us to deliver our strategy we are determined to build a culture that enables our colleagues to perform at their very
best in a collaborative, innovative and inclusive environment where they can thrive. The Board has ultimate responsibility for ensuring
the Group’s decisions consider our employees’ interests. During the year colleagues have taken part in discussion forums held by
members of the Board to raise concerns or issues directly.
(c) The need to foster the company’s business relationships with suppliers, customers and others
Example: Managing our supplier relationships is critical in ensuring the Group’s ability to deliver on its strategy. In FY23, through close
collaboration with our suppliers, we achieved the Kitemark certification for domestic furniture by the British Standards Institute.
We also became a member of the Furniture & Home Improvement Ombudsman, providing additional assurance for our customers
through the Ombudsman’s alternative dispute resolution services.
48
Key examples
Our business model
Our strategy
Key performance indicators
Financial review
Risk and risk management
Viability statement
Corporate governance statement
Directors’ remuneration report
Chair’s letter
Our business model
Chief Executive Officer’s review
Our strategy
Key performance indicators
Responsible business
Risk and risk management
Corporate governance statement
Directors’ remuneration report
Chair’s letter
Our business model
Chief Executive Officer’s review
Our strategy
Responsible business
Corporate governance statement
Directors’ remuneration report
Page
13 to 15
16 to 22
24 to 25
50 to 56
57 to 64
65 to 66
72 to 82
97 to 119
6 to 7
13 to 14
8 to 9
16 to 22
24 to 25
26 to 37
57 to 64
72 to 81
97 to 119
6 to 7
13 to 14
8 to 9
16 to 22
26 to 37
72 to 81
97 to 119
ScS Group plc Annual Report and Accounts 2023 Section 172 duty
(d) The impact of the company’s operations on the community and the environment
Example: As a responsible business, the Group is committed to acting in the best interests of our communities and in a sustainable
manner. During the year the Group supported local charities donating a total of £67,000 to support our local communities. Our
colleagues continued their fantastic volunteering effort, with 365 days volunteered throughout the year. We have also enhanced our
relationship with housing and homelessness charity Shelter, donating stock worth £56,000. The group has commenced development of
a Net Zero strategy to complement our existing Environmental, Social and Governance (ESG) strategy.
(e) The desirability of the company maintaining a reputation for high standards of business conduct
Example: Our colleagues received mandatory online training throughout the year on a wide array of topics including equality &
diversity, data protection and anti-bribery. We have introduced foundation workshops for all new starters and have various ongoing
training and development programmes to upskill and empower our workforce. All suppliers are required to comply with our Supplier
Code of Conduct which sets out our expectations in relation to health and safety procedures, anti-bribery and corruption policies,
product quality standards and much more.
(f) The need to act fairly as between members of the company
Example: The Board seeks to ensure that communications are clear and its actions promote the long-term success of the Group.
During the course of the year, the Group has engaged with its stakeholders and as a result, the Board have been able to take their
views and interests into account when making decisions.
Key examples
Chair’s letter
Our business model
Chief Executive Officer’s review
Our strategy
Responsible business
Principal risks and uncertainties
Corporate governance statement
Our business model
Our strategy
Responsible business
Corporate governance statement
Directors’ remuneration report
Page
6 to 7
13 to 14
8 to 9
16 to 22
26 to 37
57 to 64
72 to 81
13 to 14
16 to 22
26 to 37
72 to 81
97 to 119
Responsible business
Corporate governance statement
26 to 37
72 to 81
Non-financial information statement
The table below sets out where stakeholders can find information in our Strategic report that relates to non-financial matters, as required by the Non-Financial
Reporting requirements as detailed in the Companies Act 2006.
Reporting requirement
Environmental matters
Employees
Social matters
Human rights
Anti-bribery and anti-corruption
Our policies
Regulatory and compliance
Responsible sourcing and supply chain
Sustainability
Monitoring our carbon footprint
Diversity and inclusion
Wellbeing
Engagement
Code of business conduct
Composition, succession and evaluation
Apprenticeship programmes
Supporting local communities and charities
Responsible sourcing and supply chain
Modern slavery policy
Political donations
Whistle-blowing
Anti-bribery and corruption statement
Description of business model
Non-financial KPIs
Risk and risk management
N/A
N/A
N/A
Where you can find out more
Page 60
Pages 26 to 31 and page 61
Pages 26 to 31
Pages 38 to 47
Page 87
Pages 32
Page 33
Page 122
Page 82
Pages 32
Page 35 to 36
Pages 26, 43 and 61
Pages 29 and 60 and visit our website
Page 123
Page 122
Page 122
Pages 13 to 14
Page 24
Pages 57 to 64
49
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Financial review
Gross sales*
Revenue
Gross profit
Distribution costs
Administration expenses
Total operating expenses
Underlying operating profit/(loss)*
Adjusting items
Operating profit/(loss)
Net finance expense
Profit/(loss) before tax
Underlying profit/(loss) before tax*
EBITDA*
Underlying EBITDA*
Statutory earnings per share
Underlying earnings per share*
Group
52 weeks
ended
29 July 2023
£m
Snug
29 weeks
ended
29 July 2023
£m
Group excl. Snug
52 weeks
ended
29 July 2023
£m
Group
52 weeks
ended
30 July 2022
£m
343.5
325.9
152.4
(21.8)
(121.0)
(142.8)
9.6
(1.2)
8.3
(2.4)
6.0
7.2
34.0
35.2
12.8p
15.9p
4.2
4.1
2.8
(1.2)
(3.5)
(4.7)
(1.9)
(0.8)
(2.8)
-
(2.8)
(1.9)
(2.8)
(1.9)
339.3
321.7
149.6
(20.7)
(117.4)
(138.1)
11.5
(0.4)
11.1
(2.4)
8.8
9.2
36.7
37.1
344.7
331.6
156.3
(21.3)
(117.3)
(138.6)
17.6
2.6
20.2
(3.8)
16.4
13.8
46.8
44.2
36.2p
30.7p
We are pleased to be
delivering a resilient
set of numbers that
were ahead of market
expectations.”
* This report includes alternative performance measures
(APMs) which are defined and reconciled to IFRS
information, where applicable, within the Financial review
on pages 55 to 56.
50
Overview
The Group faced a challenging trading environment
throughout FY23. Whilst we were disappointed to not
see progress in our financial results, we are pleased
to be delivering a resilient set of numbers that were
ahead of market expectations. Including Snug, gross
sales were in line with the prior year. However, we
saw increased pressure on gross margin largely
due to the increased costs of providing interest-
free credit. The ScS business saw a 1.6% reduction
in gross sales, which, coupled with the 44.1% gross
margin (FY22: 45.3%), saw gross profit reduce by
£6.6m. This was partially offset by a £0.6m reduction
in operating costs and a £1.5m reduction in net
finance costs due to monies received from cash on
deposit.
Shareholder returns have increased in the year, with
a proposed full year ordinary dividend increase of
7.4%, coupled with the completion of the £7.0m share
buyback programme announced in March 2022.
The Board is mindful of the challenging economic
environment we face and remain committed to
retaining a robust balance sheet in these uncertain
times.
ScS Group plc Annual Report and Accounts 2023 On 10 January 2023, we acquired the business and
assets of Snug. Initial post-acquisition trading was
slower than we originally forecast as the business
rebuilt from a standing start and Snug made an
underlying loss before tax of £1.9m in the year.
Trading in Snug improved significantly in the final
quarter of the year.
Given Snug’s relative size, and the fact it has
sufficiently similar characteristics to the rest of
the ScS Group to allow aggregation under IFRS 8, we
have aggregated Snug into the rest of the Group as
one reportable segment. However, to provide clarity
and comparability in the first year, the following
narrative is split: ScS, Snug and Group.
ScS
Gross sales*
Revenue
Gross profit
FY23
FY22
Variance
£339.3m £344.7m
£321.7m £331.6m
£149.6m £156.3m
(1.6%)
(3.0%)
(4.2%)
(1.2%)
Gross margin*
44.1%
45.3%
Profit before tax
£8.8m £16.4m
(£7.6m)
Underlying profit
before tax*
£9.2m £13.8m
(£4.6m)
Gross sales* and revenue
Gross sales* in the period decreased by £5.4m
(1.6%) to £339.3m when compared to prior year
(FY22: £344.7m). Like-for-like* order intake remained
in line with FY22 despite a challenging economic
environment and encouragingly we saw order
growth in the second half of the year. The
movement on gross sales* is further analysed as
follows:
• A decrease in furniture sales in ScS stores of 1.5%
to £275.6m (FY22: £279.9m);
• A decrease in flooring sales in ScS stores of 7.7%
to £30.1m (FY22: £32.6m); and
• An increase in online sales of 4.1% to £33.6m (FY22:
£32.2m).
Revenue, which represents gross sales* less
charges relating to interest-free credit sales,
decreased by 3.0% from FY22 to £321.7m. Revenue
for the period has been adversely impacted by an
increase in the cost of finance due to increased
customer adoption and a number of rate increases
across the year.
Administrative expenses
Administrative expenses comprise:
• Store operating costs, principally employment
costs and property-related costs (depreciation,
rates, utilities and store repairs);
• Marketing expenditure; and
• General administrative expenditure, which
includes the employment costs for the Directors,
senior management and all customer support
functions and other central costs.
Administration costs for the year totalled £117.4m, in
line with the prior year. Administration costs were
34.6% of gross sales*, up from 34.0% in the prior year.
Key movements in the year included:
• £0.4m decrease in marketing investment, however
spend remained consistent at 6.8% of gross
sales*;
• £0.4m reduction in performance-related pay due
to a decrease in bonuses accrued for senior
management as a result of the performance
levels achieved;
• £2.4m increase in other payroll costs, largely due
to the impact of wage inflation;
• £1.5m reduction in property costs, largely due to a
decrease in depreciation charges on the right of
use assets as a result of rent reductions, with a
further benefit from rate reductions; and
• £0.1m reduction in other costs.
Gross profit
Gross margin* was 44.1% (FY22: 45.3%). The decrease
of 120 basis points was largely due to an increase
in the cost of providing credit to customers, with a
higher proportion of customers utilising credit when
compared to the prior year, further compounded
by an increase in the underlying interest rates in
the UK. As a proportion of gross sales* the cost of
interest-free credit has increased by 1.4% to 5.2%.
The business also experienced a lower margin on
display stock sales as part of the rollout of our
‘decluttering’ programme. The cost of credit and
stock impacts were partially offset by product price
rises in the year.
Distribution costs
Distribution costs comprise the total cost of
our in-house distribution function and includes
employment costs, vehicle running costs, property
and utility costs for the nine distribution centres,
as well as costs of third-party delivery services
contracted to support peak delivery periods.
Distribution costs decreased by £0.6m in the period
to £20.7m (FY22: £21.3m). As a percentage of gross
sales* for the period, distribution costs were 6.1%
(FY22: 6.2%). The reduction was driven by improved
inbound planning and performance, coupled with
fewer deliveries which resulted in the lower use of
outside carriers and agency staff.
51
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Financial review continued
ScS continued
Flexible costs
The nature of ScS’s business model, where almost
all sales are made to order, results in the majority
of costs being proportional to sales. This provides
the Group with the ability to flex its cost base as
revenue changes, protecting the business should
there be wider economic pressures. As shown
below, the proportion of cost variability remained
consistent year-on-year.
Total underlying costs before tax for the period
were £330.1m (FY22: of £330.9m).
Of this total, 74.4% (FY22: 74.3%), or £245.7m (FY22:
£245.9m), are variable or discretionary, and are made
up of:
• £189.6m cost of goods sold, including finance and
warranty costs (FY22: £188.4m);
• £20.7m distribution costs (FY22: £21.3m);
• £22.9m marketing costs (FY22: £23.3m); and
• £12.5m performance-related payroll costs (FY22:
£12.9m).
Semi-variable costs totalled £45.0m, or 13.6% of
total costs, for the year (FY22: £42.7m; 12.9%) and are
predominantly other non-performance-related
payroll costs. Depreciation, interest, rates, heating
and lighting make up the remaining £39.4m (11.9%) of
total costs (FY22: £42.3m; 12.8%).
Snug
Following the acquisition of Snug in January 2023, we
have re-established operations from an effective
standing start. This included rebuilding supplier
relationships, restoring stock levels, improving brand
awareness, and ultimately building order momentum.
These challenges meant order growth was initially
slower than we had hoped but we are pleased that
current run rates are now in line with our expectations.
52
Snug made a loss before tax in FY23 of £2.8m; removing
pre-trading costs gives an underlying loss before
tax of £1.9m in H2. Gross sales* in H2 were £4.2m and a
gross profit of £2.8m was achieved, delivering a gross
margin* of 65.8%. This gross margin was supported by
sales of stock purchased at a reduced cost as part
of the administration. Whilst we expect gross margin
to reduce in FY24, we still expect it to exceed the
ScS margin due to the sourcing profile of the Snug
business.
Distribution costs totalled £1.2m. Administration costs
were £3.5m, with the main elements being:
• Marketing costs were £1.6m, this equated to 39%
of gross sales* as we invested in re-establishing
the brand online;
• Payroll costs totalled £1.3m; and
• Other costs (including property, legal,
technology, depreciation and general running
expenses) totalled £0.6m.
• Recent trading indicates that the investment and
efforts deployed over the final six months of FY23
are proving successful.
Group
Underlying operating profit*
Operating profit before adjusting items was £9.6m
for the year, compared to £17.6m last year, driven
by the £1.9m loss incurred in Snug and the £6.6m
decrease in ScS gross profit, partially offset by a
reduction in ScS distribution costs of £0.6m.
Adjusting items
In the current year the Group has adopted an
adjusting items APM to exclude certain costs
and incomes that are material in size or unusual/
non-recurring in nature, from statutory measures
to reflect management’s view of the underlying
performance of the Group and to aid the reader of
the accounts.
Impairment charge
associated with stores
Snug acquisition and pre-
trading costs
Business interruption
insurance claim
Exit of Cambridge store
Business rates relief
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
(2,438)
(849)
1,250
790
-
(1,247)
-
-
-
-
2,570
2,570
Adjusting items (non-GAAP) comprise:
• £2.4m charge in relation to the impairment of the
Group’s property plant and equipment and right
of use assets as a consequence of the current
view on longer-term store performance in a
potentially weakened economic environment;
• Snug pre-trading costs of £0.8m, including
acquisition costs such as legal and professional
fees;
• Receipt of a £1.3m business interruption
insurance payment relating to loss of profit as
a result of the initial lockdown period during the
COVID-19 pandemic;
• An early termination payment from the landlord
to exit the Cambridge store earlier than the lease
end date, coupled with the associated gain on
disposal from the lease £0.8m; and
• During the prior year, the Group benefitted from
£2.6m of retail business rates relief provided in
response to the COVID-19 outbreak. No further
benefit was received in the year ended 29 July
2023.
* This report includes alternative performance measures
(APMs) which are defined and reconciled to IFRS information, where
applicable, within the Financial Review on pages 55 to 56.
ScS Group plc Annual Report and Accounts 2023 For further information, see note 6 to the financial
statements.
Net finance cost
The net finance cost has decreased by £1.5m to
£2.4m compared to FY22 as a result of increased
interest income earned on the Group’s significant
cash balances.
Taxation
The tax charge for the financial year is higher (2022:
lower) than if the standard rate of corporation
tax had been applied, mainly due to the impact of
non-qualifying depreciation on assets, and non-
deductible expenses.
Earnings per share (EPS)
EPS for the year ended 29 July 2023 was 12.8p (2022:
36.2p) and underlying EPS* which excludes adjusting
items, was 15.9p (2022: 30.7p).
A full reconciliation of EPS is shown in note 10 to the
financial statements.
Cash and cash equivalents
The Group operates a 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 within two working days of delivery; and
• The majority of product suppliers are paid at the
end of the month following the month of delivery
into the distribution centres.
Cash decreased by £1.3m in the year to £69.5m (2022:
£70.8m). A summary of cash flows is shown below:
Cash generated from operating
activities
Payment of capital and interest
elements of leases
Net capital expenditure
Net taxation and interest
payments
Free cash flow
Acquisition of business
combination
Dividends
Purchase of own shares
Net cash outflow
52 weeks
ended
29 July
2023
£m
52 weeks
ended
30 July
2022
£m
41.8
28.5
(23.3)
(9.3)
(28.6)
(4.7)
-
9.2
(0.9)
(4.7)
(4.9)
(1.3)
(3.9)
(8.7)
-
(4.4)
(3.6)
(16.8)
The Group continued to be cash generative in
the period with a net cash inflow from operating
activities of £41.8m.
Cash generated from operating activities is £13.3m
higher than FY22 due to the following:
• FY22 saw a large working capital outflow due
to a reduction in customer deposits as lead
times shortened, coupled with the timing of VAT
payments;
• The current year has seen a working capital inflow
as a result of the timing of month end supplier
payments. This was partially offset by a reduction
in customer deposits as lead times normalised to
pre pandemic levels;
• FY23 also saw an increase in stock levels following
the investment in our Snug business; and
• The working capital movements noted above
were partially offset by profit being higher in FY22.
* This report includes alternative performance measures
(APMs) which are defined and reconciled to IFRS information, where
applicable, within the Financial Review on pages 55 to 56.
The payment of capital and interest elements
of leases decreased by £5.4m due to the prior
year including the repayment of rent deferrals
previously negotiated with landlords when stores
were temporarily closed due to the Government’s
imposed lockdown response to COVID-19.
Net taxation and interest payments reduced by
£3.8m, due to a reduction in tax payable of £1.7m (in
line with the reduction in profit) and an increase in
interest received on cash deposits of £1.9m. Interest
payable reduced £0.2m following the renegotiation
of the Group’s revolving credit facility.
Net capital expenditure increased in the year as
the Group invested in modernising the ScS store
network and technology stack.
Cash outflow in relation to the purchase of own
shares has increased £1.3m in the year driven by a
£2.6m increase in share buybacks, partially offset
by a £1.3m reduction in shares bought by the Group’s
Employee Benefit Trust.
Capital allocation
The Group’s objectives when managing capital are
to safeguard the Group’s ability to continue as a
going concern whilst retaining financial flexibility to
both invest in the business where economic returns
are attractive and provide returns to shareholders.
We aim to allocate capital, subject to strict returns
criteria, to meet the strategic needs of the
business. Our target is gross capital expenditure of
under 4.0% of total sales per annum, on average.
During the year we invested in implementing our
new store format in eight locations as part of the
‘Engaging showrooms’ pillar of our strategy.
53
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Having considered all of the above, the Board is of
the opinion that the going concern basis adopted in
the preparation of the consolidated statements is
appropriate.
Chris Muir
Executive Director
24 October 2023
Financial review continued
Group continued
Return to shareholders
The Board recognises the importance of a dividend
to investors and is keen to reinstate a progressive
policy, with the intention to:
• Keep earnings cover in the range of 1.25x to 2.00x;
• Ensure cash cover remains in the range of 1.75x to
2.25x through the economic cycle; and
• Pay an interim dividend that will be approximately
one-third of the total dividend.
The Board considers this policy appropriate given
the strength of the balance sheet, whilst ensuring
the Group has sufficient resources to pursue
potential future opportunities to deliver growth.
The Board is confident the Group can continue
to take market share and build on the strategic
progress experienced in the past two years. The
Group paid an interim dividend of 4.5p in May 2023
(2022: 4.5p). The Board is confident in the outlook
for the Group and proposes a final dividend of 10.0p
(2022: 9.0p). If approved, this would give a full-year
dividend of 14.5p (2022: 13.5p). The final dividend,
if approved, will be paid on 15 December 2023 to
shareholders on the register on 17 November 2023.
The ex-dividend date is 16 November 2023.
contain a standard change of control clause that
will be triggered once the acquisition completes.
This could result in the existing committed debt
facilities being withdrawn. The Group does not
have visibility of the post completion funding for
the Group at this time. Therefore, this could create
some uncertainty as to the Group’s going concern.
The Directors note the detailed intention
statements by Poltronesofà S.p.A. included within
the announcement on 24 October 2023, which
state that following completion of the acquisition,
Poltronesofà S.p.A. intends to support the Group
by leveraging its significant, pan-European industry
expertise and providing the capital necessary
to accelerate the Group’s strategy. Poltronesofà
S.p.A. is highly supportive of management’s vision
for the business and the long-term ambitions
of being the UK’s best value-for-money home
retailer and recognises and values the strong
strategic, operational and product positioning and
setup of the Group, as well as the expertise of its
management team and employees. Poltronesofà
S.p.A. therefore intends to work closely with
the Group’s senior management to undertake a
strategic review of the Group in order to determine
how its short and long-term objectives can best be
delivered or exceeded.
In March 2022 the Group announced a share buyback
programme which was completed in February 2023
returning £7.0m to our shareholders.
Offer for the Company
Following the year end, on 24 October 2023 a wholly-
owned subsidiary of Poltronesofà S.p.A. announced
a recommended cash offer for the Company of 270p
per share. It is intended that the acquisition will be
implemented by way of a Court-sanctioned scheme
of arrangement under Part 26 of the Companies Act
and is expected to complete in the first quarter of
2024. The Group’s existing committed debt facilities
Notwithstanding Poltronesofà S.p.A.’s stated
intentions, the current Directors will not have full
control over the acquired Group and therefore they
do not currently have full knowledge of the new
ultimate parent undertaking’s future intentions and
funding plans in relation to the Group. Therefore
the change of control position indicates a material
uncertainty which may cast significant doubt upon
the Group and the Company’s ability to continue as
a going concern. The financial statements do not
include the adjustments that would result if the
Group and the Company were unable to continue as
a going concern.
54
ScS Group plc Annual Report and Accounts 2023 Alternative performance measures (APMs)
In the reporting of financial information, the Board has adopted alternative performance measures (APMs). APMs should be considered in addition to IFRS
measurements. The Board believe that these APMs assist in providing useful information on the underlying performance and position of the Group and enhance the
comparability of information between reporting periods by adjusting for non-underlying items which affect IFRS measures and are used internally by the Board to
measure the Group’s performance.
Consequently, APMs are used by the Board and management for performance analysis, planning, reporting and incentive setting purposes and have remained
consistent with prior period. The measures are also used in discussions with the investment community. The key APMs used by the Group are summarised in the table
below.
APM
Definition
Like-for-like order intake
Gross sales
‘Like-for-like’ order intake comprises total orders
(inclusive of VAT) in a financial period compared to
total orders achieved in a prior period excluding
new or closed stores to ensure comparability.
Gross sales represents turnover on the sale of
goods and commission on warranties before
deduction of interest-free credit.
Gross margin
Gross profit as a percentage of gross sales.
Reconciliation
N/A
Revenue
Add back: costs of interest-free credit
Gross sales (note 3)
Revenue
Add back: costs of interest-free credit
Gross sales (note 3)
Gross profit
Gross margin
Adjusting items
Certain costs or incomes that are material in size
and unusual/non-recurring in nature are excluded
from statutory measures to reflect management’s
view of the underlying performance of the Group.
FY23
£’000
325,865
17,592
343,457
FY23
£’000
325,865
17,592
343,457
152,398
44.4%
FY23
£’000
FY22
£’000
331,569
13,141
344,710
FY22
£’000
331,569
13,141
344,710
156,264
45.3%
FY22
£’000
Adjusting items (note 5)
(1,247)
2,570
55
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Alternative performance measures (APMs) continued
APM
Definition
Reconciliation
EBITDA and underlying
EBITDA
Earnings before interest, tax, depreciation and
amortisation (EBITDA). Underlying EBITDA is before
the effect of adjusting items in the year.
Underlying operating
profit
Underlying operating profit is based on operating
profit before the effect of adjusting items in the
year.
Underlying profit before
tax
Underlying profit before tax is based on profit
before tax before the effect of adjusting items in
the year.
Underlying basic
earnings per share (EPS)
Underlying basic EPS is based on earnings per share
before the effect of adjusting items in the year.
Statutory operating profit
Depreciation of tangible fixed assets
Depreciation of right-of-use assets
Amortisation of intangible assets
EBITDA
Adjusting items
Underlying EBITDA
Statutory operating profit
Adjusting items
Underlying operating profit
Statutory profit before tax
Adjusting items
Underlying profit before tax
Profit for the year
Adjusting items net of tax
Underlying profit after tax
Number of shares (000’s)
Underlying EPS
FY23
£’000
8,346
4,179
20,269
1,185
33,979
1,247
35,226
FY23
£’000
8,346
1,247
9,593
FY23
£’000
5,985
1,247
7,232
FY23
£’000
4,450
1,055
5,505
34,691
15.9p
FY22
£’000
20,199
4,162
21,523
882
46,766
(2,570)
44,196
FY22
£’000
20,199
(2,570)
17,629
FY22
£’000
16,358
(2,570)
13,788
FY22
£’000
13,584
(2,082)
11,502
37,499
30.7p
56
ScS Group plc Annual Report and Accounts 2023 Risk and risk management
Our approach to risk management
Our approach to risk management is regularly benchmarked against best practice and strengthened
where necessary.
Risk identification and evaluation
The Board, Executive Board and senior management
team are actively engaged in a continuous process
to manage risks and internal controls.
This process encompasses the following key
activities:
•
Identifying, evaluating, measuring and disclosing
risks;
• Maintaining detailed functional risk registers and
ensuring mitigation measures are in place;
• Testing and refining of mitigating controls on a
regular basis;
• Actively identifying, controlling and reporting of
emerging risks;
• Tracking key performance metrics;
• Regular review of the principal risks and related
mitigation measures by the Executive Board,
which includes the Chief Executive Officer and
Chief Financial Officer;
• Formal assessment three times a year of the key
risks and uncertainties by the Audit Committee
and the Board;
• Regular presentations to the Board, Executive
Board and Audit Committee on key risk areas by
the Head of Audit, Risk & Compliance; and
• Reviewing the Group’s viability statement on an
annual basis.
Risk appetite
Risk appetite is the level of risk that the Group is
willing to take to meet our strategic and operational
objectives. In determining this, we recognise that
there is a balance between a prudent approach
to risk and sufficient flexibility to take appropriate
opportunities when they arise.
Risk appetite is set by the Board in consultation with
the senior management team and is aligned to the
Group’s strategic goals and priorities. During the
year, we agreed that from next year, we will increase
the frequency of review of our risk appetite to
twice per annum. These reviews will be completed
in line with our half-year and year-end reporting
timescales.
Our appetite for taking risks is determined by the
category of risk. The Board typically has a lower
appetite for risk in areas such as regulation and
finance, but is more willing to accept a higher appetite
for risks in relation to corporate transactions.
Key roles and responsibilities
The Board establishes strategic goals, determines
risk appetite and oversees performance. It also
has ultimate responsibility for the leadership of risk
management.
Approving and communicating risk policies is the
responsibility of the Executive Board. Additionally,
the Executive Board is responsible for managing
risks, promoting open dialogue about risks (both
existing and emerging) and taking ownership of
each major risk across the entire Group.
Internal controls and risk management are
governed by the Audit Committee. The Committee
evaluates the internal controls system for the
Group, establishes goals and monitors the
effectiveness and efficiency of the audit, risk and
compliance teams. The Committee also reviews and
monitors the professionalism and independence of
the external auditors.
Managing risks internally
Risks are identified, assessed and managed at
a departmental level. Risks, mitigating controls
and emerging risks, identified by the senior
management team with input from the relevant
director, are documented on functional risk
registers. The audit, risk and compliance teams
complete quarterly reviews of these registers to
reflect any relevant changes and ensure the level of
risk remains consistent with our risk appetite.
The functional risk registers are consolidated into
the corporate risk register which is subject to
formal quarterly review by the Executive Board and
at every Audit Committee meeting.
57
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Risk and risk management continued
Process for preparing consolidated
financial statements
The Group has established internal controls
and risk management systems in relation to the
process for preparing consolidated financial
statements.
The key features of this are:
• Management regularly monitors and
considers developments in reporting
regulation and, where appropriate, reflects
developments in the consolidated financial
statements. The external auditors and
the Audit Committee also keep the Board
appraised of these developments;
• The Audit Committee and the Board review
the consolidated financial statements. This
review takes into account reports from
management and the external auditors
on significant judgements, changes in
accounting policies, changes in accounting
estimates and other relevant matters to the
consolidated financial statements; and
• The full-year financial statements are subject
to external audit and the half-year financial
statements are reviewed by the external
auditors.
The Board’s assessment of the long-term
viability of the Group is also reviewed annually,
taking account of the principal risks faced. The
approach for assessing long-term viability is set
out on page 65.
58
Risk management framework
The graphic below illustrates how our risk
management framework enables us to maintain
governance over risk management activities across
the Group.
Top-down
Corporate level oversight of risk
Board, Executive Board and the
Audit Committee
Key risks and
emerging
risks
identified
Review,
monitor and
report to
the Audit
Committee
Risk evaluated
and rating
assigned
Implement
agreed
processes
and
mitigation
Identify the
required
actions
against each
risk
Bottom-up
Functional and operational level risk
Audit, risk and compliance team, Executive Board
and senior management team
Principal risks and uncertainties
A principal risk is a risk or combination of risks that
could seriously affect our future performance,
strategic ambitions and/or reputation. Our principal
risks and uncertainties have been assessed in
accordance with our framework.
Identifying risks
The identification and review of emerging risks are
embedded into our risk management process, and
our principal risks are updated accordingly.
The Board confirms that it has performed a robust
assessment of the emerging and principal risks and
mitigating controls.
Management of ESG risks
We continue to work towards building a sustainable
business model, both in terms of our impact on
climate, the environment and protecting the
long-term success of the Group. ESG is considered
throughout the Group’s risk management process.
This year, we have added climate change as a new
principal risk.
Further information on our approach to tackling
these issues is set out in our Responsibility and
sustainability report on pages 26 to 37.
Economic environment
The ‘Economic environment’ principal risk is directly
impacted by ongoing low consumer confidence in
the UK.
The significant increases in energy prices, general
price inflation and interest rates have all continued
to place pressure on household budgets, which
is negatively affecting consumer confidence. The
cost of living crisis has become part of people’s
daily financial reality and is continuing to have an
impact on their decisions in relation to spending
on non-essential items, and in particular big ticket
items.
ScS Group plc Annual Report and Accounts 2023 Risk description
Mitigation
Risk profile
Risk
appetite
Management
responsibility and
performance indicator
Link to strategic
priorities
ECONOMIC ENVIRONMENT - Strategic risk
Demand for our products is heavily influenced by
factors affecting the economic environment in
which the Group operates.
Increases in interest rates and associated
higher costs of borrowing may further reduce
levels of discretionary spend. The Group’s ability
to offer interest-free credit to customers may
be impaired because of high default levels or
increased interest rates.
Exchange rates fluctuations and cost of
borrowing could also lead to cost pressure on
our suppliers, which in turn could be passed on
to the Group.
COMPETITION – Strategic risk
The Group operates in a fragmented competitive
market (including independents, direct purchase
from manufacturers and pure online companies),
which could lead to reduced market share.
Failure to respond quickly and effectively to
changing consumer needs could lead to reduced
sales and impact profitability.
Over the year we have continually improved our product range of furniture,
flooring, dining and occasional furniture. Our range caters for a wide range
of budgets, ensuring that we can continue to offer an excellent product at
all price points. We have invested significantly in our showrooms and our
new look stores have performed well.
↑
H
Medium
Executive Board
reporting to PLC
Board
• Gross sales
The Group provides a range of flexible finance solutions to customers to
make the purchasing of our products easier.
We purchase our products on a sterling basis which reduces our exposure
to exchange rate movement. We work closely with our suppliers to
minimise any impact on our cost base.
We have expanded our offering to customers through the introduction of
new brands, products with shorter lead times, new designs and ranges
which has ensured that we have remained a competitive and attractive
proposition for our customers. Our inclusion of a new hard flooring
proposition across laminate, luxury vinyl tiling and engineered wood has
increased the products offered to our flooring customers.
↔
M
Medium
Executive Board
reporting to PLC
Board
• Gross sales
1
3
5
1
3
5
2
4
6
2
4
6
We continue to invest in detailed product line level margin analysis,
allowing us to monitor the success of our product ranges and make
informed decisions and changes to our offering.
We are leaders in our market for gathering feedback from our customers
throughout the customer journey and across a number of platforms.
We continue to invest in enhancing the customer experience and the
success of this strategy is reflected in our ‘Excellent’ Trustpilot score.
We acquired the business and assets of Snug, an innovative digital-first
sofa and sofa-bed business specialising in modular and reconfigurable
sofas. Its differentiated digital-first offering has complemented the
Group’s existing proposition.
Key
↔ Risk unchanged
↑ Increased risk
↓ Reduced risk
H High risk
M Medium risk
L Low risk
1
Outstanding team
2
Customer driven
3
Inspiring ranges
4
Digitally optimised
5
Engaging showroom
6
Strengthen the core
59
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Risk and risk management continued
Risk description
Mitigation
Risk profile
Risk
appetite
Management
responsibility and
performance indicator
Link to strategic
priorities
REGULATION & COMPLIANCE – Strategic risk
The Group activities are subject to a number
of compliance requirements, including
the Financial Conduct Authority (FCA), the
Information Commissioner’s Office (ICO) and the
Financial Reporting Council (FRC), environmental
regulations, employment law, advertising
standards and competition law. We are also
subject to health and safety legislation, and
other product-related regulation.
Failure to meet any of our regulatory obligations
or guidelines could result in a financial impact,
such as fines and reputational damage.
Internal policies are in place with guidelines and procedures covering
our code of conduct, information security, anti-bribery and corruption,
anti-money laundering and whistle-blowing. All our policies are subject
to annual review and are updated and re-issued as required. Adherence
to these policies forms part of our independent compliance monitoring
programme.
↔
M
Low
Corporate
Services Director
reporting to CEO
• Prosecution or
regulatory
action
1
3
5
2
4
6
Our dedicated health and safety team carry out regular inspections at all
our retail and distribution sites, to confirm that the required compliance
and health and safety standards are being met. A monthly report of the
results of all audits and inspections is provided to the Executive Board.
Health and safety reports are shared with the Board at each meeting.
Training programmes are in place to ensure that all staff are provided with
relevant training for regulated activities, in line with their role.
The Group actively monitors any other areas for future guidance or
regulations that may affect the Group’s activities and will implement any
changes, if required. In particular, we continue to monitor the Department
for Business and Trade (previously Department for Business, Energy
and Industrial strategy) publications on audit, reporting and corporate
governance reform, and the guidelines issued by the FCA on ‘Consumer
Duty’.
Our independent confidential whistle-blower hotline is in place and
reports are sent directly to the Head of Audit, Risk & Compliance, who in
turn reports any concerns to the Executive Board and the Board.
All our suppliers of products for resale are required to be members of
Sedex. This process gives us assurance that the risk of modern slavery
is reduced and compliance with relevant legislation and best practice is
monitored.
Key
↔ Risk unchanged
↑ Increased risk
↓ Reduced risk
H High risk
M Medium risk
L Low risk
60
ScS Group plc Annual Report and Accounts 2023 Risk description
Mitigation
RESPONSIBLE SOURCING AND SUPPLY CHAIN – Strategic risk
The supply chain could be affected by capacity,
availability or by an increase in the cost of raw
materials, labour shortages and transport
delays, which may result in a reduction in margin
or lead to a less competitive price point.
Failure to reduce the environmental impact of
our business, including those linked to our supply
chain, could result in reputational damage,
impacting the future performance of the Group.
Failure of suppliers to obtain credit insurance
could have a significant impact on our suppliers’
working capital requirements, which may have a
material impact on the Group’s cash position and
overall financial position.
Over the past year we have expanded our supply base to reduce reliance on
key suppliers or any particular location.
To ensure new suppliers comply with our standards, we carry out due
diligence checks covering quality management systems, ethical labour
sourcing, health and safety processes, environmental stewardship and
sustainability. Details of our expectations as a supplier to ScS are set out
within our supplier handbook.
The Group has a programme to carry out regular independent product
testing, to ensure ongoing compliance to current regulations. We are
working with our suppliers to attain Forest Stewardship Council® (FSC®)
accreditation, which has already been achieved on a number of ranges.
During the year, we achieved Kitemark certification for domestic furniture
by the British Standards Institute (BSI). We are one of only three furniture
retailers in the UK to hold this stamp of approval.
We are a member of the Furniture Industry Research Association (FIRA)
compliance scheme and achieve continued accreditation. We are also
working with our suppliers and the Leather Working Group, which we
joined in 2021.
Risk profile
Risk
appetite
Management
responsibility and
performance indicator
Link to strategic
priorities
↔
M
Low to
medium
Commercial
Director
reporting to CEO
• Gross sales
• Customer
feedback
• Delivery
optimisation
BUSINESS SYSTEMS AND INFRASTRUCTURE – Infrastructure risk
Our business operations are heavily dependent
on our systems being available, meaning a
significant data breach or cyber-attack could
adversely impact our reputation, result in legal
exposure including significant fines, business
disruption, loss of information for our customers
or employees and potential loss of customer
confidence.
The Group is reliant upon key IT systems and
failure of our IT infrastructure or disruption to
such systems could result in the Group’s inability
to operate effectively, resulting in disruption to
our sales process and limit our ability to deliver
goods to our customers.
Our in-house IT team ensure that all relevant software and hardware
updates are installed when required, along with an established third-party
regular penetration testing programme to monitor the Group’s resilience
against cyber-attacks.
↔
M
We also have a monitoring programme in place to check access to
networks and systems is appropriately controlled and access to sensitive
data is limited.
Information security and data protection policies are in place and training
for information security (GDPR) is mandatory for all staff.
During the past year, we commenced a significant project to invest in
updated technology that will support the Group and our future growth
plans. This project will continue over the next two years and will improve
systems resilience, whilst delivering efficiencies and increased insight
across the business.
Low to
medium
Chief Marketing
& Digital Officer
reporting to CEO
• System
performance
1
Outstanding team
2
Customer driven
3
Inspiring ranges
4
Digitally optimised
5
Engaging showroom
6
Strengthen the core
61
1
3
5
1
3
5
2
4
6
2
4
6
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Risk and risk management continued
Risk description
Mitigation
Risk profile
Risk
appetite
Management
responsibility and
performance indicator
Link to strategic
priorities
Low to
medium
People Director
reporting to CEO
• Colleague
retention
• Team
engagement
surveys
1
3
5
2
4
6
OUR PEOPLE AND CULTURE – Infrastructure risk
The ongoing success of our business is
dependent upon our ability to attract, retain and
develop the right talent, skills and capabilities
and to embed our values in our culture. Failure to
meet any of these objectives could impact the
delivery of our strategy.
The Group strives to ensure colleague remuneration is competitive,
conducting regular function-specific benchmarking and business-wide
annual salary reviews. We continually review our terms and conditions
of employment, incentives and benefit packages, to ensure they remain
competitive across the sector.
↔
M
Regular employee surveys are carried out to understand whether our
colleagues are engaged and have a clear understanding of the Group’s
culture and strategy.
We continue to maintain our accreditation as an ‘Investor in People’
employer helping support a wider strategy for ‘Building and inspiring an
outstanding team’. We also achieved the Bronze ‘Better Health at Work
Award’.
As part of the Group’s ESG strategy and in support of our colleagues
participating in charitable activities, we launched our volunteering
policy. Our colleagues are actively encouraged to volunteer with local
organisations and charities. We aim to support a minimum of 1,000
volunteering days before the end of FY25.
‘Within our ESG strategy we continue to progress with our target of
increasing the number of female colleagues in management and Board
roles.’
We have a number of staff trained in mental health first aid and all
colleagues have access to free counselling services.
We are delighted to see our eSAT score increase from 71 to 75 when
compared to FY22. This was coupled with a 12.8% improvement in staff
turnover.
Key
↔ Risk unchanged
↑ Increased risk
↓ Reduced risk
H High risk
M Medium risk
L Low risk
62
ScS Group plc Annual Report and Accounts 2023 Risk description
Mitigation
Risk profile
Risk
appetite
Management
responsibility and
performance indicator
Link to strategic
priorities
BRAND & REPUTATION – Reputation risk
Failure to protect our brand could result in a loss
of confidence by customers, colleagues and
other key stakeholders.
Our reputation could be damaged if we do
not provide an excellent customer service
throughout the customer journey, from the first
contact in our stores or online, to customer
deliveries and aftercare.
All of our colleagues are trained to ensure they give the highest possible
care to our customers and to each other.
We have a number of strategies in place to deliver great customer service
including a newly improved induction process, refresher online training
and external training.
↔
L
Low to
medium
Corporate
Services Director
reporting to CEO
• Trustpilot
• Negative press
1
3
5
2
4
6
We continue to review colleague engagement and feedback through
completion of staff surveys.
As part of our continued efforts to improve our customer experience, we
implemented a new end-to-end technology solution, in our dedicated
customer contact centre, that delivers significant improvements in
workflow management.
We are leaders in our market for gathering feedback from our customers
throughout the customer journey and across a number of platforms
and our continually updated website now allows us to have oversight of
our customers’ opinions on our products, so we can ensure that we are
meeting their expectations and identify areas for improvement.
We are full members of the Furniture Ombudsmen, which has improved our
customer outcomes and the efficiency of dispute handling.
Product performance is monitored by our commercial and customer
service teams and regular meetings are held with suppliers to identify
areas of improvement, including working to ensure our suppliers source
sustainable products.
We share all our policies, procedures and code of conduct on our
intranet, which set out the expectations and behaviours required from
all our colleagues. The Group’s audit, risk and compliance teams monitor
standards throughout the business.
1
Outstanding team
2
Customer driven
3
Inspiring ranges
4
Digitally optimised
5
Engaging showroom
6
Strengthen the core
63
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Risk and risk management continued
Risk description
Mitigation
Risk profile
Risk
appetite
Management
responsibility and
performance indicator
Link to strategic
priorities
KEY TRADING PERIODS – Strategic risk
Furniture retailing has historically relied on key trading periods.
Extreme weather conditions or showroom closures, due to
unexpected events, may reduce footfall in our showrooms over
these key periods, resulting in reduced sales and potentially
adverse effects on profitability.
Our econometric model, which uses our customer data to
establish the most appropriate investment in our marketing
channels, and our flexible approach to marketing, has
enabled us to react quickly to unexpected disruptive events.
↔
M
Medium
We continually review our marketing strategies, ensuring our
investment into relevant advertising channels maximises
our opportunity to reach our customers.
We continue to monitor the impact of the cost of living
crisis on our key trading periods and have taken appropriate
action in response.
We have invested in our digital platform to improve the
online shopping experience for the customer, allowing us
to continue to trade successfully throughout any impact of
adverse periods of weather or showroom closures.
Executive Board
reporting to PLC
Board
• Sales
performance
CLIMATE CHANGE – Reputational risk
Our key stakeholders, including customers, employees, investors
and regulators, as well as the media, continue to focus on the
Group’s policies and management regarding environmental, social
and governance (ESG) risks.
The following are some key points from our ESG strategy:
• We have a programme in place to reduce waste at
source and at all points throughout the product
journey;
Failure to meet customer demand for sustainable products could
result in reduced sales revenue. Ensuring the sustainability of
the products that we sell could come with increased costs for
both the development and the production of these items. Either
scenario could impact negatively on business results.
Not adapting to public interest in social and environmental
concerns may impact customer demand and potentially
demotivate colleagues.
As a UK premium listed company, the Group is required to make
TCFD disclosures in its annual report.
Please see our detailed TCFD report on pages 38 to 47 and our
Responsibility and sustainability report on pages 26 to 37.
• We are reviewing how electric delivery vehicles could
be used in our distribution network;
• Committed to renewable electricity;
• Developing a Net Zero strategy with an external
consultant;
• Continuing to introduce further sustainable products
into our range; and
• Encouraging staff to reduce wastage in our
operational and support centres.
NEW
Low
↑
M
Executive Board
reporting to PLC
Board
1
3
5
1
3
5
2
4
6
2
4
6
Key
↔ Risk unchanged
↑ Increased risk
↓ Reduced risk
H High risk
M Medium risk
L Low risk
1
Outstanding team
2
Customer driven
3
Inspiring ranges
4
Digitally optimised
5
Engaging showroom
6
Strengthen the core
64
ScS Group plc Annual Report and Accounts 2023 Viability statement
The UK Corporate Governance Code requires the Group to issue a ‘viability statement’ articulating whether we
believe the Group can continue to operate and meet its liabilities, after accounting for its principal risks in the
medium to longer term.
Due to the inherent pace of change in the wider
economy, which is often amplified in the retail
sector, the Group continues to ensure focus on
delivery of short to medium-term goals.
The strategy, and associated principal risks,
underpin the Group’s three-year strategic planning
process (‘the Strategic Plan’), which is updated
annually. This process accounts for current and
prospective macroeconomic conditions in the
UK and the competitive tension that exists within
the markets we trade. The defined period of
three years, set out within the Strategic Plan, is
considered appropriate for business planning,
and measuring performance, as it aligns with the
payback requirements of any significant capital
investment (new stores).
As part of measuring the Group’s financial
performance against the Strategic Plan, sensitivity
analysis over the main assumptions which underpin
the plan is conducted. The plans are approved
by the Directors and performance is continually
tracked throughout the year against financial
budgets and key performance indicators (KPIs). In
order to remain agile and responsive to the pace
of change in the environment which the Group
operates in, management pertinently updates its
financial forecast and reassesses it at each Board
meeting.
In evaluating the Group’s future prospects the
following was considered:
Economic environment
Uncertainty remains over macroeconomic risks
brought on by headwinds such as inflation, interest
rates and cost pressures which include a reduction
in consumer confidence and changing customer
spending behaviours.
Variable or discretionary
total Group costs
74%
Cash balance as at 29 July 2023
£69.5m
Undrawn committed
revolving credit facility
£12.0m
Our strategic progress
The Group is reliant on its detailed strategy in order
to achieve its forecasts. We have continued to make
progressive strides in the year against our strategy,
and remain confident that the execution of the next
phase will continue to provide opportunities to grow
market share.
Supplier resilience and capacity
If a supplier was unable to keep pace with demand,
or cease to be able to trade, this would disrupt
supply to our customers. We continue to maintain,
and continually strive to better our relationships,
allowing us to closely monitor both their financial
stability and production capacities.
Group financial position
The Group continues to maintain a strong financial
position and at the year end had cash of £69.5m,
no financial debt and access to a revolving credit
facility of £12.0m which remains undrawn.
The Board is satisfied with the resilience of our
business model and is confident we are able to
continue to leverage this to achieve sustainable
long-term growth.
65
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Links to principal risks
Economic environment
product ranges, would be sufficient to limit the
Group’s reliance on a single supplier.
Viability statement continued
Scenarios modelled
Scenario 1: Economic downturn resulting in a decrease in revenue whilst maintaining gross margin
A challenging economic environment takes a toll on consumer confidence, reducing customers’
discretionary spend and causing a decline in sales volume. It is assumed that the gross margin remains
consistent with the base case scenario and that the decrease in sales volume will be partially offset
through minor management of our flexible cost base.
Assumptions
Sales: Reduction in volume for a period of 36 months.
Gross margin: Remains in-line with the base case scenario for a period of 36 months.
Scenario 2: Economic downturn resulting in a decrease in gross margin
A challenging economic environment has resulted in an increase in product cost and the costs of
providing credit to our customers. The Group is unable to fully pass on costs. This results in reduced
performance over the 36-month period being assessed.
Assumptions
Sales: Remain in-line with the base case for a period of 36 months.
Gross margin: Decreases for a period of 36 months to levels lower than seen historically.
Scenario 3: Severe economic downturn and the withdrawal of supplier credit insurance
A severe downturn in economic conditions resulting in both a reduction in revenue and gross margin,
together with the assumption that our suppliers have the credit insurance they use to support their
payment terms with the Group withdrawn, seeing our suppliers request earlier payment dates to
alleviate their working capital challenges.
Assumptions
Sales: Severe reductions for a period of 24 months with a partial recovery in the final 12 months.
Gross margin: Significant reduction for 24 months remaining flat thereafter.
Working capital: Cash required to pay suppliers in advance of delivery of product (and therefore in
advance of receipt of final balances from customers).
Competition
Responsible sourcing and
supply chain
Economic environment
Competition
Responsible sourcing and
supply chain
Economic environment
Competition
Responsible sourcing and
supply chain
Assessment of viability
The Strategic Plan is stress tested for severe but
plausible scenarios and the effectiveness of any
mitigating actions that would reasonably be taken.
Macroeconomic indicators such as price inflation
and interest rate increases have led to a downturn in
consumer confidence which may present challenges
for the Group as customers household budgets are
stretched they respond by reigning in discretionary,
big ticket spend. Our finance providers become
more expensive due to increases in the current and
forecasted interest rates and our supplier’s credit
insurance, which they use to support their current
payment terms, may be adjusted or withdrawn,
accelerating the timing of cash payments. The
Strategic Plan was therefore specifically stress tested
against the key risks identified, with attention to the
principal risks and uncertainties highlighted on pages
57 to 64. The scenarios ran are shown above.
Due to the significant cash reserves held, and
the flexibility of the cost base of the Group, the
outcome of this stress testing satisfied the
Directors in regard to the ongoing liquidity and
solvency of the Group over the three-year period
under review. 74% of total Group costs are variable
or discretionary allowing the Group to remain agile
and reduce costs safeguarding against challenging
trading conditions. Significant cash reserves
combined with the aforementioned cost reductions
supplemented with the appropriate, proportional
mitigating actions would ensure the Group could
continue to meet its liabilities.
In addition to the modelled scenarios, the Directors
are comfortable that the work done to minimise
the risk to the supply chain, principally ensuring
we maintain a diverse portfolio of suppliers, and
the ability of multiple factories to produce similar
66
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. The Group continues to
hold a significant cash balance and an undrawn
£12.0m committed revolving credit facility which
has never been utilised and would not be required
under the modelled scenarios. The Strategic Plan
also encompasses the projected cash flows and
headroom against financial covenants under the
Group’s facility.
Conclusion
On balance of this assessment, the Directors have a
reasonable expectation that the Group will be able
to continue to operate, meeting its liabilities as and
when due over the period to 25 July 2026. 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.
This Strategic report, which has been prepared
in accordance with the requirements of the
Companies Act 2006, has been approved and signed
on behalf of the Board.
Based on the results of their assessment,
notwithstanding the material uncertainty arising
from the offer from Cerezzola Limited (a wholly-
owned subsidiary of Poltronesofà S.p.A.), the
Directors have a reasonable expectation that the
Group will be able to continue in operation and meet
liabilities as they fall due over the three-year period
of their assessment.
Steve Carson
Chief Executive Officer
24 October 2023
ScS Group plc Annual Report and Accounts 2023 Corporate
governance
68 Board of Directors
72 Corporate governance statement
72 Introduction from the Chair
73 Compliance with the UK Corporate Governance Code
75 Board leadership and company purpose
79 Division of responsibilities
82 Composition, succession and evaluation
86 Nomination Committee report
89 Audit Committee report
97 Directors’ remuneration report
120 Directors’ report
124 Statement of Directors’ responsibilities
67
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Board of Directors
Strength in leadership
Alan Smith
Non-Executive Chair
Date of appointment: 22 October 2014
Committee membership
R N
John Walden
Non-Executive Chair Designate
Date of appointment: 1 March 2023
Committee membership
A R N
Steve Carson
Chief Executive Officer
Date of appointment: 6 January 2021
Committee membership
n/a
Biography
Alan is an experienced Chair and former CEO having held a number of
roles for retail companies across the private equity and quoted sector
previously, including Chair and CEO of Robert Dyas, CEO of Somerfield,
CEO of Evans Halshaw plc and Managing Director of B&Q.
The original intention was that Alan would step down from the Board and
leave the Group on 1 December 2023. Alan will now step down as Chair on
1 December 2023, but remain on the Board as a Non-Executive Director
until the conclusion of the offer for the Company.
John Walden was appointed as Non-Executive Chair Designate in March
2023 and is in line to succeed Alan as Chair on 1 December 2023.
John will also take over from Alan as Chair of the Nomination Committee.
Key strengths
Alan has significant board, retail and financial experience gained
across a number of business sectors. As Chair, he has a deep
understanding of governance and what is required to lead an effective
Board.
External appointments
• Director of The Navy, Army and Air Force Institutes
• Chair of The Royal Air Force Charitable Trust Enterprises
• Director of Scampton Airshow Limited
Biography
John joined the Board in March 2023 as Non-Executive Chair Designate,
with the intention that he will become Non-Executive Chair of the Board
on 1 December 2023 upon Alan Smith’s retirement. John will become
Chair of the Nomination Committee and step down from the Audit
Committee upon commencement of his role as Chair.
John is also Non-Executive Chair of Motorpoint plc and SnowFox
Topco Ltd, the topco responsible for Yo Sushi and other sushi-related
businesses in the UK and North America. John has held a number of
senior roles including Chair of Naked Wines and Chair of Holland &
Barrett International. John was previously Executive Director at FTD
Companies and CEO of Argos and its parent company Home Retail Group
plc. Prior to this he held several senior roles with Best Buy Co. including
Executive Vice President and President of the internet division.
Key strengths
John brings deep board-level expertise in both executive and non-
executive capacities, has excellent consumer-driven and omnichannel
experience, and has led transformational and digital change, both in
the UK and US.
External appointments
• Chair of Motorpoint plc
• Chair of SnowFox Topco Ltd
Biography
Steve brings deep knowledge and experience in retail and leadership
after an extensive career in the sector, most recently as Group
Managing Director of Holland & Barrett. Prior to this, Steve held a
number of roles at Home Retail Group plc (HRG), which owned a number
of well-known brands such as Argos, Homebase and Habitat. Steve
latterly served as Director of Retail and Customer Operations and a
Board member from 2014 to 2018, during which time HRG was acquired by
Sainsbury’s plc, where Steve had also begun his career.
Key strengths
Steve is a strong business leader with excellent commercial, marketing
and retail experience. He has experience in strategy implementation
and developing digital revenue streams.
External appointments
• Director of Marie Curie
• Director of CJC HR Consultancy Ltd
68
ScS Group plc Annual Report and Accounts 2023 Committee membership key
A Audit Committee Chair
A Audit Committee member
R Remuneration Committee Chair
R Remuneration Committee member
N Nomination Committee Chair
N Nomination Committee member
Angela Luger
Non-Executive Director
Date of appointment: 16 May 2019
Committee membership
A R N
Mark Fleetwood
Chief Financial Officer
Carol Kavanagh
Non-Executive Director
Date of appointment: 4 September 2023
Date of appointment: 26 September 2022
Committee membership
n/a
Committee membership
A R N
Biography
Angela began her career in marketing with Cadbury’s, Coca Cola and
Mars, prior to moving into retail. She spent 10 years at Asda, holding
a variety of positions including Trading Director and Global Managing
Director for George. She was MD of Debenhams, CEO of The Original
Factory Shop and most recently was the CEO of N Brown Group plc,
where she led the business through a significant digital transformation.
Angela will succeed Ron McMillan as the Senior Independent Director on
1 December 2023.
Key strengths
Angela has significant experience in marketing, e-commerce and retail,
including leveraging technology to optimise a value retail offering.
External appointments
• Non-Executive Director of Portmerion Group plc
• Non-Executive Director of Jet 2 plc
• Non-Executive Director of New Look Retailers Limited
• Non-Executive Director of JD Sports Fashion plc
• Director of The Pennies Foundation
Biography
Mark joined the Board as Chief Financial Officer on 4 September 2023. He
is a chartered accountant (FCA) and qualified with KPMG in 2005.
Mark has significant retail and PLC experience. He most recently served
a five-year term as Chief Financial Officer of END. (endclothing.com),
the digital-led global fashion retailer based in the North East, where he
supported the business during a period of high-growth. Prior to this,
he was the Corporate Finance Director at Grainger plc, the UK’s largest
listed residential landlord. Before Grainger, he held senior roles at N+1
Singer and Brewin Dolphin.
Key strengths
Mark has extensive digital, retail and financial experience and a strong
track record of delivering strategic progress.
External appointments
n/a
Biography
Carol joined the Board in September 2022 as a Non-Executive Director
and is a member of the Audit Committee, the Remuneration Committee
and the Nomination Committee. She is also the Remuneration
Committee Chair of Speedy Hire plc and an independent Remuneration
Committee member for British Swimming. Carol has over 20 years of
experience working in senior human resource roles across public
companies in construction and retail sectors, including as Group HR
Director for Travis Perkins Plc from 2007 to 2020.
Carol took over from Angela Luger as Chair of the Remuneration
Committee from March 2023.
Key strengths
Carol has extensive retail and Board experience. She brings with her
a wealth of knowledge gained through previous HR roles and current
Remuneration Committee positions which will be of great value to the
Group.
External appointments
• Remuneration Committee Chair of Speedy Hire PLC
•
Independent Remuneration Committee member for British
Swimming
• Director of CMK Associates Limited
69
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements
Board of Directors continued
Andy Kemp
Non-Executive Director
Ron McMillan
Non-Executive Director
Date of appointment: 1 February 2023
Date of appointment: 22 October 2014
Committee membership
Committee membership
A R N
A R N
Swarupa Pathakji
Non-Executive Director
Date of appointment: 2 May 2023
Committee membership
A R N
Biography
Andy joined the Board in February 2023 as a Non-Executive Director and
is a member of the Audit Committee, the Remuneration Committee and
the Nomination Committee.
Andy is also a Non-Executive Director of The Berkeley Group Holdings
plc, where he is Chair of the Audit Committee and a member of the
Remuneration Committee and the Nominations Committee. Andy is also
Chair of the Audit Committee Chairs’ Independent Forum. Andy worked
in PwC’s assurance business for 39 years, managing some of the firms
largest audit relationships and undertaking extensive listings and
transactions work. Andy was the former Chair of PwC’s Non-Executive
Director advisory programme and previously sat on PwC’s Audit and Risk
Assurance Executive Board.
Andy will succeed Ron McMillan as Chair of the Audit Committee on
1 December 2023.
Key strengths
Andy brings a range of skills and extensive experience to the Board
including auditing, governance, risk management and finance through
holding a variety of executive and non-executive positions.
Andy’s comprehensive audit experience highlight him as an exemplary
candidate to replace Ron McMillan as Audit Committee Chair.
External appointments
• Audit Committee Chair of The Berkeley Group Holdings plc
70
Biography
Ron is the Chair of N Brown Group PLC. Until his resignations in 2023,
Ron was also Senior Independent Director and Audit Committee Chair
of B&M European Value Retail S.A and Non-Executive Director and
Audit Committee Chair of Homeserve PLC. Previously, Ron worked in
PwC’s assurance business for 38 years and has deep knowledge and
experience of auditing, financial reporting issues and governance. As
the Northern Regional Chair of PwC in the UK and Deputy Chair of PwC in
the Middle East, he acted as engagement leader to a number of major
listed companies, including many in the retail sector.
The original intention was that Ron would step down from the Board on
1 December 2023. Ron will now remain on the Board as a Non-Executive
Director until the conclusion of the offer for the Company,
Key strengths
Ron brings a wide range of experience and skills including finance, risk
management and governance through holding a variety of executive
and non-executive roles. As Chair of the Audit Committee, he is
responsible for leading the Committee to ensure effective internal
controls and risk management systems are in place across the Group.
External appointments
• Chair of N Brown Group plc
• Non-Executive Director of B&M European Value and Retail S.A.
Biography
Swarupa joined the Board in May 23 as a Non-Executive Director and is a
member of the Audit Committee, the Remuneration Committee and the
Nomination Committee.
Swarupa is also a Non-Executive Director of Kings Arms Yard VCT plc,
where she is Chair of the Nomination and Remuneration Committees
and a member of the Audit and Risk Committee. She is also a Non-
Executive Director of value retailer OFS (DS) Holdings Ltd where she
is Chair of the Audit Committee. Swarupa has extensive experience
across multiple sectors, having worked at both Merrill Lynch and more
recently at Duke Street, a mid-market Private Equity firm, where she
served as a non-executive director on the boards of a number of
companies.
Key strengths
Swarupa brings a wealth of varied financial experience and widespread
knowledge of customer-facing businesses and skills including, growth
strategy and value creation, building management teams, finance, risk
management and governance.
External appointments
• Nomination and Remuneration Committee Chair of Kings Arms Yard
VCT plc
• Non-Executive Director of OFS (DS) Holdings Limited
ScS Group plc Annual Report and Accounts 2023 Committee membership key
A Audit Committee Chair
A Audit Committee member
R Remuneration Committee Chair
R Remuneration Committee member
N Nomination Committee Chair
N Nomination Committee member
Chris Muir
Executive Director
Date of appointment: 4 April 2016
Committee membership
n/a
Biography
Chris served as Chief Financial Officer (CFO) from April 2016 to
September 2023. He is a chartered accountant, qualifying in 1999 whilst
working at Deloitte. In 2003, he joined Northgate plc, Europe’s leading
specialist in light commercial vehicle hire, as the 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. Prior to joining ScS
he was Group Finance Director of Northgate.
During the year Chris notified the Board of his intention to step down
and leave the Group. Following the appointment of Mark Fleetwood as
CFO on 4 September 2023, Chris was appointed as Executive Director,
and he will remain on the Board until the conclusion of the offer for the
Company.
Key strengths
Chris has broad financial experience and his strategic and leadership
strengths have been a valuable asset to the Group over his tenure.
External appointments
n/a
71
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Corporate governance statement
Introduction from the Chair
On behalf of the Board, I am pleased to introduce our corporate
governance statement for the year ended 29 July 2023, which is
my last as Chair.
Since my appointment as Chair in 2014, the Board and
I have been committed to maintaining high standards
of corporate governance and we recognise the
importance of this in supporting the long-term
success and sustainability of our business. I am
confident my successor, John Walden, together with
the rest of the Board, will continue to uphold the high
standards of corporate governance in place.
Our compliance with the 2018 UK Corporate
Governance Code (‘the Code’) is set out on pages 73
to 75.
In the second year of our refreshed strategy, the
focus of the Board has been to continue to monitor
progress against our strategic objectives whilst
navigating the well reported challenges faced by
consumers, including interest rate increases, cost of
living pressures and economic uncertainty.
Throughout FY23, the Board maintained active
engagement with the Group’s various stakeholders
to ensure that we understand and take their
interests into account when making decisions on
behalf of the Group. Our Section 172 statement on
pages 48 to 49 details the Board’s engagement with
stakeholders throughout the year.
Corporate governance arrangements and strategy
have been at the forefront in a transitional year for
the Board. I have had the pleasure of welcoming
four new Non-Executive Directors to the Board,
with each of the appointments bringing a wealth of
experience to the table. Furthermore, with Chris Muir
stepping down as CFO, I was pleased to welcome
Mark Fleetwood to the Group whom has taken over
the role from 4 September 2023. Chris will remain on
the Board as Executive Director until 1 December
2023. The timing of all new appointments has allowed
sufficient time to ensure a successful handover has
taken place. Details of the appointments are set out
in the Nomination Committee report on pages 86 to
88.
During the year, the Board critically assessed itself
and I am satisfied that the Board and its Committees
have an excellent balance of knowledge and
experience and that no concerns with performance
were identified. The Board have also continued to
address the findings of the external review of Board
effectiveness undertaken in 2022. Further details are
set out on pages 84 to 85.
I will be chairing our Annual General Meeting (AGM)
on 1 December 2023 and will be available to answer
any questions you may have on this report. Upon
the conclusion of the AGM, I will step down from my
position and John Walden will assume the position of
Chair of the Board.
Alan Smith
Chair
24 October 2023
During the year, the Board
critically assessed itself
and I am satisfied that the
Board and its Committees
have an excellent
balance of knowledge
and experience and
that no concerns with
performance were
identified.”
72
ScS Group plc Annual Report and Accounts 2023 Compliance with the UK Corporate Governance Code
The Board is committed to high standards of corporate governance and is responsible for ensuring the Group’s compliance with the requirements of the 2018 UK
Corporate Governance Code, which is the version of the Code that applies to FY23. For the year ended 29 July 2023, the Board considers that it has complied with the
provisions of the Code with the exception of provision 36, which relates to a formal policy post-employment shareholding requirements for Executive Directors. The
remuneration Committee will review this as part of its review of the Remuneration Policy ahead of submitting the new Policy to the 2024 AGM.
The following pages provide a high-level overview of how the Board applies the Principles of the Code (available at www.frc.org.uk).
Board leadership and company purpose
Principle A
A successful company is led by an effective and entrepreneurial Board, whose role is to promote the
long-term sustainable success of the company, generating value for shareholders and contributing to
wider society.
• Strategic report, pages 1 to 66
• Board leadership and company purpose, pages 75 to 78
Principle B
The Board should establish the company’s purpose, values and strategy, and satisfy itself that these
and its culture are aligned. All directors must act with integrity, lead by example and promote the desired
culture.
• Strategic report, pages 1 to 66
• Board leadership and company purpose, pages 75 to 78
• Division of responsibilities, pages 79 to 81
Principle C
The Board should ensure that the necessary resources are in place for the company to meet its
objectives and measure performance against them. The Board should also establish a framework of
prudent and effective controls, which enable risk to be assessed and managed.
• Section 172 statement, pages 48 to 49
• Risk and risk management, pages 57 to 64
• Audit Committee report, pages 89 to 96
Principle D
In order for the company to meet its responsibilities to shareholders and stakeholders, the Board should
ensure effective engagement with, and encourage participation from, these parties.
• Responsible business 26 to 37
• Section 172 statement, pages 48 to 49
Principle E
The Board should ensure that workforce policies and practices are consistent with the company’s values
and support its long-term sustainable success. The workforce should be able to raise any matters of
concern.
• Responsible business 26 to 37
• Section 172 statement, pages 48 to 49
• Board leadership and company purpose, pages 75 to 78
Division of responsibilities
Principle F
The Chair leads the Board and is responsible for its overall effectiveness in directing the company. They
should demonstrate objective judgement throughout their tenure and promote a culture of openness and
debate. In addition, the Chair facilitates constructive Board relations and the effective contribution of all
non-executive directors, and ensures that direct or receive accurate, timely and clear information.
Principle G
The Board should include an appropriate combination of executive and non-executive (and, in particular,
independent non-executive) directors, such that no one individual or small group of individuals
dominates the Board’s decision-making. There should be a clear division of responsibilities between the
leadership of the Board and the executive leadership of the company’s business.
• Board leadership and company purpose, pages 75 to 78
• Division of responsibilities, pages 79 to 81
• Board of Directors, page 68-69
• Division of responsibilities, pages 79 to 81
73
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Corporate governance statement continued
Division of responsibilities (continued)
Principle H
Non-executive directors should have sufficient time to meet their Board responsibilities. They should provide
constructive challenge, strategic guidance, offer specialist advice and hold management to account.
• Board leadership and company purpose, pages 75 to 78
• Division of responsibilities, pages 79 to 81
• Audit Committee report, pages 89 to 96
Principle I
The Board, supported by the company secretary, should ensure that it has the policies, processes,
information, time and resources it needs in order to function effectively and efficiently.
• Board leadership and company purpose, pages 75 to 78
• Division of responsibilities, pages 79 to 81
Composition, succession and evaluation
Principle J
Appointments to the Board should be subject to a formal, rigorous and transparent procedure, and an
effective succession plan should be maintained for Board and senior management. Both appointments
and succession plans should be based on merit and objective criteria and, within this context, should
promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.
Principle K
The Board and its committees should have a combination of skills, experience and knowledge. Consideration
should be given to the length of service of the Board as a whole and membership regularly refreshed.
Principle L
Annual evaluation of the Board should consider its composition, diversity and how effectively members
work together to achieve objectives. Individual evaluation should demonstrate whether each director
continues to contribute effectively.
Audit, risk and internal control
Principle M
The Board should establish formal and transparent policies and procedures to ensure the independence
and effectiveness of internal and external audit functions and satisfy itself on the integrity of financial
and narrative statements.
• Nomination Committee report, pages 86 to 88
• Composition, succession and evaluation, pages 82 to
85
• Board of Directors, page 68 to 69
• Nomination Committee report, pages 86 to 88
• Composition, succession and evaluation, pages 82 to
85
• Audit Committee report, pages 89 to 96
Principle N
The Board should present a fair, balanced and understandable assessment of the company’s position
and prospects.
• Strategic report, pages 1 to 66
• Audit Committee report, pages 89 to 96
• Financial statements, pages 125 to 162
Principle O
The Board should establish procedures to manage risk, oversee the internal control framework, and
determine the nature and extent of the principal risks the company is willing to take in order to achieve
its long-term strategic objectives.
• Risks and risk management pages 57 to 64
• Viability statement, page 65 to 66
• Audit Committee report, pages 89 to 96
Remuneration
Principle P
Remuneration policies and practices should be designed to support strategy and promote long-term
sustainable success. Executive remuneration should be aligned to company purpose and values, and be
clearly linked to the successful delivery of the company’s long-term strategy.
• Strategic report, pages 1 to 66
• Board leadership and company purpose, pages 75 to 78
• Directors’ remuneration report, pages 97 to 119
74
ScS Group plc Annual Report and Accounts 2023 Remuneration (continued)
Principle Q
A formal and transparent procedure for developing policy on executive remuneration and determining
director and senior management remuneration should be established. No director should be involved in
deciding their own remuneration outcome.
Principle R
Directors should exercise independent judgement and discretion when authorising remuneration
outcomes, taking account of company and individual performance, and wider circumstances.
• Directors’ remuneration report, pages 97 to 119
• Directors’ remuneration report, pages 97 to 119
Board leadership and company purpose
Role of the Board
The Group is led and controlled by the Board
which is collectively responsible for the long-term
sustainable success of the Group, generating
value for shareholders and contributing to wider
society. The Board establishes the Group’s purpose,
values and strategy and satisfies itself that these
are aligned with its culture. The Board is also
responsible for ensuring that appropriate policies,
procedures and controls are in place to support
effective risk management and performance
against agreed financial and operational metrics.
Board activity in the year
The following summarises some of the Board’s key
activities over the past year:
Strategy
• Reviewed the Group’s performance against its
strategic priorities;
• Evaluated and approved incentive targets for
both financial and non-financial measures,
including the Group’s environmental impact, to
ensure alignment with strategic aims;
• Considered economic, social, environmental and
regulatory issues and any other relevant external
matters that may influence or affect the Group’s
achievement of its objectives; and
• Oversaw the Group’s acquisition of the trade and
assets of Snug.
• Received updates on climate-related risks and
Further information on the Group’s strategy
can be found on pages 1-66
opportunities.
Performance and monitoring
• Received regular updates from the Executive Board
on trading performance and progress on strategy;
• Monitored the Group’s performance against its
targets and KPIs;
• Approved the 2022 Annual Report and the 2023
Interim Results;
• Approved the dividend policy and declaration;
• Reviewed and confirmed the Group’s Viability
statement and going concern status;
• Reviewed and approved the Group’s FY24 budget;
and
While the Board has ultimate responsibility for
the Group’s risk management and internal control
systems, monitoring of these systems is delegated
to the Audit Committee.
Further information can be found in the Audit
Committee report on pages 89 to 96
Leadership, stakeholders and culture
• Reviewed the succession plan for Directors and
the senior management team including approving
the appointment of four new Non-Executive
Directors and a new CFO in the year;
• Assessed capital allocations and capital
• Reviewed recruitment and how diversity could be
expenditure in respect of the Group’s strategy.
improved;
Further information can be found in the Audit
Committee report on pages 89 to 96
Risk management and internal control
• Carried out a robust assessment of the principal
and emerging risks facing the Group;
• Reviewed and approved the risk appetite
statement;
• Reviewed the effectiveness of the risk
management and internal controls during the
year; and
• Continued prioritisation of colleague health and
wellbeing;
• Approved the issue of a one-off £400 cost of
living support payment for our colleagues;
• Reviewed wider workforce remuneration and
related policies and the alignment of incentives
and rewards with culture;
• Received and reviewed updates on environmental,
social and governance (ESG) activity;
• Reviewed employee survey results; and
• Held discussion groups with colleagues across
the business.
75
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Corporate governance statement continued
Further information on succession planning
can be found on page 82
progress will necessarily be recognised in
appropriate share price appreciation.
Governance and legal
• Received and reviewed updates on corporate
governance developments;
• Reviewed the matters reserved for the Board and
the terms of reference of its Committees;
• Conducted an internal evaluation of the Board’s
effectiveness and reviewed the outcome; and
• Reviewed reports on the Group’s key stakeholders
and reviewed engagement mechanisms.
How the Board supports strategy
Throughout FY23, the Board has consistently reviewed
the Group’s progress against our strategic objectives.
This included six strategy-specific meetings which
included in-depth assessments of specific strategic
pillars and evaluations of progress.
Offer for the Company
As announced on 24 October 2023, the Board made
the decision to recommend to shareholders
an all-cash offer of 270p for each share from a
wholly-owned subsidiary of Poltronesofà S.p.A.
The offer provides liquidity to shareholders with
the opportunity to exit in full and in cash at a
significant premium to the current share price, in
a time of continued macroeconomic uncertainty.
In the short-term, the Board remains cognisant
of the challenging economic environment facing
customers, which the Board expects to continue
throughout FY24. However, the Board is confident
that the Group’s strategy and strong balance sheet
will enable it to continue to trade resiliently and
grow market share. The Board further believes that
this will place the business in a strong position for
when the economic environment improves.
Nevertheless, based on history since the IPO,
the Board is not confident that this anticipated
76
It is intended that the acquisition will be implemented
by way of a Court-sanctioned scheme of arrangement
under Part 26 of the Companies Act and is forecast to
complete in the first quarter of 2024.
Values, culture and purpose
The Group’s purpose is ‘Helping create the home you
love’ and this is underpinned by our values of being a
responsive, inclusive, ‘getting it right’, hard working
and trusted retailer of sofas and carpets. Our
values promote our purpose-driven culture which
is reflected in how we engage with our stakeholders.
The Board recognises the importance of ensuring
a healthy and supportive culture within the Group.
The Board monitors culture and values in a number
of ways, including undertaking an annual survey of
all employees, reviewing feedback through Director
discussion groups, as well as reviewing feedback
provided by our customers through forums such
as Trustpilot and Google My Business. There are
formal policies in place in relation to anti-bribery
and corruption and an independent whistle-blowing
helpline allowing any member of staff to report any
suspected malpractice or wrongdoing.
The Board recognise the importance of, and are
committed to, operating in a responsible and
sustainable manner. In FY22, the Board established
an ESG steering group, developed the ESG strategy
and incorporated ESG-related targets into both
the executive and senior management bonus
schemes. In FY23, the Board has built upon this by
the development of a Net Zero strategy which will
further strengthen the Group’s commitment to
environmental sustainability.
For more information on this refer to the
Responsibility and sustainability report page
26 to 37
Stakeholder engagement
The Board appreciates the importance of engaging
with the Group’s stakeholders and having regard to
their interests in its decision-making process. The
importance and influence of stakeholder groups
differs depending on the matter being discussed. It
is possible for stakeholder interests to conflict and
when this happens, the Board uses its judgement to
reach a final decision.
The Board is advised of stakeholder views in a
number of different ways:
• Presentations on strategic progress;
• Presentations from external advisors and internal
We also have a dedicated, free to use employee
assistance programme, where employees can
gain access to help and support on a whole range
of personal issues including mental health and
financial worries.
experts;
• One-to-one meetings with shareholders;
• Employee surveys;
• Colleague discussion forums;
• Visits to the Group’s showrooms, distribution
Additionally, as part of our in-year update to
employee benefits, we have introduced a 24-
hour virtual general practitioner service for our
colleagues and members of their households and
have begun to offer access to low-cost health plans.
centres and suppliers; and
• The AGM.
Regular discussion forums were held by two
designated Non-Executive Directors, Angela Luger
and Carol Kavanagh, to ensure the Board is engaging
with colleagues and to provide them with a direct
route to raise issues or concerns with the Board.
ScS Group plc Annual Report and Accounts 2023 Detailed below are some examples of matters discussed during the year and how the Board considered our stakeholder groups.
Matter discussed
Acquisition of the
business and assets
of Snug
Stakeholders
considered
• Customers
• Shareholders
• Suppliers
• Environment
Capital allocation
• Shareholders
Approval of new Board
members
Investment in Business
Central proposition
• Shareholders
• Regulators
• Colleagues
• Colleagues
• Shareholders
• Customers
• Suppliers
New advertising
agency and marketing
strategy
• Shareholders
• Customers
Store refurbishments
Recommended cash
offer for the Group
• Customers
• Colleagues
• Shareholders
• Colleagues
• Shareholders
• Customers
• Suppliers
• Regulators
Discussions held
Outcome of discussions
Consideration was given to:
• Expectations of our stakeholders;
• Market developments and our customer offering;
• Our brand and reputation; and
• Capital allocation and appropriate acquisition valuation.
• Proceed with the acquisition of Snug within
financial limits set by the Board.
• Resulted in the purchase of the business and
assets of Snug in January 2023.
Consideration was given to:
• Continuing the £7m share buyback scheme and whether a
further buyback or alternative capital return was undertaken;
• Expectations of our shareholders and options available to
utilise Company capital; and
• Strength of the Group and current macroeconomic conditions.
• £7m buyback programme successfully
completed.
• Given favourable returns being seen on the
refurbished stores it was concluded that, at
present, internal capital investment would
continue in the store network.
Consideration was given to:
• The skills, experience, culture and diversity required for new
• Four new Non-Executive Directors were
appointed in year.
Board members; and
• A new CFO was appointed after the year end.
• Regulatory requirements of the Board and its Committees.
Consideration was given to:
• Current IT limitations and expected benefits of the proposal;
• Project costs and timescales; and
•
Impact on colleagues and business as usual (BAU) upon
implementation.
Consideration was given to:
• Market positioning and strategic direction;
• Customer feedback;
• Our brand and reputation; and
• Expectations of our shareholders.
Consideration was given to:
• Outcomes from concept stores;
• Our brand and reputation;
• Proposed capital commitments; and
• Expectations of our shareholders.
Consideration was given to:
• Expectations of our stakeholders;
• Review of premium using valuation advice provided by Shore
Capital and Corporate Limited;
• Our brand and reputation; and
• The acquirer’s intentions post acquisition and the potential
impact of them on stakeholders.
• Approval of the Microsoft Business Central
project.
• Approval of the new advertising partner and
marketing strategy.
• Further rollout of refreshed store design was
approved.
• Recommendation for shareholders to accept
the cash offer.
77
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Corporate governance statement continued
Compliance with support from relevant functions.
Incidents and their outcomes are reported to the
Board. A number of calls were made to the external
hotline during the year, which are reported to
the Head of Audit, Risk & Compliance in the first
instance, following which management action was
taken where appropriate. No issues were raised that
required any direct action from the Board.
Conflicts of interest
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. This includes professional advice and
consideration of it by the Board and the Group’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.
Shareholder relations
The Board recognises that good communication
is key to maintaining shareholder relations, and
as such we endeavour to explain our actions and
financial results on a regular basis and to respond
to investor inquiries and feedback.
The CEO and CFO hold regular meetings and calls with
institutional and retail investors and analysts in order
to provide the best quality information to the market.
All shareholders also have access to the Chair and
the other Directors, who are available to discuss
any questions which they may have in relation to the
running of the Group.
In addition, the Group will communicate with its
shareholders through the AGM, at which the Chair
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 Chair
and the Chairs of each of the Committees of the
Board.
At each of the scheduled Board meetings
throughout the year, the Board receives a report
which includes an analysis of ScS Group plc
shareholder register. Following the Interim and
Preliminary Results presentations feedback is
actively sought for discussion by the Board. Such
feedback gives the Board an insight into what is
important to the Group’s shareholders.
The Group 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.
Whistle-blowing
All employees are able to access a confidential
helpline operated by Safecall should they want to
report any wrongdoing anonymously. All reports are
formally investigated by the Head of Audit, Risk &
78
Executive/Non-Executive
Chair (1)
Non-Executive Chair Designate (1)
Chief Executive Officer (1)
Chief Financial Officer (1)
Executive Director (1)
Non-Executives (5)
Board tenure
0-5 years (7)
5-15 years (3)
15+ years (0)
ScS Group plc Annual Report and Accounts 2023 Division of responsibilities
Group Board
The Board is responsible for the overall leadership
of the Group and setting its objectives and
standards. All Directors act with integrity and
understand the importance of leading by example
to promote the desired culture throughout the
organisation. It is the Board’s responsibility to
ensure that the Group has the necessary resources
to meet its objectives and measure performance
against them. The Board also establishes effective
internal control procedures which enable risk to be
assessed and managed. The formal list of matters
reserved for the Board can be found at www.scsplc.
co.uk.
Committees
The Board has delegated authority to a number of
Committees to assist with and supervise specific
matters. The key responsibilities of each Committee
is outlined on the following page. The terms of
reference of each of the Board’s Committees are
available on our website, www.scsplc.co.uk.
Detailed implementation of matters approved by the
Board and Committees, and operational day-to-day
matters, are delegated to the Executive Directors.
The Executive Directors are also supported by an
experienced and able senior management team. All
Directors have access to the Company Secretary,
whose appointment and removal is one of the
matters reserved for the Board.
Key roles
The positions of Chair and CEO are currently held
by different individuals and this will continue to be
the case when the scheduled succession of the
new Chair is complete. There is a clear division of
roles and responsibilities between the Chair and
the CEO and no individual has unrestricted powers
of decision making. Effective communication
between Directors is vital for the long-term success
of the Group with all Directors bringing their own
views to the table and each providing constructive
challenge to ensure decision making is informed.
Chair
Responsible for leading the Board,
setting its agenda and overseeing its
effectiveness in directing the Group.
Chief Executive
Officer
Senior Independent
Director
Responsible for the day-to day
management of the Group.
Leads the assessment of the
Chair’s performance.
Responsible for directing and
focusing the Group, ensuring there is
a clear strategy and business model.
Reviews and devises the Group
strategy for discussion and
approval by the Board.
Acts as a sounding Board
for the Chair and a trusted
intermediary for other
Directors.
Ensures Directors receive accurate,
timely and clear information.
Responsible for implementing
Board decisions.
Leads the succession
process for the role of Chair.
Facilitates the effective contribution of
the Non-Executive Directors, promoting
a culture of openness and creating a
forum for constructive challenge.
Leads by example and creates a
culture centred around the Group’s
values.
Available to shareholders to
resolve significant issues
should they arise.
Responsible for fostering good
relationships between Executive and
Non-Executive Directors.
Responsible for ensuring effective
communication with shareholders
and other key stakeholders.
79
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Corporate governance statement continued
Time commitment
As part of the recruitment process the expected
time commitment is discussed with both Non-
Executive Directors and Executive Directors.
The time commitments of the new Non-Executive
Directors, Carol Kavanagh, Andy Kemp and Swarupa
Pathakji, and Non-Executive Chair Designate, John
Walden, have been evaluated and the Board is
satisfied that they have sufficient time for their
roles. Subsequent external appointments for all
Directors would not be undertaken without prior
approval of the Board.
At the time of writing, where Directors have external
appointments, the Board is satisfied that they do not
impact on the time they need to devote to the Group.
Board administration
The Board held nine meetings during the year which
included six meetings dedicated to reviewing
strategic progress. During the year the Board
also met on a number of other occasions, as
circumstances required. The Board maintains
a rolling programme of formal Board meetings
throughout the year and accordingly, there are six
Board meetings scheduled for FY24, all of which
include sessions to review strategic progress.
Meetings of the Board are usually held at the Group’s
head office or local to a showroom, to afford the
Board, particularly the Non-Executive Directors, the
opportunity to meet with local management.
All Board and Committee members receive meeting
agendas and Board packs in advance of the Board
and Committee meetings. For scheduled Board
meetings this includes updates on strategy, current
trading, stakeholder KPIs, management accounts
and detailed papers on other matters where Board
approval is required.
At each Board meeting, the Executive Directors
discuss the matters included in the Board packs
in more detail with the Board. Additionally, where
appropriate, members of the Executive Board are
invited to present to the Board to inform Directors
of issues of importance affecting the Group.
This not only allows the Board to maintain an
awareness of the Group’s activities but also
allows Directors to assess the ability of the senior
management team. For Board meetings which are
held as circumstances require, the Board packs
reflect the agenda of the meeting.
Directors’ attendance
All Directors are expected to attend all Board and relevant Committee meetings. If Directors are unable to attend a meeting they will review the relevant papers in
advance and provide their comments to the Chair of the Board or Committee. Minutes of the meeting will be sent to any relevant Director who was not in attendance
for reference.
PLC
Audit Committee
Remuneration Committee
Nomination Committee
Total no. of meetings
Steve Carson
Chris Muir
Alan Smith
John Walden
Ron McMillan
Angela Luger
Carol Kavanagh
Andy Kemp
Swarupa Pathakji
80
9
9
9
9
3
8
9
8
3
2
3
N/A
N/A
N/A
2
3
3
3
2
1
7
N/A
N/A
7
3
7
7
7
3
2
5
N/A
N/A
5
2
5
5
4
2
1
ScS Group plc Annual Report and Accounts 2023 Shareholders
Chair
The Board
Board Committees
Nomination Committee
Audit Committee
Remuneration Committee
• Reviews the structure, size and composition of
the Board, including the balance of Executive
and Non-Executive Directors;
• Considers succession planning for Directors
and senior management positions;
• Oversees the development of a diverse
pipeline for succession, having regard
to diversity of gender, social and ethnic
backgrounds, cognitive and personal
strengths; and
Identifies and nominates candidates for the
approval of the Board, to fill Board vacancies
when they arise.
•
• Monitors the quality and effectiveness of the
external and internal auditors;
• Reviews and monitors the integrity of
the financial statements and any formal
announcements relating to financial
performance;
• Assists the Board with the development and
execution of a risk management strategy,
risk policies and current and emerging risk
exposures, including the maintenance of the
Group’s risk register; and
• Monitors the adequacy and effectiveness
of the Group’s internal financial controls and
internal control and risk management systems.
• Determines the policy for the Group
on executive remuneration and sets
remuneration for the Chair, the Executive
Directors and senior management;
• Reviews workforce remuneration and related
policies and the alignment of incentives and
rewards with culture, and taking these into
account when setting the policy for Executive
Director remuneration;
• Reviews the design of all share incentive plans
for approval by the Board and/or shareholders;
and
• Determines and monitors any share ownership
requirements for the Executive Directors
and senior management including post-
employment requirements.
See Committee report on pages 86 to 88
See Committee report on pages 89 to 96
See Committee report on pages 97 to 119
Chief Executive Officer
Responsible for the day-to-day management of the Group and the implementation of strategy.
Executive Board – Assists the Chief Executive Officer in the performance of his duties including:
• Progress against strategy and budgets;
• Monitoring of operating and financial performance; and
• Allocation of resource.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Corporate governance statement continued
Composition, succession
and evaluation
Composition of the Board
The Board currently comprises of the Non-Executive
Chair, the Non-Executive Chair Designate, three
Executive Directors and five independent Non-
Executive Directors.
The Board’s composition is compliant with the UK
Corporate Governance Code July 2018 (‘The Code’).
The Code recommends that at least half of
the Board, excluding the Chair, should be Non-
Executive Directors whom the Board considers
to be independent. The Group has met this
requirement as Ron McMillan (Senior Independent
Director), appointed 22 October 2014 and Angela
Luger, appointed 16 May 2019 have been in place
for the whole of FY23, matching the number of
Executive Directors. The Board’s composition has
been strengthened throughout the year with the
Non-Executive appointments of Carol Kavanagh,
appointed 26 September 2022, Andy Kemp, appointed
1 February 2023 and Swarupa Pathakji, appointed
2 May 2023. All of the Group’s Non-Executive Directors
are considered by the Group to meet the definition of
an independent Director. 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, their 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.
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 97 to 119.
The Chair has met with each of the Non-Executive
Directors during the year on a one-to-one basis,
without the Executive Directors being present. In
addition, the Senior Independent Director holds
a private meeting of the Non-Executive Directors
without the Chair being present to assess his
performance.
Board Diversity and Inclusion
The Financial Conduct Authority’s updated Listing
Rules (LR 9.8.6R (10) and LR 14.3.33R (2)) require in-
scope companies to publish numerical data on the
sex or gender identity and ethnic diversity of their
board, senior board positions (Chair, CEO, Senior
Independent Director (SID) and CFO) and executive
management in a table. These new reporting
requirements apply to financial years starting on or
after 1 April 2022, meaning that this is the first year
that these requirements are reportable by the Group.
To collate this information, PLC Board members were
asked to complete a diversity disclosure to confirm
which of the categories set out in the below they
identify with.
The details of Board composition as at 29 July 2023 are set out in the following tables:
Table 1: Reporting table on sex/gender representation
Number of Board members
Percentage of Board
Number of senior positions on
the Board (CEO, CFO, SID, Chair)
Number in executive
management
Percentage of executive
management
6
3
67%
33%
4
–
6
2
75%
25%
Men
Women
82
ScS Group plc Annual Report and Accounts 2023 Table 2: Reporting table on ethnicity representation
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number of Board
members
Percentage of
Board
Number of senior
positions on the
Board (CEO, CFO,
SID, Chair)
Number in
executive
management
8
–
1
–
–
–
89%
–
11%
–
–
–
4
–
–
–
–
–
8
–
–
–
–
–
Percentage
of executive
management
100%
–
–
–
–
–
Details on the Board’s compliance with the targets set out in Listing Rule 14.3.33 are set out in the Nomination Committee report on page 88.
Board development
The Chair believes the current Board and its Committees have an appropriate balance of skills and experience to enable them to discharge their responsibilities
effectively. The development of the Group’s Directors is regularly reviewed and the Chair discusses training requirements with each Director. Succession planning
of the Board is the responsibility of the Nomination Committee. Details of the actions of the Nomination Committee in year are set out in the Nomination Committee
report.
Board gender diversity
Male: 7 (70%)
Female: 3 (30%)
Executive Board gender
diversity
Executive Board and senior
management team* diversity
Male: 7 (78%)
Female: 2 (22%)
Male: 28 (70%)
Female: 12 (30%)
All employees diversity
Male: 1,160 (67%)
Female: 571 (33%)
* The senior management team are those considered by the Executive Board to have extensive experience in their field and typically lead a team/department.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Corporate governance statement continued
Board effectiveness evaluation
In 2022 the Board took part in an externally facilitated evaluation by Sam Allen Associates Ltd. In accordance with the UK Corporate Governance Code, the Board will
continue to undertake annual evaluations and at least once every three years with an external consultant facilitating the evaluation. Due to the significant changes
to the composition of the Board in year, upcoming retirements of the Chair and Senior Independent Director, and upcoming departure of the previous CFO, an
external evaluation will be carried out in 2024.
The external review in 2022 identified the following areas for continued focus. We have provided an update of the progress made in year to address these points;
Area of focus
Actions taken
Increasing the focus on succession planning and
the need for increased diversity
With both Alan Smith and Ron McMillan due to retire in the coming year, appointments have been made to ensure
a smooth transition. John Walden joined the Board in March 2023 as Non-Executive Chair Designate (to take over
from Alan Smith), Carol Kavanagh joined the Board in September 2022, Andy Kemp joined the Board in February
2023 and Swarupa Pathakji joined the Board in May 2023.
Upon the notification of Chris Muir’s intention to step down as CFO, a thorough recruitment process was
undertaken to identify and appoint a suitable successor. This resulted in the appointment of Mark Fleetwood on
4 September 2023. All new Board members underwent a comprehensive onboarding process to introduce them
to the Company. Additional handover procedures have been completed where new Board members are taking
on designated roles, Board Chair and CFO, to ensure a smooth transition.
Opportunity to improve stakeholder engagement The Board has increased engagement in the year with greater physical interactions through:
The appointments made in year have broadened the diversity of the Board, in line with business focus.
• Store visits to meet colleagues;
• Suppliers visits to factories and trade shows;
• Shareholder meeting; and
• Director listening sessions over FY23.
To ensure that ESG priorities are continuously
reviewed whilst ensuring they provide sustainable
commercial value
The Board has built ESG strategy progress into their periodic updates to monitor the Group’s delivery against the
ESG strategy developed in FY22. The Board has received updates on the progress of the Net Zero strategy which
is currently under development.
The 2023 evaluation of the performance of the Board, its Committees, the Chair and the individual Directors was facilitated by the Group’s Internal Audit team.
The evaluation included a review of the time commitment required by each of the Company’s Non-Executive Directors and the size, structure and composition of
the Board and its Committees. The evaluation process took place in the second half of the year. Each of the Directors and the Company Secretary completed a
questionnaire, on an anonymised basis, which was prepared to elicit their views on all aspects of the effectiveness of the Board and its Committees, including its
composition, diversity and how effectively members work together to achieve objectives.
84
ScS Group plc Annual Report and Accounts 2023 The results of the evaluation were assessed by the full Board. The evaluation confirmed that the Board and its Committees have and will continue to have a good
balance of knowledge and experience with no concerns arising around Board performance. The feedback concluded that the Committees continued to perform
well and highlighted the following strengths:
• Continued strong alignment in the views of the Board of Directors in the Group’s purpose and strategy;
• Governance and compliance amongst the Board and its members is strongly adhered to;
• The succession planning and induction of new Directors has been well considered and executed; and
• The ability for all Directors to contribute and constructively challenge remained strong.
Opportunities for improvement identified from the review were:
Area of focus
Actions
Further Board engagement with a wider
stakeholder Group
With the new Board members joining during the year, the induction programme has ensured good exposure to
the Group’s colleagues. In the new financial year the plans are to increase wider stakeholder engagement for
the new Directors, including shareholders and suppliers.
Board objectives
Capital allocation considerations
It was felt that with the change of Chair, it presented a good opportunity to review and restate the Board
objectives.
A session was held in July 2023 covering the Group’s capital structure and to consider the best use of
the Group’s cash. This included a review of the Group’s historical trading and balance sheet position and
presentations from our external brokers on the potential impact of different forms of capital return.
85
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Nomination Committee report
We believe we are well placed
to continue to deliver excellent
returns to shareholders
Dear Shareholder,
I am pleased to present the 2023 report of the
Nomination Committee (‘the Committee’).
• Reviewing and evaluating the performance of the
Board, each Board Committee, the Chair of the
Board and each individual Director.
The primary purpose of the Committee is to lead
the process for Board appointments, ensure plans
are in place for orderly succession for both the
Board and senior management and oversee the
development of a diverse pipeline for succession.
The responsibilities of the Committee, as delegated
by the Board, are set out in the terms of reference
which are published on the Group’s corporate
website at www.scsplc.co.uk, which in summary
include:
• Reviewing the structure, size and composition of
the Board, including the balance of Executive and
Non-Executive Directors;
• Setting measurable objectives and targets for
diversity and inclusion in relation to the Board
and senior management positions;
• Putting in place plans for the orderly succession
of appointments to the Board and to senior
management positions;
• Overseeing the development of a diverse pipeline
for succession, having regard to diversity of
gender, social and ethnic backgrounds, cognitive
and personal strengths;
Identifying, assessing and nominating candidates
for the approval of the Board, to fill Board
vacancies when they arise; and
•
Members and meetings attended in 2023
Member
since
Meetings
attended
Alan Smith
Ron McMillan
Angela Luger
Carol Kavanagh*
Andy Kemp**
John Walden***
Swarupa Pathakji****
2014
2014
2019
2022
2023
2023
2023
5
5
5
4
2
2
1
Carol Kavanagh joined the Board on 26 September 2022.
*
**
Andy Kemp joined the Board on 1 February 2023.
*** John Walden joined the Board on 1 March 2023.
**** Swarupa Pathakji joined the Board on 2 May 2023.
The Executive Directors also attend Committee
meetings by invitation. The Committee is supported
by the Company Secretary.
There are three scheduled Committee meetings
annually, but with additional meetings or calls held
on an as required basis. During the year, there
were an additional two Committee meetings and
a number of informal calls and discussions. The
majority of the meetings were held in person.
We are delighted with
the calibre of the new
Directors recruited during
the year.”
86
ScS Group plc Annual Report and Accounts 2023 Committee activities in 2023
Chief Financial Officer
On 2 December 2022 we announced the resignation
of Chris Muir as the Group’s CFO, following which we
commenced a recruitment process to appoint a
new CFO.
With the assistance of Clarity Search Ltd we agreed
a comprehensive role specification and aligned this
to the desired Board composition with reference to
diversity, inclusion and a Board skills matrix. Taking
into account feedback from Board members, the
role specification and the key skills, knowledge
and experience of the shortlisted candidates, the
Committee recommended the appointment of
Mark Fleetwood as the Group’s new CFO, which we
announced on 4 July 2023.
Mark joined the Board on 4 September 2023. Mark
was previously CFO of END. (endclothing.com), the
digital-led global fashion retailer based in the North
East. Further details of Mark’s experience prior to
joining the Group appear in the Board of Directors
biographies on pages 68 to 70.
Additional Non-Executive Director
Ron McMillan and I are due to step down from the
Board in early 2024, having both completed nine
years as Board members. During the year, Carol
Kavanagh, Andy Kemp and John Walden joined the
Board, having all been recruited in 2022.
In order to fill a remaining Non-Executive Director
vacancy on the Board, with assistance from
Sam Allen Associates Limited and following the
same process as outlined above, the Committee
recommended the appointment of Swarupa
Pathakji. Swarupa’s appointment was announced
in April 2023 and she joined the Board on 2 May
2023. Details of Swarupa’s experience appear in the
Board of Directors biographies on page 70. Upon
joining the Board, Swarupa was also appointed as a
member of the Audit Committee, the Remuneration
Committee and the Nomination Committee.
Board effectiveness evaluation
The Committee oversees the Board effectiveness
review which evaluates the performance of the
Board and its Committees, the Chair and individual
Directors. In 2022, the review was externally
facilitated by Sam Allen Associates Ltd. The 2023
evaluation was facilitated by the Group’s Internal
Audit team. The areas of focus identified in the 2022
evaluation were all taken into consideration as part
of the 2023 evaluation.
The evaluation included a review of the time
commitment required by each of the Company’s
Non-Executive Directors and the size, structure and
composition of the Board and its Committees. The
Committee also undertook a review of the actions
that arose from the effectiveness review to track
progress. Full details are provided on pages 84-85.
In accordance with the UK Corporate Governance
Code, the Board will continue to undertake annual
evaluations and at least once every three years with
an external consultant facilitating the evaluation.
Given the significant changes to the composition
of the Board in 2023 an external evaluation will be
carried out in 2024.
Succession planning
During the year, the Committee considered the
succession arrangements for the Board and
for the senior management team, comprising
the operational directors below Board level. We
reviewed immediate, mid-term and long-term
succession planning and arrangements and the
Board skills matrix.
This process informs the Group’s framework for
the skills we wish to focus on when preparing role
specifications, evaluating potential new candidates
and developing a diverse and inclusive pipeline. The
Board’s policy on succession planning is directly
aligned to the long-term strategy of the Group.
Diversity and inclusion
The Committee recognises the need to monitor
and review diversity and inclusion, including gender,
social and ethnic backgrounds and cognitive and
personal strengths in relation to how the Group is
led and represented. During 2022 the Group set the
following targets to increase focus in this area:
• To increase the number of females in
management retail roles by 25% by July 2023.
• To increase the percentage of women on the PLC
Board to over 30% by December 2022.
The targets were reflected in our recruitment and
succession policies and I can report that as a result
of the Group’s various initiatives and actions, we
achieved the PLC Board target and made significant
progress in increasing the number of females in
management roles by 21%.
Employment positions throughout the Group are
filled with the candidates who possess the most
appropriate skills and competencies relevant for
the particular job role. We have a policy to treat
all employees fairly and equally regardless of
gender, sexual orientation, marital status, race,
colour, nationality, religion, ethnic or national
origin, age, disability or union membership status.
Our employees receive mandatory diversity and
inclusion training in connection with our continued
focus on developing and promoting a diverse and
inclusive workforce.
Ensuring that our future Board and senior
management team better reflects the diversity
of the communities we serve and the people we
employ is a key objective of our ‘Outstanding team’
strategy pillar. Similarly to other businesses, we
are starting this journey by focusing on a plan to
87
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Nomination Committee report continued
drive gender diversity within our teams and in the
succession pipeline. See page 83 for further detail
of the gender balance across the Group.
We recognise that diversity is much broader than
gender but believe that achieving sustainable
traction in this critical area of talent will help us
develop strategies that can be applied more widely.
Although the Company fully supports the current
debate on Board diversity and the Board diversity
targets set out in Listing Rule 14.3.33, it does not
currently meet all of these targets, as only 30%
of the Board are women and none of the senior
positions on the Board is currently held by a woman.
However, we announced in November 2022 that
Angela Luger will undertake the role of Senior
Independent Director with effect from 1 December
2023, when Ron McMillan steps down from the Board,
and after that date over 42% of the Board will be
made up of women. Accordingly, from 1 December
2023 the Company will meet all of the diversity
targets set out in Listing Rule 14.3.33.
Our people are our greatest asset and key to our
success, incorporating their views into Board
decision making is essential to achieving our
business objectives and creating a workplace which
treats everyone equally.
Alan Smith
Chair of the Nomination Committee
24 October 2023
88
ScS Group plc Annual Report and Accounts 2023 Audit Committee report
The Audit Committee oversees the Group’s assessment of risk, risk
management and risk mitigation, the internal audit framework and
assesses the effectiveness of internal and external audit.
Dear Shareholder,
The Audit Committee (‘the Committee’) is integral to
the Group’s governance framework and continues
to keep its activities under review to reflect
regulatory developments and best practice. The
Audit Committee advises the Board on financial
reporting, viability and going concern and whether
the Annual Report provides shareholders with
the information necessary to assess the Group’s
performance. It also monitors risks, risk mitigation
and internal control.
The Committee has oversight of the Group’s
financial policies and reporting, monitors the
integrity of the financial statements and reviews
and considers significant financial and accounting
estimates and judgements.
The Committee satisfies itself that the disclosures
in the financial statements about these estimates
and judgements are appropriate and obtains from
the external auditors an independent view of the
key disclosure issues and risks.
Whilst risk management is a Board responsibility,
the Committee has continued to work closely
with the Board and senior management to ensure
that all significant risks are considered on an
ongoing basis and that all communications with
shareholders are properly considered. In relation
to risks and controls, the Committee ensures that
these have been identified and that appropriate
responsibilities and accountabilities have been set.
A key responsibility of the Committee is to review
the scope of work undertaken by the internal
and external auditors and to consider their
effectiveness.
During the year, the Committee again oversaw the
process used by the Board to assess the viability
of the Group, the stress testing of key trading
assumptions and the preparation of the Viability
statement which is set out on pages 65 to 66 of the
Strategic report.
The Committee has considered the narrative in
the Strategic report, whether it is presented in
an equitable manner and whether it provides the
necessary information to shareholders to assess
the Group’s performance, business model and
strategy. The Committee considered management’s
assessment of items included in the financial
statements and the prominence given to them.
The Committee, and subsequently the Board,
were satisfied that, taken as a whole, the 2023
Annual Report and Accounts are fair, balanced and
understandable.
89
The Committee has
oversight of the Group’s
financial policies and
reporting, monitors
the integrity of the
financial statements and
reviews and considers
significant financial and
accounting estimates and
judgements.”
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Audit Committee report continued
The Committee reviewed, on behalf of the Board,
the Group’s compliance with the Modern Slavery
Act and it’s policies in relation to money laundering
and anti-bribery. The Committee has also given
consideration to the development of climate-
related reporting and the Group has reported in line
with the Task Force on Climate-related Financial
Disclosures (TCFD) requirements in the year; see
pages 38 to 40 for further detail.
I am retiring from the Board in early 2024. On
1 December 2023 Andy Kemp will become the Chair
of the Audit Committee. Andy joined the Audit
Committee upon his appointment in February 2023,
enabling a thorough handover prior to my upcoming
departure. Andy has extensive experience in
audit, governance and risk management and I am
confident that under his leadership, the Committee
will fulfil its duties to an exceptionally high standard.
Up until my departure, I will be available to speak
with shareholders at any time, as will Andy upon
commencement of his tenure. Andy and I will be
available at the Annual General Meeting (AGM) to
answer any questions you may have on this report.
As always, I’d like to thank my colleagues on the
Committee for their help and support during the
year.
Ron McMillan
Chair of the Audit Committee
24 October 2023
The meetings at which the above and certain other
matters were discussed were as follows:
Member and meetings attended in 2023
Ron McMillan (Chair)
Angela Luger
Carol Kavanagh
Andy Kemp*
John Walden**
Swarupa Pathakji***
Member
since
Meetings
attended
2014
2019
2022
2023
2023
2023
3
3
3
2
2
1
* Andy Kemp was appointed in February 2023.
** John Walden was appointed in March 2023.
*** Swarupa Pathakji was appointed in May 2023.
The Audit Committee met three times during the
financial year. Further meetings of the Committee
have also been held since the year end.
90
ScS Group plc Annual Report and Accounts 2023 Committee composition
The Committee comprises six members, all of
whom are Non-Executive Directors. Two members
constitute a quorum and the Committee must
include one financially qualified member with recent
and relevant financial experience. The Committee
Chair, Andy Kemp and Swarupa Pathakji each fulfil
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, Angela Luger, Carol Kavanagh,
Andy Kemp, John Walden and Swarupa Pathakji.
Details of Committee meetings and attendance are
set out in the Corporate governance statement on
page 80. In December 2023 Ron McMillan will step
down from the Board, and as Chair of the Audit
Committee, having served the maximum nine-year
tenure for an independent Non-Executive Director.
As noted in the Chair’s report, Andy Kemp joined the
Board and the Audit Committee as a Non-Executive
Director on 1 February 2023 and, following the end
of Ron’s tenure, will assume the Audit Committee
Chair role. Andy is financially qualified with recent
and relevant financial experience. The timing of
Committee meetings is set to accommodate the
dates of releases of financial information and the
approval of the scope of and outputs from work
programmes executed by the internal and external
auditors. The biographies of the members of the
Committee can be found on pages 68-70 and reflect
the significant experience that the Committee
members have of working in or with companies in
the retail and consumer goods sectors.
Although not members of the Committee, Alan
Smith, as Group Chair, Steve Carson, as CEO, and
Chris Muir, as CFO, attend meetings, together with
representatives from the internal audit function and
the external auditors.
In addition to scheduled meetings, the Committee
Chair met with the Head of Audit, Risk & Compliance,
the external auditors and the CFO during the year.
The Head of Audit, Risk & Compliance and the
external auditors are provided with the opportunity
to raise any matters of concern that they may have
in the absence of the Executive Directors whether
at the Committee meetings, or more informally,
outside of them.
The Committee critically evaluates its own
performance on an annual basis and considers
where improvements can be made. An external
evaluation is performed once every three years in
line with best practice.
Board reporting
The Committee provides an update of matters
discussed to the Board and the minutes of Audit
Committee meetings are circulated to the Board.
Responsibilities
The responsibilities of the Committee, as delegated
by the Board, are set out in the terms of reference
which are published on the Group’s corporate
website. They include the following:
• Reviewing the integrity of the financial
statements and other price sensitive financial
releases of the Group and the significant
financial judgements and estimates related
thereto;
• Monitoring the scope of work and the quality,
effectiveness and independence of the external
auditors and approving their reappointment and
fees;
• Monitoring the independence and activities of
the internal audit function;
• 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 strategic risk
register; and
• Keeping under review the adequacy and
effectiveness of the Group’s internal financial
controls and the Group’s risk management and
compliance system.
Activities
In discharging its oversight of the matters
referred to above and in the introductory letter
to this report, the Committee was assisted by
management and both the internal and external
auditors.
The recurring work of the Committee comprised:
• Review of the Annual Report and Financial
statements of the Group;
• Review and approval of the statements to be
included in the Group’s Annual Report concerning
internal controls and risk management;
• Review of the Interim Results report and non-
statutory financial statements of the Group for
the half year;
• Consideration of the significant areas of
accounting estimation or judgement;
• Consideration of the principal risks included in
the Annual Report;
• Consideration of going concern and viability
issues and the related disclosures;
• Consideration of the Group’s reporting against
TCFD recommendations;
• Approval of the external auditors’ terms of
reference, audit plan and fees; and
• Approval of the internal audit plan.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Audit Committee report continued
The meetings at which the above and certain other matters were discussed were as follows:
Review of Interim Results
Review of Annual Report; approval of Audit Committee report, consideration of significant areas of accounting estimation or
judgement and whether the Annual Report is fair, balanced and understandable
Review of management representations
Review and approval of the internal audit plan, reports and updates
Approval of the external audit strategy and fees
Update on the provision of any non-audit services and fees provided by the external auditors
Effectiveness of the internal audit function
Effectiveness of the external audit
Risk management update and review of related disclosures
Review of internal control processes and related disclosures
Review of disaster recovery practices
Update on the Group data protection compliance including policy review
Reviewed and agreed the structure and annual plan for compliance function
Effectiveness of procedures for detecting fraud
Consideration of the 2018 UK Corporate Governance Code and disclosure regulations
Year-end final review of related party transactions
Accounting policies and disclosures in relation to:
– Corporation tax and VAT
– Supplier rebates
– Stock and related provisions
– Impairment assessment for loss making stores
– Dilapidations
– Accounting for warranties
– Valuation of parent company investment
– The acquisition of Snug Furniture Limited
Going concern and viability issues and disclosures
TCFD reporting disclosures
October 2022
March 2023
July 2023
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
In considering the above accounting matters the Committee had regard to papers and reports prepared by the Group finance team and the external auditors and the explanations and disclosures made in the Annual Report.
92
ScS Group plc Annual Report and Accounts 2023 Significant issues and judgements relating to the financial statements
The Committee monitors the integrity of the annual and interim reports, including a review of the key accounting issues, areas of judgement and related disclosures
contained in them.
Area of focus
Committee’s response
Impairment
Management reviews the carrying amount of goodwill, property, plant and
equipment and right-of-use assets every year to determine if there are any
indications of impairment. The estimate of the recoverable amount is based on
value in use calculations which requires management to estimate future cash
flows and an appropriate discount rate. The prior year impairment assessment is
also taken into consideration and where it is identified that the impairment has
reduced, a reversal of the impairment is recorded.
Parent company investment
The ultimate parent company of the Group, ScS Group plc, holds an investment in
the subsidiary companies of the Group. The carrying value of this investment is
reviewed by management to determine if there are any indications of impairment.
Management use analysis to assess the investment for indications of impairment
including; a value in use calculation incorporating budget-based cash flow
projections and an assessment of market capitalisation.
The Committee discussed with management and the external auditors the
validity of cash flow projections and the significant financial assumptions used,
including the selection of appropriate discount and growth rates used over
the remaining lease period. The Committee satisfied itself that the principles
and judgements applied were appropriate as well as the presentation of the
impairment within the financial statements.
The Committee discussed with management and the external auditors the
analysis performed by management, including verifying the validity of any
significant assumptions applied in the value in use model (discount and
growth rates applied) and the practicality of an assessment against market
capitalisation.
The Committee satisfied itself that the principles and judgements applied were
appropriate and that no impairment charge was required.
Supplier rebates
The Group receives volume rebates from suppliers which are pre-negotiated and
split between suppliers with rebate ‘hurdle’ rates dependent on spend and those
that have a flat rate. Where rebate arrangements were not coterminous with the
year end, judgements were required but the amounts involved were not material.
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.
Stock provisions
The Group’s policy in relation to stock provisioning is to provide for obsolete, slow
moving and defective stock.
Dilapidation provision
The Group’s policy is to ensure a suitable dilapidations provision is in place to
utilise to cover costs when a site is exited at the end of a lease. Historical data is
used to estimate future liabilities; therefore, a degree of judgement is required.
Alternative Reporting Measures (APMs)
The Group’s policy is to adopt APMs in order to assist in providing useful
information on the underlying performance and position of the Group. In the
current year, the Group has adopted an adjusting items APM to exclude certain
costs and incomes that are material in size and unusual/non recurring in nature.
The Committee has discussed with management and the external auditors how
the policy has been applied in practice so as to ensure that stock is held at the
most appropriate estimate of net realisable value. The Committee satisfied
itself that stock was not materially misstated.
The Committee has reviewed management’s dilapidations calculation and
assumptions, and satisfied itself that an appropriate provision is in place.
The Committee has reviewed management’s calculation and presentation of
APMs. The Board believe that these APMs assist in providing useful information
on the underlying performance and position of the Group and enhance the
comparability of information between reporting periods by adjusting for non-
underlying items which affect IFRS measures and are used internally by the
Board to measure the Group’s performance.
93
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Audit Committee report continued
Climate change and risk reporting
During the year, the Group prepared its second
report in line with the TCFD requirements which can
be found on pages 38 to 40. The report outlines
the progress made in understanding, identifying
and managing the business’s climate-related risks
and opportunities. We acknowledge that climate-
related reporting is a rapidly developing topic that
we will continue to monitor as required.
Going concern
The Board and the Committee considered the
half-year and full-year statements with respect
to the going concern basis of accounting and
have satisfied themselves that the underlying
assumptions supporting the statements continue
to be reasonable and support the conclusion that
the Group has adequate resources to continue to
operate for a period of at least 12 months from the
date on which the financial statements are signed.
Accordingly, they continue to adopt the going
concern basis in preparing the financial statements
(see note 2 to the financial statements on page 137).
Viability statement
The Board is required to consider whether the Group
can continue to operate and meet its liabilities,
taking into account its current position and
principal risks in the longer term, having considered
severe but plausible risks and risk combinations.
The Committee reviewed the process undertaken
by management and considered management’s
scenario modelling and the stress testing of these
models. The Committee reviewed and challenged
the assumptions used by management in its
modelling, including specific challenges on how
severe but plausible revenue and margin reductions
had been determined, the value of revenue and
margin reductions, and whether the modelling
should cover a period greater than three years and
how this could be reflected in the Annual Report.
The Committee concluded that the Board is able to
94
make the Viability statement on pages 65-66 of the
Strategic report.
6. Ownership of risks; and
7. Target dates for actions to mitigate risks.
Fair, balanced and understandable
The Committee considered whether the 2023
Annual Report and Accounts is fair, balanced
and understandable and whether it provides the
necessary information to shareholders to assess
the Group’s performance, business model and
strategy. Also considered was management’s
assessment of items included in the financial
statements, including non-GAAP APM’s and the
prominence given to them. The Committee and
subsequently the Board were satisfied that, taken
as a whole, the 2023 Annual Report and Accounts is
fair, balanced and understandable.
Risk management and internal control
The Board has 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
misstatements, loss or failure. Equally, no system
can guarantee elimination of the risk of failure
to meet the objectives of the business. Against
that background, the Committee has helped the
Board develop and maintain an approach to risk
management which incorporates risk appetite, the
framework within which risk is managed and the
responsibilities and procedures pertaining to the
application of the policy.
The Group is proactive in ensuring that corporate
and operational risks are identified and managed.
Functional risk registers are maintained which detail:
1. The risks and the impact they may have;
2. The risk appetite for each risk;
3. The link to principal risks;
4. Actions to mitigate risks;
5. Risk scores to highlight the implications of
occurrence;
A description of the principal risks is set out on
pages 59 to 64.
The Board has confirmed that it has carried out a
robust assessment of the principal risks facing the
Group, including those which threaten its business
model, future performance, solvency or liquidity.
The Board considers that the processes
undertaken by the Committee are appropriately
robust and effective and in compliance with the
guidelines issued by the Financial Reporting Council
(FRC). During the year, the Board has not been
advised by the Committee nor has it identified
itself, any failings, frauds or weaknesses in internal
control which it has determined to be material in the
context of the financial statements.
The Committee continues to believe that
appropriate controls are in place throughout
the Group, and that the Group has a well-defined
organisational structure with clear lines of
responsibility and a comprehensive financial
reporting system. The Committee also believes that
the Company complies with the FRC guidance on risk
management, internal control and related financial
business reporting. Furthermore, the internal audit
function has carried out an assessment of the
effectiveness of actions taken by management to
mitigate significant risks.
Internal audit
The Head of Audit, Risk & Compliance has a direct
reporting line to the Committee and attends every
Committee meeting to present internal audit and
risk management reports. During the financial
year, internal audit has undertaken a programme
of work which was discussed and agreed with both
management and the Committee and which was
ScS Group plc Annual Report and Accounts 2023 designed to address both risk management and
areas of potential financial loss. All of the agreed
work has been performed and the Committee is
comfortable that all key areas of risk have been
covered. 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:
• Fraud risk and related internal controls;
• Anti-money laundering;
• Anti-bribery and corporate crime;
• Compliance with the Modern Slavery Act;
• Compliance with data protection;
• Compliance assessments of the Group’s
operating processes in relation to retail outlets
and distribution centres;
• Risk management, including the effectiveness
of mitigating actions in relation to the Group’s
principal risks;
• Department for Business, Energy & Industrial
Strategy (BEIS) response, timeline and action
plan;
• Compliance processes;
• Marketing;
• Health and safety processes;
• Payroll processes;
• Human resources;
• Purchase ledger processes;
•
Information technology;
• Central customer experience processes;
• ESG strategy; and
• Digital processes.
In relation to each of the above, internal audit
made recommendations for improvement to
management, all of which were agreed and either
have been or are being implemented.
The Committee has evaluated the performance of
internal audit during the year and concluded it is
a function which has a strategic plan developed
in collaboration with the Committee, and which
provides constructive challenge and demonstrates
a realistic and commercial view of the business.
External auditors
Following a tender process in 2019,
PricewaterhouseCoopers LLP (PwC) were re-
appointed as the Group’s external auditors. The
audit partner is Andy Ward, who is a partner in PwC’s
Leeds office and has been the audit partner for
three years. PwC has been the Group’s auditors for
13 years.
The Committee has established policies in relation
to the provision of non-audit services by the
auditors. The external auditors are not permitted
to perform any work that they may be later required
to audit or which might affect their objectivity and
independence or create a conflict of interest.
Furthermore, the external auditors may not perform
any work prohibited by the Ethical Standards
published by the FRC.
All fees for non-audit work require pre-authorisation
by the CFO and the Audit Committee, and non-audit
fees paid to the auditors are not permitted to
exceed 70% of average audit fees over a three-year
period. During the year other non-audit services
provided by PwC included £30,000 for their review of
the interim financial statements. No other non-audit
services were provided by the external auditors.
Fees paid to PwC for audit work were £240,000.
The Group is in compliance with the requirements of
The Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Responsibilities)
Order 2014, which relates to the frequency and
governance of external audit tenders and the
setting of a policy on the provision of non-audit
services.
In accordance with International Standards on
Auditing (UK & Ireland) 260 and Ethical Statement 1
issued by the Accounting Practices Board, and as a
matter of best practice, the external auditors have
confirmed their independence as auditors of the
Group.
The Committee is responsible for assessing the
effectiveness of the external audit process and
does so in a number of ways:
1. The Committee, together with the CFO, met
with the senior members of PwC, prior to both
the interim review and year-end audit, as they
presented their plan for discussion;
2. The Committee, together with the CFO and other
members of the Board, met with PwC to assess
the execution of the review/audit and reporting
of their findings; and
3. The Committee considered the matters set
out in PwC’s 2023 Transparency Report dealing
with audit quality monitoring and remediation. It
considered the results of internal and external
engagement reviews and the steps taken by PwC
to address findings. Within PwC, audit quality is
monitored at a global level and at an engagement
level, with all engagement partners being
reviewed at least once in a three-year cycle.
In reviewing PwC’s 2023 Transparency Report,
the Committee noted the firm’s commitment to
quality and risk management. The Committee also
discussed with PwC the results of the FRC Audit
Quality Inspection of the UK firm. During PwC’s
attendance at Committee meetings, the Committee
also met privately with the auditors and, as Chair of
the Committee, I had regular dialogue with the audit
partner.
The Committee considered in detail PwC’s audit
planning documentation and satisfied itself that
the audit work to be carried out by PwC covered
all significant aspects of the Annual Report
95
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements The Committee reviewed the reports
prepared by PwC on key audit findings as well
as the recommendations made by PwC to
improve processes and controls together
with management’s responses to those
recommendations. PwC did not highlight any
material internal control weaknesses and
management has committed to making appropriate
changes in controls in the areas highlighted by PwC.
Ron McMillan
Chair of the Audit Committee
24 October 2023
Audit Committee report continued
and Accounts and, therefore, did not feel it was
necessary to ask PwC to look at any additional areas
specifically. PwC’s report to the Audit Committee
at the conclusion of the audit confirmed that the
audit had been carried out in accordance with the
planning documentation and the Audit Committee
considered the findings of PwC as reflected in their
audit opinion and their year-end report to the Board.
PwC’s audit opinion set out the key matters that,
in their opinion were of most significance in this
audit. These were consistent with the key matters
considered and agreed with the Audit Committee
when the audit was planned. PwC’s report describes
how these matters were addressed in the audit
and the scope and nature of their work reflects the
thoroughness of their approach and the degree of
scepticism applied.
The Committee reviews annually the performance
of PwC with feedback from management, the
Group’s finance team, the internal audit function
and the Board. As part of this review, the Committee
met with members of the audit team to understand
the experience of the wider team and their
understanding of the Group, the retail sector
and the extent of challenge to management on
areas which required judgement. The conclusions
reached were that PwC has continued to perform
the audit in a professional and efficient manner
with the necessary objectivity and challenge
to demonstrate independence. Following the
FY22 audit, it was noted that for future audit
processes the Board would need to be satisfied
with the strengths and experience of the PwC
engagement team, which was addressed in PwC’s
planning process for FY23. It is the Committee’s
recommendation to the Board that PwC be re-
appointed auditors at the AGM on 1 December 2023.
The Board has no present plans to consider an audit
tender process.
96
ScS Group plc Annual Report and Accounts 2023 Directors’ remuneration report
The delivery of our strategic priorities depends on building and developing
outstanding teams in all areas of the organisation. This has been
reflected in the decisions made when considering our pay and incentive
arrangements for the wider workforce.
Dear Shareholder,
I am pleased to present this year’s Directors’
remuneration report on behalf of the Remuneration
Committee (‘the Committee’).
In April 2023, I stepped into the role of Remuneration
Committee Chair. I would like to thank Angela Luger
and the members of the Committee, for all their
support and guidance.
This report provides context and insight into our
pay arrangements for Non-Executive Directors and
Executive Directors including the assessment of
FY23 performance and pay, our continued focus
on fairness of pay across the Group, as well as our
plans for FY24.
We remain focused on our strategic priorities as we
look to continue to grow our market share. Critical
to delivering these plans is building and developing
outstanding teams in all areas of the organisation.
The Committee is also conscious as to delivering
our plans in a sustainable manner to ensure that
all stakeholders are considered. This has been
reflected in the decisions made when considering
our pay and incentive arrangements for the wider
workforce.
The team continue to react and demonstrate great
flexibility to the uncertainty in economic conditions.
Despite the challenging backdrop the Group has
delivered a resilient financial result ahead of market
expectations.
In recognition of our teams’ hard work and ongoing
dedication, in August 2023 we awarded annual pay
increases that supported critical roles across
the organisation and key structural changes. Our
approach to pay was therefore bespoke and a
range of pay awards were made, which resulted
in a minimum 3% pay increase for our colleagues
(maximum 3% for all Directors).
FY23 incentives
The Executive Directors are eligible for annual bonus
incentives with a maximum opportunity of 140% of
salary. Historically the Group has used EBITDA to
determine the annual bonus award. In the FY23 year
we concluded that 10% of the award would be based
on hitting two ESG targets, with the other 90% driven
by an EBITDA profit target. In concluding on the profit
award for the year, the Committee excluded the
performance of Snug given it was not known when
we set the targets.
Whilst the Group did not achieve the original EBITDA
target, largely driven by the gross margin impact
of the increased interest rate experienced over
the year, the business exceeded the budgeted
adjusted profit before tax* target. The ScS adjusted
profit before tax for the year was £9.2m, compared
to a budget of £8.0m. Based on this profit before
tax outperformance, the Committee has therefore
approved the minimum EBITDA pay out.
Moving forward we will be using adjusted profit
before tax* as the measure for the financial
element of our targets and this year is one of
transition to this method.
97
In recognition of our teams’
hard work and resilience,
in August 2023 we awarded
annual pay increases that
supported critical roles in
the organisation and key
structural changes”
* Adjusted profit before tax is based on profit before tax
before the effect of adjusting items. See page 138 for
the definition of adjusting items.
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements On behalf of the Committee, I would like to thank
shareholders for their input and engagement in
the year, and we welcome any comments. I will be
available at the Annual General Meeting (AGM) in
November to answer any questions you may have on
this report.
Carol Kavanagh
Chair of the Remuneration Committee
24 October 2023
Directors’ remuneration report continued
In addition, both of the ESG bonus targets on
colleague wellbeing (measured by the employee
engagement survey) and waste reduction were met.
Therefore, the bonus will pay out at 21.25% of the
maximum.
Long-term incentives
The FY21 award is due to vest in October 2023,
however, the performance period ended on
29 July 2023 and so the vesting percentage can
be determined. The Remuneration Committee
are, however, conscious that the award was
granted before transition to IFRS 16, at a time when
there were 38,012,655 shares in issue, before the
acquisition of Snug, and that the statutory tax rate
has risen since the grant date. On this basis the
Remuneration Committee have recalculated EPS
using the same accounting basis, number of shares
and effective tax rate as at the date of the award
and based the vesting calculation on the adjusted,
excluding Snug, EPS of 19.7p. Therefore, the award will
vest at 33.07% of the maximum.
Remuneration in FY24
On 24 October 2023, a wholly owned subsidiary of
Panda S.P.A announced a recommended cash offer
for the entire issued and to be issued share capital
of the Company. Should the acquisition complete as
intended, rewards and incentives may be reviewed.
If for any reason, the offer does not proceed, the
current remuneration packages will continue.
Steve Carson and Chris Muir have received
increases of 3% of salary in line with the increases
applied to the wider workforce. Benefit and pension
provisions remain unchanged for the forthcoming
year.
The Committee has decided to continue to
incorporate ESG metrics in the form of employee
engagement (wellbeing) and waste reduction
measures into the annual bonus. These metrics will
98
again account for 10% of the overall bonus with the
remainder being subject to profit before tax targets.
The maximum bonus opportunity for the CEO and
CFO remains unchanged at 140% of salary.
The Long Term Incentive Plan (LTIP) award will
continue to be subject solely on EPS with the LTIP
grant unchanged at 150% of salary for both the CEO
and CFO.
Fees for our Chair and Non-Executive Directors
remain unchanged for the forthcoming year.
Executive Director changes
We announced in December 2022 Chris Muir’s
intention to step down as CFO. Chris has a 12-month
notice period; he will receive his FY23 bonus (subject
to the normal performance conditions) and will be
eligible for a pro-rated annual bonus in FY24 but will
not participate in the LTIP.
The Board have since appointed a successor; Mark
Fleetwood joined as CFO effective 4 September
2023. Mark Fleetwood’s basic salary has been set
at £325,000 with an annual bonus and long-term
incentive opportunity in line with our Remuneration
Policy. He is also eligible to receive a car cash
allowance and healthcare cover in line with that
of Chris Muir, and a pension in line with the wider
workforce.
Colleague input
We have actively engaged with our colleagues from
across the business through face-to-face feedback
sessions, where they were able to openly raise any
topics with myself and the wider team of Directors.
These sessions, combined with our annual employee
engagement survey, provided insight to help shape
the future people strategy for the business, and
ensure our decisions on all matters are carefully
considered and allow for feedback and improvement.
ScS Group plc Annual Report and Accounts 2023 Remuneration principles
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 management with those of the shareholders.
Incentivise profitable growth; and
In promoting these objectives, the Committee’s aims are to implement the Remuneration Policy in a simple, transparent and understandable way, supporting the
principles set out in Provision 40 of the 2018 UK Corporate Governance Code (‘the Code’):
Clarity
Simplicity
Risk
Predictability
Proportionality
Alignment to culture
The Remuneration Policy is closely aligned to the business, purpose and strategy
and has a clear link between performance and reward.
The Policy has operated largely unchanged since IPO, with the most significant
change being our formal commitment to align executive pension contributions
with the wider workforce.
Performance targets are set to ensure the delivery of sustainable profitable
growth and appropriate safeguards are in place to ensure that overall outcomes
are aligned with underlying business performance and the stakeholder
experience.
The range of possible rewards for variable pay are set and disclosed.
Remuneration levels are periodically benchmarked against other similar sized
companies and actual rewards are closely linked to the delivery of the strategy
and the long-term performance of the Company.
The incentive schemes are focused on our strategy of sustainable profitable
growth and are designed to encourage behaviours that are consistent with ScS’
purpose, culture and values.
99
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ remuneration report continued
Annual remuneration report
Single figure table of total remuneration Executive Directors – audited
The audited table below shows the aggregate remuneration of the Directors of the Group during FY23 and FY22:
Steve Carson
FY23
FY22
Chris Muir
FY23
FY22
Salary
£
Benefits1
£
Bonus
£
412,000
400,000
329,600
320,000
21,414
21,534
18,414
18,534
122,570
269,360
98,056
215,488
LTIP2
£
–
–
108,654
114,027
Pension3
£
20,600
20,000
16,480
16,000
Total
£
Total fixed
remuneration
£
Total variable
remuneration
£
576,584
710,894
571,204
684,049
454,014
441,534
364,494
354,534
122,570
269,360
206,710
329,515
1. Taxable benefits of the Directors are discussed in detail below. Executive Directors received a car allowance and private medical insurance.
2. Estimated value of the FY21 LTIP award, using the average of the closing mid-market share price in the three-month period ending 29 July 2023, being 158.7p. The value of the FY20 LTIP has been restated to reflect actual
vesting of awards based on a share price of 139.0p on the date of vesting. The share price on the date of grant was 235.0p, therefore, there is nil value due to appreciation from grant. LTIP participants receive dividends (or
any other distribution) only when the award vests. The value of the dividend equivalents paid on the CFO’s FY20 award was £11,392, taken as shares (8,196 shares).
3. Steve Carson and Chris Muir opt to receive part of their pension contributions as a cash allowance.
Elements of remuneration
Salary
The basic salary for Steve Carson, CEO, was reviewed and increased from £400,000 to £412,000 effective 1 August 2022. The basic salary of Chris Muir, CFO, was also
reviewed based on the same principles and increased from £320,000 to £329,600 effective 1 August 2022. This was in line with the wider workforce basic salary
increase.
Pension and other benefits – audited
Executive Directors are eligible to pension benefits equating to 5% of their basic salary, which are non-contributory. This aligns to the pension rate applicable to the
wider workforce.
Steve Carson, CEO, received £4,000 of pension benefits and Chris Muir, CFO, received £3,938. The balance was paid as a cash allowance.
Any new Executive Director appointments will have a pension contribution in line with that provided to the wider workforce.
The Executive Directors received a car allowance which was as follows:
• Steve Carson, CEO: £20,000
• Chris Muir, CFO: £17,000
The Executive Directors are also provided with private medical insurance and life assurance that provides cover of up to four times taxable earnings.
100
ScS Group plc Annual Report and Accounts 2023 Annual bonus – audited
The Executive Directors are eligible for annual bonus incentives with a maximum opportunity of 140% of salary. Historically the Group has used EBITDA to determine
the annual bonus award. In the FY23 year we concluded that 10% of the award would be based on hitting two ESG targets, with the other 90% driven by an EBITDA profit
target. In concluding on the profit award for the year, the Committee excluded the performance of Snug given it was not known when we set the targets.
Whilst the Group did not achieve the original EBITDA target, largely driven by the gross margin impact of the increased interest rate experienced over the year, the
business exceeded the budgeted adjusted profit before tax target. The ScS adjusted profit before tax for the year was £9.2m, compared to a budget of £8.0m. Based
on this profit before tax outperformance, the Committee has therefore approved the minimum EBITDA pay out.
Moving forward we will be using adjusted profit before tax* as the measure for the financial element of our targets and this year is one of transition to this method.
In addition, both of the ESG bonus targets on colleague wellbeing (measured by the employee engagement survey) and waste reduction were met. Therefore, the
bonus will pay out at 21.25% of the maximum. The details of the targets and how the bonus was calculated are set out below:
Pre-bonus EBITDA
% maximum
Social – employee engagement
Environmental – Waste reduction across the business
Steve Carson
Chris Muir
Target/ % of max bonus
£15.7m
11.25%
£20.3m
45%
£22.2m
67.50%
£24.1m
90%
Target
% of
max bonus
65
5%
5%
5%
Actual
11.25%
5%
5%
£64,890
£259,560
£389,340
£519,120
£51,912
£207,648
£311,472
£415,296
£57,680
£122,570
£46,144
£98,056
Long-term incentives
Awards vesting in 2023 – audited
The LTIP granted on 12 October 2020, is due to vest in October in 2023. The initial award provided vesting conditions on a straight-line basis between 25% and 100%
based on an EPS in 2023 from 18.3p to 31.0p.
The underlying EPS as reported under IFRS16 for the year is 15.9p, which would not have resulted in an award under the terms of the LTIP. The Remuneration Committee
are, however, conscious that the award was granted before transition to IFRS 16, at a time when there were 38,012,655 shares in issue, before the acquisition of Snug
(which has been loss making as the business grows from a standing start), and that the statutory tax rate has risen since the grant date.
As a consequence, the Remuneration Committee have recalculated EPS using the same accounting basis, number of shares and effective tax rate as at the date of
the award and based the vesting calculation on the adjusted, excluding Snug, EPS of 19.7p. As such, the award will vest at 33.07% of the maximum.
Awards granted during the year – audited
During the year, the Executive Directors were granted a LTIP award with a face value of 150% of salary. The awards were made in the form of nil-cost options and were
for 348,955 and 279,164 shares respectively for Steve Carson, CEO, and Chris Muir, CFO. The awards have a three-year vesting period, plus a two-year hold period.
* Adjusted profit before tax is based on profit before tax before the effect of adjusting items. See page 138 for the definition of adjusting items.
101
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ remuneration report continued
Details of the award are set out in the table below:
Steve Carson
Chris Muir
1. The five-day average share price prior to the date of grant, 21 April 2023, was 177.1p.
Max. award
(% of salary)
Max award1
£
No. shares
Performance
measures
Holding period
150%
150%
£618,000
£494,400
348,955
100% EPS
279,164
100% EPS
2 years
2 years
The Committee chose to delay the setting of the EPS targets at the start of FY23 to ensure that it could consider all relevant information. A review was completed to
ensure that the long-term incentive targets for our senior leadership team are appropriately stretching and motivational, and this included independent advice on
executive remuneration. The EPS targets approved are set out below:
EPS figure (in 2024)
Less than 17.3p
17.3p
Greater than 17.3p but less than 23.1p
Greater than 23.1p but less than 30.6p
30.6p or greater
Percentage of award that vests
Nil
12.5%
Straight-line basis between 12.5% and 50%
Straight-line basis between 50% and 100%
100%
The performance conditions for the FY23 LTIP awards are consistent with the Company’s approved Directors’ Remuneration Policy.
All-employee share plans
The Group offers an all-employee UK Share Incentive Plan (SIP). 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 Group every month or pay a maximum one-off lump sum of up to £1,800 in a tax year.
The Executive Directors are eligible to participate in the SIP on the same basis as other employees.
102
ScS Group plc Annual Report and Accounts 2023 Directors’ shareholding and share interests – 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 ended 29 July 2023.
Director
Alan Smith
Ron McMillan
Angela Luger
Carol Kavanagh
Andy Kemp
John Walden
Swarupa Pathakji
Steve Carson
Number
Value at year end
Chris Muir
Number
Value at year end
Shares held
beneficially
18,096
–
–
–
–
–
–
Unvested
–
–
–
–
–
–
–
Shares held
beneficially
Nil cost options
subject to
performance1,
Option awards
vested but
unexercised2
Total
75,000
572,752
£119,025
£908,957
–
–
647,752
£1,027,982
179,557
£284,957
458,202
£727,167
68,465
706,224
£108,654
£1,120,778
1. Awards vest subject to EPS performance over a three-year period. This relates to awards granted in FY22 and FY23.
2. Option awards vested (but unexercised) is inclusive of the FY21 EPS LTIP award and dividend equivalents.
The value of share interests at the year-end is based on the average share price in the three months ending on 29 July 2023 of 158.7p. There have been no changes to
share interests as at the date of this report.
The Executive Directors are required to build and maintain a shareholding equivalent to 200% of base salary. The beneficial shareholding for Steve Carson is currently
28.9% of his salary. Mark Fleetwood does not currently hold any shares. Both are required to build up their shareholding, which will be achieved by the retention of
share options awarded under the LTIP.
Chris Muir currently has a shareholding of 86.5% of his salary but will leave the business during FY24.
103
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ remuneration report continued
Payments to past Directors – audited
David Knight left the Board on his retirement on 31 July 2021. He retired with the agreement of the Board and worked his full 12-month notice period. As such the
Committee determined that he should be treated as a good leaver, and therefore his unvested conditional shares awarded under the FY20 and FY21 LTIPs were time
pro-rated to 31 July 2021. The LTIP award granted in FY20 vested in October 2022 at 48.2%, resulting in an award of 69,730 shares (inclusive of dividend equivalents) with
a value of £96,925 (the share price at vest was 139.0p) (FY22: Payments to retiring CEO, David Knight, as detailed in last year’s Annual Report). The LTIP award granted in
FY21 will vest in October 23 at 33.07%, resulting in an award of 29,079 shares (inclusive of dividend equivalents) with a value of £47,314 (using the average of the closing
mid market share price in the three month period ending 29 July 2023, being 158.7p, on the non dividend equivalent proportion of the award of 25,342).
Payments for loss of office – audited
There were no payments to past directors in the year ended 29 July 2023 (FY22: none).
Fees retained for external non-executive directorships
Executives may hold external non-executive directorships in non-competing businesses with the express consent of the Board. Fees may be retained for those
roles with Board consent. There are no remunerated non-executive roles currently held by either the CEO or CFO.
Relative importance of the spend on pay
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
FY23
£’000
67,775
4,724
FY22
£’000
65,420
4,443
% Change
3.6%
6.3%
Performance graph and pay table
The chart below illustrates the Group’s Total Shareholder Return (TSR) performance against the performance of the FTSE Fledgling Index, from the date of the IPO of
the Group. This index was selected as it represents a broad equity market index which includes companies of a comparable size.
)
d
e
s
a
b
e
R
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
300
250
200
150
100
50
ScS
FTSE Fledgling Index
27 Ja n 2015
27Jul 2015
27 O ct 2015
27Ja n 2016
27Jul 2016
27 O ct 2016
27Ja n 2017
27Jul 2017
27 O ct 2017
27Ja n 2018
27Jul 2018
27 O ct 2018
27Ja n 2019
27Jul 2019
27 O ct 2019
27Ja n 2020
27Jul2020
27 O ct2020
27Ja n 2021
27Jul 2021
27 O ct 2021
27Ja n 2022
27Jul 2022
27Ja n 2023
27Jul 2023
Source: Datastream (Thomson Reuters).
104
ScS Group plc Annual Report and Accounts 2023
This graph shows the value, by 29 July 2023, of £100 invested in ScS Group plc on 26 January 2015 compared with the value of £100 invested in the FTSE Fledgling Index.
Changes in the remuneration of the CEO
The Committee believes that the Remuneration Policy and remuneration structure clearly aligns with the Group’s strategic objectives and performance. The table
shows the remuneration data for Directors undertaking the role of CEO in the last 10 years.
Steve Carson
FY23
FY22
FY211
David Knight
FY21
FY20
FY19
FY18
FY17
FY16
FY15
FY14
1. Remuneration relates to seven months of employment. Shown for illustration only. Comparisons in this report to are made against David Knight’s full year remuneration.
CEO single
figure
£
Annual bonus
payment
(% of maximum)
LTIP vesting
(% of maximum)
576,584
710,894
577,461
21.25%
48.1%
100.0%
1,382,077
100.0%
388,027
1,094,972
815,408
591,303
801,290
380,183
557,786
0.0%
99.3%
99.8%
39.2%
100.0%
0.0%
42.3%
N/A
N/A
N/A
89.3%
0.0%
56.3%
0.0%
0.0%
N/A
N/A
N/A
105
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ remuneration report continued
Changes in the remuneration of the Directors
The table below shows the percentage changes in the Executive and Non-Executive Directors’ remuneration over the last four years, compared to the amounts for
full-time employees of the Group for each of the following elements of pay:
Percentage change from FY22
Percentage change from FY21
Percentage change from FY20
Percentage change from FY19
Salary
Benefits
Bonus
Salary
Benefits
Bonus
Salary
Benefits
Bonus
Salary
Benefits
Bonus
Executive Directors
Steve Carson1
Chris Muir2
Non-Executive Directors
Alan Smith
Ron McMillan
Angela Luger3
Carol Kavanagh
Andy Kemp
John Walden
Swarupa Pathakji
Average per employee
(excluding Directors)*
3%
3%
–
–
2.3%
–
–
–
–
(0.6)%
(0.6)%
(54.5)%
(54.5)%
N/A
11.60%
N/A
(2.6)%
N/A
N/A
(46.3)%
19.40%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
–
–
10.82%
N/A
–
–
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
–
–
–
–
–
–
–
N/A
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
–
–
–
–
–
–
–
–
N/A
2.30%
N/A
(100)%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5.5%
1.5%
(27.8)%
8.8%
(6.1)%
(49.1)%
1.6%
(10.6)%
221%
1.2%
7.3%
(56.3)%
1. Steve Carson has had no increase in salary or benefits from FY21 to FY22, as he was appointed in January 2021.
2. Chris Muir received a salary increase in January 2021.
3. Angela Luger was appointed Chair of the Remuneration Committee during FY22 until March FY23 and therefore received an additional payment for this role for a proportion of FY22 and FY23.
CEO pay ratio
The table below shows the ratio of CEO pay for FY23 comparing the sum of the single total figures of remuneration for Steve Carson to the full-time equivalent total
reward of those colleagues whose pay is ranked at the 25th, 50th and 75th percentile in our UK workforce. These employees were identified on 29 July 2023.
We have adopted Methodology Option A to calculate the ratio, as we believe it provides the best comparison of colleague pay with that of our CEO by using a
consistent methodology to value remuneration and identify our employees ranked at the 25th, 50th and 75th percentiles.
1. We have used employee remuneration details from A. Share and Sons Limited and Snug Furniture Limited, the trading subsidiaries of ScS plc. This is considered more meaningful as ScS plc has no employees other than Non-
Executive Directors.
106
ScS Group plc Annual Report and Accounts 2023 Colleague pay was calculated based on actual pay and benefits for the 12 monthly payrolls in respect of the full financial year to 29 July 2023. We can confirm that
none of the three individuals received additional or exceptional pay within the year and no adjustments were made to the calculation of the total remuneration for
these employees from the methodology set out for the CEO’s single total figure remuneration. The ratios as set out below:
Year
FY23 – Steve Carson
FY22 – Steve Carson
FY21 – David Knight1
FY20 – David Knight
Method 25th percentile 50th percentile 75th percentile
Option A
Option A
Option A
Option A
26:1
35:1
70:1
21:1
20:1
27:1
55:1
16:1
15:1
21:1
43:1
12:1
1. David Knight’s FY21 single figure value has been restated to reflect actual vesting value of the FY19 LTIP award, based on a share price of 268.0p on the date of vesting.
The difference in the ratios from FY22 to FY23 is predominantly the result of the reduction in the CEO single figure value. Steve Carson was not eligible to receive an
LTIP vest in FY23 due to his start date. The decrease in pay ratio this year is the combined result of the reduced total remuneration for the CEO, as detailed in the
single figure table and, in response to the cost of living crisis, the focus on pay for lower paid colleagues.
The table below provides the individual remuneration information in relation to our employees ranked at the 25th, 50th and 75th percentiles:
Year
FY23
Method
Salary
Total pay and benefits
FY22
Salary
Total pay and benefits
FY21
Salary
Total pay and benefits
FY20
Salary
Total pay and benefits
25th percentile 50th percentile 75th percentile
£21,666
£22,117
£19,898
£20,241
£17,213
£19,641
£17,601
£18,190
£28,549
£29,170
£25,549
£26,082
£24,483
£25,095
£24,259
£24,259
£36,732
£37,531
£33,381
£34,138
£27,898
£32,190
£19,727
£31,412
Gender pay gap
Our people-focused strategy projects include work focused on talent, reward and employer brand. This work will help us to make sure we are supporting and
representing our female colleagues at every level. Within our learning and development programmes, we will ensure a fair proportion of female colleagues are
included to help provide a supportive environment.
As part of our ESG strategy, we will be reporting and monitoring numbers of females in management roles in retail, with the aim of increasing female management by
25% by the end of FY24.
For further information and to view the full report, please visit www.scsplc.co.uk
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ remuneration report continued
Remuneration of the Chair and Non-Executive Directors – audited
The structure of Non-Executive Directors fees, and their levels, were set by the Board on admission. No review is expected during FY24.
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 during FY23 to the Non-Executive Directors were as follows:
Alan Smith
Ron McMillan
Angela Luger
Carol Kavanagh
Andy Kemp
John Walden
Swarupa Pathakji
FY23
FY22
£125,000
£125,000
£60,000
£56,667
£51,154
£25,000
£20,833
£12,500
£60,000
£55,410
n/a
n/a
n/a
n/a
Our Non-Executive Directors (excluding the Chair) have a base fee of £50,000. Ron McMillan, Angela Luger and Carol Kavanagh each received an additional £10,000 per
annum for chairing the Audit and Remuneration Committees respectively. Carol Kavanagh was appointed as Remuneration Committee Chair on 1 April 2023. Angela
Luger was paid as Remuneration Committee Chair up to 31 March 2023.
There were no other amounts disclosable for the Non-Executive Directors for the year.
Implementation of the Remuneration Policy in FY24
Salary, pension and other benefits
As anticipated, increases in FY24 will be aligned to that of the wider workforce with average increases of 3%. The CEO and CFO’s base salaries were reviewed and
increased by 3% effective 1 August 2023; this rate is in line with that provided to the wider workforce:
• Steve Carson: £424,360 (previously £412,000)
• Chris Muir: £339,488 (previously £329,600)
Our incoming CFO, Mark Fleetwood, has been appointed on 4 September 2023 with a basic salary of £325,000. Mark’s salary was benchmarked using external market
insights through our recruiters and other benchmarking sources.
The Executive Directors will continue to receive pension contributions of 5% of salary in line with the rate available for the wider workforce. They will also continue to
receive a car allowance, private medical insurance and life assurance.
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ScS Group plc Annual Report and Accounts 2023 Approach for FY24 annual bonus
For FY24, the maximum bonus opportunity is unchanged at 140% of base salary for both the CEO and CFO.
To further align with the strategy, the Committee has included non-financial ESG performance measures into the bonus with a total weighting of 10%. The measures
are:
• Social – employee engagement
This is measured via an independent colleague engagement survey, where the measure is to increase the colleague positive response to the statement ‘ScS
takes a genuine interest in my wellbeing’. The target score is 70 before the end of FY24 (Scored 68 in FY23).
• Environmental – Waste reduction across the business
The remaining 90% of the bonus is based on the achievement of stretching EBITDA targets. The Committee does not disclose the EBITDA targets in advance as they
are commercially sensitive. Retrospective disclosure of the EBITDA targets will be included in next year’s report.
The FY24 annual bonus detailed above may be impacted should the acquisition complete as intended. The Remuneration Committee currently propose that awards
are time and performance pro-rated to the completion date.
Long-term incentives
If the acquisition proceeds, then no FY24 LTIP Award will be granted. Prior to the offer, we commenced a review on the long-term incentive targets for our senior
leadership team to ensure they are appropriately stretching and motivational in light of our newly refreshed growth strategy. Should the acquisition not proceed, we
will seek independent expert advice on executive remuneration, as well as feedback from a range of our key shareholders before finalising our FY24 LTIP award.
The Remuneration Committee intends that the FY24 grants will be maintained at the normal levels (150% of base salary for the Executive Directors). However, the
Committee has full discretion, under the plan rules, to ensure that the final vesting outcomes are justified based on the performance of the Group, including
consideration of any windfall gains.
Chris Muir will not be invited to participate in the LTIP award this year as he is currently within his notice period. Mark Fleetwood will participate in line with the levels
set out in our Remuneration Policy.
Chair and Non-Executive Director fees
Fees for the Chairman and Non-Executive Directors remain unchanged as below.
Role
Chairman
Non-Executive Directors base fee
Audit and Remuneration Committee Chair
Fee
£125,000
£50,000
£10,000
Remuneration Committee
The members of the Committee for the 2023 financial year were Carol Kavanagh (Committee Chair from March 2023, previously a Committee member), Angela Luger
(Committee Chair until March 2023), Alan Smith and Ron McMillan, Andy Kemp, John Walden and Swarupa Pathakji. All of the current members are independent Non-
Executive Directors.
The responsibilities of the Committee are set out in the Corporate governance section of the Annual Report on pages 79 to 81.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ remuneration report continued
The Committee may invite the Executive Directors or other members of the senior management team 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, Steve Carson, Chris Muir and Lucy Clough (People Director) were in attendance as required.
The attendance of members of the Committee at meetings was as follows:
Member and meetings attended in FY23
Carol Kavanagh
Angela Luger
Alan Smith
Ron McMillan
Andy Kemp
John Walden
Swarupa Pathakji
Member
since
Meetings
attended
2022
2019
2014
2014
2023
2023
2023
7
7
7
7
3
3
2
Advisors to the Committee
During the year, the Committee received independent advice on executive remuneration matters from Mercer Limited. Mercer was appointed by the Committee
following a formal tendering process.
Mercer Limited are members of the Remuneration Consultants Group and, as such, voluntarily operate under the code of conduct in relation to executive
remuneration consulting in the UK. The Committee has received advice provided by Mercer Limited during the year and is comfortable that they have been objective
and independent. Total fees received by Mercer Limited in relation to remuneration advice provided to the Committee during FY23 amounted to £17,600, excluding VAT,
based on the required time commitment.
Shareholder voting
At the AGM on 25 November 2022, the total number of shares issued with voting rights was 35,551,162. The resolution to approve the Annual remuneration report from
the 2022 AGM received the following votes from shareholders.
Resolution
Percentage of
votes cast in
favour
Votes for
Votes against
Percentage of
votes cast
against
Votes withheld
Total votes
cast
Percentage of
issued share
capital voted
To approve the Directors’ remuneration report (2022 AGM)
19,140,744
99.89%
20,476
0.11%
1,666,020
20,827,240
58.6%
This report has been approved by the Board of Directors of the Group and signed on behalf of the Board by:
Carol Kavanagh
Chair of the Remuneration Committee
24 October 2023
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ScS Group plc Annual Report and Accounts 2023 Remuneration Policy report
Remuneration Policy overview
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. The Committee can confirm Remuneration Policy has operated as intended in relation to both
performance and quantum.
How the views of shareholders are taken into account
The Committee recognises that developing a dialogue with shareholders is constructive and informative in developing and applying the Remuneration Policy.
The Committee monitors and considers feedback received from shareholders. When the policy was last approved in FY22 feedback was pro-actively sought and
shareholders accounting for over 69% of total equity responded, with 80.2% in favour. The Committee takes into account the best practice guidance issued by
institutional shareholders and their representative bodies.
The Directors’ Remuneration Policy
The Directors’ Remuneration Policy was last approved by shareholders on the 26 November 2021 at the 2021 AGM and is due to be renewed at the 2024 AGM. This report
has been prepared on behalf of, and has been approved by, the Board. It complies with The Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The Remuneration Committees terms of reference can be inspected by members at: www.scsplc.co.uk/corporate-governance/
committees-terms-of-reference.
The most significant changes made last year are our formal commitment to reduce executive pension contribution rates to align more closely to the wider
workforce rate and the implementation of bonus deferral when it is felt appropriate to do so.
Remuneration
element
Base salary
Purpose
Operation
Maximum
Performance measures
This is the
basic pay and
reflects the
individual’s role,
responsibilities
and contribution
to the Group;
critical to help
attract and
retaining the right
talent.
Base salaries are reviewed annually with changes typically taking effect from
the beginning of the relevant financial year. When reviewing, consideration
is given by the Committee to a range of factors, including the Group’s overall
performance, market conditions and individual responsibility of executives
and the level of salary increases given to employees across the Group.
Higher increases may be awarded where there has been an increase in
responsibility.
N/A
Base salaries will be
benchmarked periodically
against companies that are
both main and AIM listed,
who are of a similar size,
sector and complexity.
If a new Executive Director’s salary is set on appointment below the median
market rate, 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.
Salaries will generally be set
at the mid-market levels;
however, the Committee
remains mindful of the need
to attract, recruit and retain
talent within the team.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Remuneration Policy report continued
Purpose
Operation
Maximum
Performance measures
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 and those available to the broader
workforce.
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.
The Committee has the discretion to add or remove benefits to remain
market competitive or to meet the needs of the business including where
new benefits are introduced for the wider workforce. In addition, where the
Committee considers it appropriate to do so, additional relocation expenses
may be paid.
Executive Directors may take pension benefits as a contribution to defined
contribution personal pension plans or receive cash in lieu.
N/A
No explicit maximum. We
ensure that benefits offered
are in line with the market
and review their cost from
time to time in the context
of the wider workforce
provision.
N/A
A total maximum value of
5%, which aligns closely to
the workforce rate. The
Committee reserves the
right to increase the rate
if changes are made for
the workforce – no such
increase is planned at the
present time.
Remuneration
element
Benefits
To provide
benefits which
are valued by the
individual and
assist them in
carrying out their
duties and to
support wellness
and engagement.
Pension
To provide
a market
competitive
pension
contribution (or
equivalent cash
allowance).
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ScS Group plc Annual Report and Accounts 2023 Remuneration
element
Bonus
Purpose
Operation
Maximum
Performance measures
Bonuses are normally paid in cash. Payments are made subject to meeting
pre-determined targets set at the start of the year and approved by the
Committee.
Malus and clawback rules apply to cash and deferred awards; see
explanatory notes for more information.
The Committee will consider the introduction of bonus deferral
arrangements for any bonus earned in excess of 100% of salary.
To provide an
incentive linked
to the financial
performance of
the Group and any
other appropriate
individual
or business
measures.
Deferral provides
further alignment
to shareholders’
long-term
interests for
achievement
of stretching
targets.
The current annual bonus
potential for the CEO and
CFO is 140% of base salary.
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 Committee intends for 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 including measures
relating to the Group’s ESG objectives.
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, for
example, related to transactions. Any
amended targets should be no more
or less difficult to achieve than the
original targets were considered to
be when set.
Long-term
incentives
To align the
Directors with
the long-term
performance
of the business
and the returns
received by
shareholders.
Awards may be made annually as options (including nil cost options) or as
conditional share awards based on performance conditions. The Committee
may set performance conditions typically over a three-year period.
The current intention is to use conditional shares or nil cost options for
awards.
The policy is to award
Executive Directors nil cost
share options equating to
no more than 150% of their
basic salary in respect of
each financial year.
Performance is normally based on
earnings per share targets, but
different measures and targets may
be used alongside or instead of
earnings per share for future awards
at the discretion of the Committee.
Dividend equivalents will be made as either a cash payment or delivery of plan
shares in an amount equal in value to the dividends that would have been
payable on the number of vested plan shares under the award in respect of
the period between the award date and the date on which the award vested
or, where the award is an option and a holding period applies, to the date of
expiry of the holding period or exercise (if earlier).
No more than 25% of an
award can be earned for a
threshold performance.
A two-year post-vesting holding period shall apply to LTIP awards granted to
Executive Directors and may apply (at the discretion of the Committee) in
relation to LTIP awards granted to others.
Malus and clawback rules apply to vested awards; see explanatory notes for
more information.
Performance conditions, once set,
will generally remain unaltered,
but the Committee has the right
in its absolute discretion to
substitute or vary the performance
conditions during any performance
period in case of events arising
which were unforeseen when the
performance conditions were first
set by the Committee, provided
that such substitution or variation
is reasonable and produces a fairer
measure of performance and is not
materially less difficult to satisfy.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Remuneration Policy report continued
Remuneration
element
Shareholding
guidelines
Employee
share plan
Purpose
Operation
Maximum
Performance measures
The Committee will review shareholding annually against the 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.
Executive Directors will also be eligible to participate in any replacement or
new all employee share plan that is introduced on the same terms as other
employees.
Executive
Directors are
expected
to maintain
their minimum
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.
N/A
N/A
The minimum required
level of shareholding is
200% of base salary of
the relevant Executive
Director. We encourage
Executive Directors to meet
this requirement within
five years of the date of
appointment.
Executive Directors are
expected to retain vested
LTIP awards (after tax) until
the minimum shareholding
level is attained.
Under the rules of the SIP
employees can purchase
shares from their pre-tax
and pre-national insurance
salary through a resident SIP
trust. Although the Group
has no current intention to
do so, the Group may also
award matching shares (in
proportion to the number
of shares an employee
chooses to purchase),
or make an award of free
shares.
The maximum amount that
can be purchased, offered
as a match or awarded for
free under the SIP is subject
to the published HMRC
annual limits.
Payment of statutory entitlements and settlement of claims
The Group may pay any statutory entitlements to which an Executive Director is entitled, or settle or compromise any claims made in connection with the termination
of employment of the Executive Director where the Committee considers such claims to have a reasonable prospect of success and that it is in the best interests of
the Group to do so.
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ScS Group plc Annual Report and Accounts 2023 Remuneration Policy and other employees
As well as the Executive Directors, other senior management will also participate in the performance-based annual incentive. 71% of our colleagues are eligible for
either a sales commission or bonus, based broadly on the same metrics of sales and profit as the Executive Directors. A small group of senior management also
participates in the LTIP for performance share awards.
The Group is committed to widespread share ownership. The Group employee SIP, which was adopted prior to admission, has been launched. Under the SIP, Executive
Directors are eligible to participate on a basis consistent with all other employees. Currently, 63 employees participate in the scheme.
In setting the Remuneration Policy going forward, the Committee will also have regard to pay structures across the broader Group. The Committee takes into
account the general base salary increase for the broader workforce when undertaking annual salary reviews for the Executive Directors and will consider
consultation with the wider workforce should it be felt appropriate to do so.
Operation of variable pay
Annual incentive plan
The Committee will set the performance targets annually under the annual incentive plan to take account of the Group’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 Group’s strategy each year.
The Committee sets a threshold on-target and maximum pay-out target under the plan.
Long-Term Incentive Plan (LTIP)
The Committee will regularly review the performance targets in relation to the LTIP to take account of the Group’s strategic plan and financial performance. Targets
will be set by the Committee at the time of the grant of each award.
The Committee will operate the scheme in accordance with the plan rules which were approved by shareholders in January 2015. Under the plan rules the Committee
has authority to vary the terms of an existing award in certain circumstances. This includes the ability to:
• Settle awards in cash in extremis;
• Make adjustments to the number of shares, in the event of a change in the share capital of the Group; and
• Permit the early vesting of awards in the event of a change in control of the Group or, if appropriate to do so, on cessation of employment (see policy on service
contracts and payments for loss of office).
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 misstatement of financial results; an error has been made in assessing any performance targets; conduct of the
individual amounts to fraud or gross misconduct; events or behaviour of the individual leads to censure of the Group by a regulatory authority which has an impact
on the reputation of the Group which justifies 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. Malus and clawback provisions have applied to awards made since January 2015.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Remuneration Policy report continued
Potential reward scenarios
The graphs below show an estimate of the Executive Directors’ remuneration package as it will be implemented for FY24. Based on the current reward package
available should the acquisition not proceed.
Steve Carson (Chief Executive Officer)
Mark Fleetwood (Chief Financial Officer)
£’000
2,000
1,500
1,000
500
0
2,015,906
47%
1,697,636
37%
29%
35%
923,179
17%
32%
23%
28%
51%
466,992
100%
Maximum
plus
Maximum On-target Minimum
Base
Bonus
LTIP
£’000
2,000
1,500
1,000
500
0
1,395,856
47%
1,175,544
37%
29%
23%
35%
28%
639,450
17%
32%
51%
323,669
100%
Maximum
plus
Maximum On-target Minimum
Assumptions
• For Mark Fleetwood, all scenarios reflect remuneration related to time in role, since his appointment date.
• 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, which is 140% of base salary, and
25% vesting under the LTIP being the threshold level (assuming an award of 150% 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 and 100%
vesting under the LTIP (assuming an award of 150% of salary under the LTIP).
• The maximum plus scenario is the same above but shows the impact of a 50% increase in the share price on the value of the LTIP award (the on-target and
maximum scenarios exclude the impact of share price increase).
Discretions retained by the Committee in operating variable pay schemes
The Committee operates the Group’s various incentive plans according to their respective rules and (in the case of the SIP in accordance with relevant legislation
and HMRC guidance). In order to ensure efficient administration of these plans, certain operational discretions are reserved to the Committee. These include:
• Determining who may participate in the plans;
• Determining the timing of grants of awards and/or payments under the plans;
• Determining the quantum of any awards and/or payments (within the limits set out in the Policy table above);
•
• Determining the performance measures and targets applicable to an award (in accordance with the statements made in the Policy table above);
• Where a participant ceases to be employed by the Group or relocates abroad, determining whether ‘good leaver’ status shall apply;
• Determining the extent of vesting of an award based on assessment of the performance conditions, including discretion as to the basis on which performance is
In exceptional circumstances, determining that a share-based award shall be settled (in full or in part) in cash;
to be measured if an award vests in advance of normal timetable (on cessation of employment as a ‘good leaver’ or on the occurrence of corporate events);
• Whether, and to what extent, pro ration shall apply in the event of cessation of employment as a ‘good leaver’ or on the occurrence of corporate events;
116
ScS Group plc Annual Report and Accounts 2023 • Whether malus and/or clawback shall be applied to any award and, if so, the extent to which they shall apply; and
• Making appropriate adjustments to awards on account of certain events, such as major changes in the Group’s capital structure.
Recruitment and promotions
The remuneration package for a new Executive Director would be set in accordance with the terms of the Group’s Remuneration Policy at the time of the appointment.
Additionally, on appointment of any new Executive Director (whether by external recruitment or internal promotion) the Remuneration Policy will permit the following:
• Variable pay will be capped at the limits set out in the Policy for existing Directors.
• On pensions, the intention is to limit the pension provision (provided either through a Company contribution to a defined contribution scheme or paid as a cash
allowance in lieu of pension) to the same level as the wider workforce for all new Executive Directors and members of the senior management team.
• The Group 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 Group will meet any appropriate relocation expenses.
Service contract and payments for loss of office
Main provisions on termination
The service contract for the CEO is indefinite but terminable either by the Company or the CEO on 9 months’ notice. The service contract for the CFO is indefinite but
terminable either by the Company or the CFO on 12 months’ notice. The service contract for Steve Carson is dated 24 November 2020, for Chris Muir, 8 January 2016,
and for Mark Fleetwood 8 June 2023. An Executive Director’s 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.
Ordinarily, an Executive Director shall not be entitled to receive any benefits or allowances following their cessation of employment. However, the Committee may in
exceptional circumstances allow an Executive Director to continue to receive appropriate benefits or allowances (such as reasonable outplacement or legal fees)
for a limited period following cessation.
There are no enhanced provisions on a change of control under the Executive Directors’ service contracts. Should a change of control event occur then awards
under the bonus and long-term incentive plans shall become payable as soon as practicable after the event date. The awards will be pro-rated to reflect the
extent to which the relevant performance targets have been met at the date of the relevant event, and on a time-apportioned basis, although the Committee has
discretion to disapply time-apportionment if it considers it appropriate to do so.
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.
Non-Executive Directors have letters of appointment. The term is for an initial period of two-three-year terms with a provision for termination on three months’
notice from either party.
117
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Remuneration Policy report continued
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 ‘good leaver’ based on the full or part-year performance, subject to consideration by the Committee. A full or
pro-rata time-based bonus may be awarded, and this may be paid either at or before the normal payment date.
Good leavers include individuals who leave due to ill health, death or redundancy, or in other circumstances at the discretion of the Committee.
Performance share plans on termination
Share-based awards made under the Group’s share plans are governed by the relevant plan rules. Under the rules of the LTIP, unvested awards shall ordinarily lapse
on the individual giving or being given notice of termination of employment, except in certain prescribed ‘good leaver’ scenarios. Good leavers include individuals
who leave due to retirement, ill health, death or redundancy, or in other circumstances at the discretion of the Committee.
In determining the extent of any vesting, the Committee will take into account the achievement of any applicable performance targets. A pro-rata reduction would
normally be applied on a time-apportioned basis, although the Committee has discretion to disapply this requirement in exceptional circumstances if it considers it
appropriate to do so. Awards will typically vest at the usual date but early vesting of outstanding awards may be permitted at the discretion of the Committee.
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.
Chair and Non-Executive Directors
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 Chair 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 Directors’ remuneration report. The Chair and the Non-Executive Directors are entitled to be
reimbursed for all expenses reasonably incurred by them in the performance of their duties. The Chair 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.
Remuneration element
Purpose
Operation
Maximum
Non-Executive
Directors’ fees
Helps recruit and
retain high-quality,
experienced
individuals.
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.
The aggregate amount of
Directors’ fees is limited
by the Group’s Articles of
Association.
Reflects time
commitment and role.
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.
118
ScS Group plc Annual Report and Accounts 2023 Letters of appointment
Alan Smith and Ron McMillan 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. Angela Luger’s letter of appointment is dated 16 May
2019. Alan Smith and Ron McMillan were re-appointed for a further term of three years commencing 22 October 2020. Carol Kavanagh’s letter of appointment is dated
26 September 2022.
Andy Kemp’s letter of appointment is dated 1 February 2023. John Walden’s letter of appointment is dated 1 March 2023. Swarupa Pathakji’s letter of appointment is
dated 2 May 2023.
The appointment letters provide that no other compensation is payable on termination.
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.
119
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ report
Activities and results
The Directors present their Annual Report, together
with the audited consolidated financial statements
for the year ended 29 July 2023. ScS Group plc is one
of the UK’s leading furniture and flooring retailers.
Trading as the ScS brand from 100 stores principally
located in modern retail park locations across the
country. Our new Snug business trades from three
stores, a number of ScS concessions and a further
seven concessions in third-party stores.
Management report
The Directors’ report, together with the Strategic
report, set out on pages 1 to 66, form part of the
Management report for the purposes of Disclosure
Guidance and Transparency Rule (DTR) 4.1.5R.
Statutory information contained elsewhere in
the Annual Report
As permitted by legislation, the Group has chosen to
include certain matters in its Strategic report that
would otherwise be required to be included in the
Directors’ report, as the Board considers them to be
of strategic importance. The Strategic report can
be found on pages 1 to 66.
Other information that is relevant to the Directors’
report, and which is incorporated by reference into
this report, can be located as follows:
Information
Future developments
Colleague engagement
Stakeholder engagement
Greenhouse gas emissions
Section 172 statement
Risk and risk management
Financial risk management
Viability statement
Going concern
Page(s)
1 to 6
32 to 33
32 to 37
46 to 46
48 to 49
57 to 64
154
65 to 66
137
Disclosures required pursuant to Listing Rule 9.8.4R can be found on the following pages:
Listing
Rule
Listing Rule
requirement
9.8.4(1)
Interest capitalised by the Group and any related tax relief
9.8.4(2) Unaudited financial information (LR 9.2.18R)
9.8.4(4) Long-term incentive schemes (LR 9.4.3R)
9.8.4(5) Directors’ waivers of emoluments
9.8.4(6) Directors’ waivers of future emoluments
9.8.4(7) Non pre-emptive issues of equity for cash
9.8.4(8) Non pre-emptive issues for cash by any unlisted major subsidiary undertaking
9.8.4(9) Parent company participation in a placing by a listed subsidiary
9.8.4(10) Contract of significance in which a Director is or was materially interested
9.8.4(11) Contract of significance between the Company (or one of its subsidiaries) and a controlling Shareholder
9.8.4(12) Waiver of dividends by a shareholder
9.8.4(13) Waiver of future dividends by a shareholder
9.8.4(14) Board statement in respect of relationship agreement with the controlling shareholder
120
Corporate governance statement
72 to 82
Statement of Directors’ responsibilities
Post balance sheet event
124
155
Disclosure
Not applicable
Strategic report, page 1 to 66
Directors’ remuneration report, pages 101 to 102
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Directors’ report, page 121
Directors’ report, page 121
Not applicable
ScS Group plc Annual Report and Accounts 2023 Non-financial information statement
In addition to the above referenced sections of
the Annual Report, the Section 172 statement
and non-financial and sustainability information
sections of the Annual Report set out on pages 48
to 49 are intended to help stakeholders understand
the Group’s development, performance and
impact of its activities, information relating to the
environment, employee, social, respect for human
rights, anti-corruption and anti-bribery matters
in accordance with the non-financial reporting
requirements contained in sections 414CA and 414CB
of the Companies Act 2006.
Results and dividend
The financial statements set out the Group’s results
for the year ended 29 July 2023 and are contained
in pages 125 to 162. The Group’s profit after tax for
the financial year ended 29 July 2023 of £4.5m (2022:
£13.6m) is reported in the consolidated statement of
comprehensive income on page 133.
The Group continues to maintain a strong balance
sheet which, coupled with the strategic progress
to date provides further confidence in the Group’s
future and as a consequence the Board announced
an interim dividend of 4.5p per share paid in May
2023. The Board is also recommending a final
dividend of 10.0p per ordinary share which, together
with the interim dividend, results in a full-year
dividend of 14.5p. This dividend, if approved, will be
paid on 15 December 2023 to shareholders on the
register on 17 November 2023. The ex-dividend date
is 16 November 2023.
Movements in reserves are shown in the
consolidated statement of changes in equity on
page 135.
Articles of Association
The Company’s Articles of Association may only be
amended by special resolution at a general meeting
of the shareholders.
Capital structure
Details of the Company’s issued share capital are
shown in note 20 to the financial statements on
page 152.
The Company has one class of ordinary shares
which carry no fixed income. Each share carries
the right to one vote at general meetings. 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 Company’s share
capital and all issued shares are fully paid. There
are no restrictions on voting rights or the transfer
of securities in the Company and the Directors are
not aware of any agreements between holders
of the Company’s shares that may result in such
restrictions.
Details of outstanding employee share options and
the operation of relevant schemes are shown in
note 22 to the financial statements on pages 152 to
153.
Share buyback programme
On 25 November 2022, the Group announced a
share buyback programme of up to £3.1m. The Group
announced the completion of this programme on
17 February 2023. This programme, together with a
previous programme announced by the Group on
22 March 2022, has seen a total of 4,057,981 ordinary
shares purchased and cancelled, representing 10.7%
of the Group’s issued share capital as at 22 March
2022. In total, ScS has returned £7m to shareholders.
Shares held in trust
The Company established the ScS Group plc
Employee Benefit Trust (EBT) in January 2015. Apex
Group Fiduciary Services (formerly Sanne Fiduciary
Services Limited) operate as the Trustees of the
EBT. The purpose of the EBT continues to be to hold
shares in trust in connection with the Group’s share
incentive schemes.
At the start of the year, the Group also held non-
EBT shares in treasury in relation to the share
buyback programme. The Group’s total shares held
in treasury at the start of the year (EBT and non-EBT)
was 327,663. During the financial year to 29 July 2023,
74,932 shares which were purchased into treasury
(non-EBT) in the prior year have subsequently been
cancelled as part of the share buyback programme
(and therefore transferred to retained earnings
in the period, at an average price of 154.56p per
ordinary share). During the period, the Group’s EBT
purchased a further 106,637 ordinary shares of 0.1p
each in the Group at an average price of 139.00p per
ordinary share, and 228,008 ordinary shares were
used to satisfy management incentive awards.
All other non-EBT shares held in treasury purchased
during the year were subsequently cancelled as
part of the share buyback programme. 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. 131,360 ordinary shares in the Company
remained held as treasury shares at 29 July 2023.
121
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Directors’ report continued
Significant agreements – change of control
With the exception of the revolving credit facility
(RCF), the Group is not party to any significant
agreements that would take effect, alter or
terminate upon a change in control of the Company
following a takeover. The Group’s existing RCF
contains a standard change of control clause that
will be triggered once the acquisition completes.
This could result in the facility being withdrawn.
The Directors are not aware of any agreements
between any member of the Group and its Directors
and employees that provide for compensation for
loss of office or employment that occurs following
a takeover bid, except that provisions of the Group’s
share plans may cause options and awards granted
under such plans to vest on a takeover.
Directors and their interests
Details of the Directors of the Company as at
29 July 2023 are shown on pages 68 to 71 and their
interests in shares and share awards made to
them under share incentive schemes in respect of
the Company’s shares are shown in the Directors’
remuneration report on pages 101 to 103, all of which
form part of this report.
The Directors of the Company who were in office
during the year and up to the date of signing the
financial statements unless otherwise stated were:
Alan Smith
John Walden
Ron McMillan
Angela Luger
Carol Kavanagh
Andy Kemp
Non-Executive Chair
Non-Executive Chair Designate
(appointed on 1 March 2023)
Non-Executive Director
Non-Executive Director
Non-Executive Director
(appointed on 26 September 2022)
Non-Executive Director
(appointed on 1 February 2023)
Swarupa Pathakji Non-Executive Director
Steve Carson
(appointed on 2 May 2023)
Chief Executive Officer
122
Chris Muir
Mark Fleetwood
Executive Director
Chief Financial Officer
(appointed on 4 September 2023)
Subject to provisions of the Companies Act 2006,
the Company’s Articles of Association, and to any
directions given by special resolution, the business
of the Company shall be managed by the Board,
which may exercise all the powers of the Company.
Appointment and replacement of Directors
The appointment and replacement of Directors is
governed by the Company’s Articles of Association,
the UK Corporate Governance Code, the Companies
Act 2006 and related legislation. With the exception
of Alan Smith and Ron McMillan, who will both step
down on 1 December 2023 after completing nine
years as Board members, and Chris Muir whom has
resigned and will leave after completing his notice
period on 1 December 2023, all of the Directors will
seek election or re-election at the Annual General
Meeting (AGM). A Director may be appointed by
ordinary resolution of the shareholders or by the
Board. The Board may from time to time appoint a
Director to fill a vacancy or as an additional Director,
provided that the individual seeks election at the
next AGM.
Directors’ indemnities
As permitted by the Company’s Articles of
Association, the Directors have the benefit of
a non qualifying third party indemnity provision
which is applicable in certain circumstances. The
Company also purchased and maintains Directors’
and Officers’ liability insurance. Both the insurance
and indemnities applied throughout the financial
year ended 29 July 2023 and through to the date of
approval of the financial statements.
Employment policies
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.
The 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 disability (including colleagues who
may have become disabled during service), gender,
sexual orientation, pregnancy or maternity, race,
religion or age. See page 82 for more information on
our diversity and inclusion policy.
All of our applicants and colleagues are treated
fairly and we have a zero-tolerance approach,
not only to harassment but also to discrimination
and bullying of any kind. 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 an employee
become disabled, efforts are made to ensure
their continued employment with the Group, with
retraining being provided if necessary.
We also encourage colleagues to become involved
in the financial performance of our business
through a variety of share and bonus schemes.
Employee engagement is considered further within
the Section 172 statement on pages 48 to 49.
Our code of conduct which applies across the
Group sets out the standard of behaviour expected
of all of our people and includes guidance on
policies such as anti-bribery, conflicts of interest
and whistle-blowing procedures. We have a zero-
tolerance approach to bribery and provide our
colleagues with the ability to raise concerns
regarding misconduct via an independent and
confidential whistle-blowing service.
ScS Group plc Annual Report and Accounts 2023
the Company’s shares. This process will take place
following the release of the Annual Report and is
targeted to complete in the first quarter of 2024.
By order of the Board
Richard Butts
Company Secretary
24 October 2023
Charitable and political donations
During the year, the Group made charitable cash
donations of £67,000 (2022: £64,000). The Group also
launched a partnership with Shelter, the national
housing and homelessness charity to support their
efforts to emphasise the importance of home.
Since the partnership’s inception in April 2023,
through providing stock no longer required by the
business, helping Shelter to generate £56,000 in
sales.
No political donations, expenditure or contributions
have been made or incurred (2022: £nil).
Major interest in shares
As at 10 October 2023 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
M&G Investments
Huntington Management
Artemis Investment
Management
Premier Miton Investors
Valentum
David Knight
4,582,414
4,196,904
2,634,543
1,719,766
1,550,845
1,528,615
Stadium Capital Management
1,168,825
Kanen Wealth Management
1,054,860
13.50
12.36
7.76
5.06
4.57
4.50
3.44
3.11
Annual general meeting (AGM)
A notice convening the Company’s upcoming AGM
on 1 December 2023 will be issued to shareholders
separately.
Independent auditors
The Group’s independent auditors,
PricewaterhouseCoopers LLP (PwC), have indicated
their willingness to continue in office and the Audit
Committee has recommended that PwC remain in
office. A resolution to re-appoint PwC as auditors
will be put to the members at the AGM.
Disclosure of information to the auditors
So far as the Directors are aware, there is no
relevant audit information of which the auditors
are unaware. The Directors have taken all steps
that they ought to have taken as Directors to make
themselves aware of any relevant audit information
and to establish that the auditors are aware of that
information.
Offer process
On 24 October 2023, the Board announced a
recommended offer for the Company of 270p per
share in cash, from a wholly-owned subsidiary of
Poltronesofà S.p.A. In addition, shareholders who
are on the register at the close of business on
the register on 17 November 2023 will be entitled to
receive the final dividend of 10.0p (in respect of the
year ended 29 July 2023).
The offer provides liquidity to shareholders with the
opportunity to exit in full and in cash at a significant
premium to the current share price, in a time of
continued macroeconomic uncertainty.
It is intended that the acquisition will be
implemented by way of a Court-sanctioned scheme
of arrangement under Part 26 of the Companies
Act. Cerezzola Limited (a wholly-owned subsidiary
of Poltronesofà S.p.A.) has indicated its intention
(subject to the requisite acceptance thresholds
being achieved referred to in the announcement
of 24 October 2023) to delist the Company from the
London Stock Exchange as soon as practicable
following the cancellation of listing and trading of
123
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements In the case of each Director in office at the date the
Directors’ report is approved:
• So far as the Director is aware, there is no
relevant audit information of which the Group’s
and Company’s auditors are unaware; and
• They have taken all the steps that they ought
to have taken as a Director in order to make
themselves aware of any relevant audit
information and to establish that the Group’s
and Company’s auditors are aware of that
information.
By order of the Board
Richard Butts
Company Secretary
24 October 2023
Statement of Directors’ responsibilities in respect of the financial statements
The Directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the Directors to prepare
financial statements for each financial year. Under
that law the Directors have prepared the Group
financial statements in accordance with UK-
adopted international accounting standards and
the Company financial statements in accordance
with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”,
and applicable law).
Under Company law, Directors must not approve
the financial statements unless they are satisfied
that they give a true and fair view of the state of
affairs of the Group and Company and of the profit
or loss of the Group for that period. In preparing the
financial statements, the Directors are required to:
• Select suitable accounting policies and then
apply them consistently;
• State whether applicable UK-adopted
international accounting standards have been
followed for the Group financial statements
and United Kingdom Accounting Standards,
comprising FRS 101 have been followed for the
Company financial statements, subject to any
material departures disclosed and explained in
the financial statements;
• Make judgements and accounting estimates that
are reasonable and prudent; and
• Prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Group and Company will
continue in business.
The Directors are responsible for safeguarding the
assets of the Group and Company and hence for
taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are also responsible for keeping
adequate accounting records that are sufficient
to show and explain the Group’s and Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of the
Group and Company and enable them to ensure
that the financial statements and the Directors’
Remuneration Report comply with the Companies
Act 2006.
The Directors are responsible for the maintenance
and integrity of the Company’s website. Legislation
in the United Kingdom governing the preparation
and dissemination of financial statements may
differ from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and functions
are listed in the Board of Directors section confirm
that, to the best of their knowledge:
• The Group financial statements, which have
been prepared in accordance with UK-adopted
international accounting standards, give a true
and fair view of the assets, liabilities, financial
position and profit of the Group;
• The Company financial statements, which
have been prepared in accordance with United
Kingdom Accounting Standards, comprising
FRS 101, give a true and fair view of the assets,
liabilities and financial position of the Company;
and
• The Directors’ report includes a fair review of the
development and performance of the business
and the position of the Group and Company,
together with a description of the principal risks
and uncertainties that it faces.
124
ScS Group plc Annual Report and Accounts 2023 Financial
statements
Independent auditors’ report to the members of ScS Group plc
126
133 Consolidated statement of comprehensive income
134 Consolidated statement of financial position
135 Consolidated statement of changes in equity
136 Consolidated statement of cash flows
137 Notes to the consolidated financial statements
156 Company statement of financial position
157 Company statement of changes in equity
158 Notes to the Company financial statements
162 Company information
125
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Financial statements
Independent auditors’ report to the members of ScS Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
• ScS Group plc’s group financial statements and company financial
statements (the “financial statements”) give a true and fair view of the state
of the group’s and of the company’s affairs as at 29 July 2023 and of the
group’s profit and the group’s cash flows for the 52 week period (the “year”)
then ended;
• the group financial statements have been properly prepared in accordance
with UK-adopted international accounting standards as applied in
accordance with the provisions of the Companies Act 2006;
• the company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure
Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report &
Accounts (the “Annual Report”), which comprise: the Consolidated and Company
statements of financial position as at 29 July 2023; the Consolidated statement of
comprehensive income, the Consolidated and Company statements of changes
in equity; and the Consolidated statement of cash flows for the period then
ended; and the Consolidated and Company notes to the financial statements,
which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK,
126
which includes the FRC’s Ethical Standard, as applicable to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements.
To the best of our knowledge and belief, we declare that non-audit services
prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in note 4 to the financial statements, we have
provided no non-audit services to the company in the period under audit.
Material uncertainty related to going concern
In forming our opinion on the financial statements, which is not modified, we have
considered the adequacy of the disclosure made in note 2 to the group financial
statements and note 2 to the company financial statements concerning the
group’s and the company’s ability to continue as a going concern. As outlined in
note 2 to the group and company financial statements, on 24 October 2023, the
ScS plc group announced a recommended offer for the company from a wholly
owned subsidiary of Poltronesofà S.p.A. Assuming the process continues as
expected, the transaction is forecast to complete in the first quarter of 2024,
which is within 12 months of the approval of these financial statements. The
current Directors will not have full control over the acquired group and therefore
they do not have full knowledge of the new ultimate parent undertaking’s future
intentions and funding plans in relation to the group and company. These
conditions, along with the other matters explained in those notes to the financial
statements, indicate the existence of a material uncertainty which may cast
significant doubt about the group’s and the company’s ability to continue as a
going concern. The financial statements do not include the adjustments that
would result if the group and the company were unable to continue as a going
concern.
In auditing the financial statements, we have concluded that the directors’ use
of the going concern basis of accounting in the preparation of the financial
statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and the company’s
ability to continue to adopt the going concern basis of accounting included:
• Obtaining management forecasts for the period to July 2026 and evaluating
management’s downside scenario, being a severe but plausible scenario, and
challenging their appropriateness and underlying assumptions;
• Testing the mathematical accuracy of the models obtained;
ScS Group plc Annual Report and Accounts 2023 • Evaluating the level of forecast liquidity and forecast compliance with the
bank facility covenants;
• Reviewing the disclosures relating to going concern in the Annual Report; and
• Obtaining and reviewing correspondence in relation to the offer for the Company.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks
of material misstatement in the financial statements.
In relation to the directors’ reporting on how they have applied the UK Corporate
Governance Code, other than the material uncertainty identified in note 2 to the
group financial statements and note 2 to the company financial statements,
we have nothing material to add or draw attention to in relation to the directors’
statement in the financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting, or in respect of
the directors’ identification in the financial statements of any other material
uncertainties to the group’s and the company’s ability to continue to do so over
a period of at least twelve months from the date of approval of the financial
statements.
Our responsibilities and the responsibilities of the directors with respect to going
concern are described in the relevant sections of this report.
Our audit approach
Overview
Audit scope
• We performed an audit of the complete financial information of the group’s
trading entity A Share & Sons Limited as the only financially significant
component, contributing to 98.7% of the group’s revenue. We have also
audited the group consolidation adjustments as a full scope component. We
audited specific balances within ScS Group plc to obtain sufficient coverage
across the group, being share-based payments and equity.
Key audit matters
• Material uncertainty related to going concern (group and parent)
•
Impairment of assets in relation to loss making stores (group)
• Carrying value of investment (parent)
Materiality
• Overall group materiality: £1,425,000 (2022: £3,250,000) based on 1% of revenue
capped at 20% of adjusted profit before tax.
• Overall company materiality: £700,000 (2022: £708,000) based on 1% of total assets.
• Performance materiality: £1,068,750 (2022: £2,437,500) (group) and £525,000
(2022: £529,000) (company).
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement,
were of most significance in the audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which
had the greatest effect on: the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team. These matters,
and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
In addition to going concern, described in the Material uncertainty related to
going concern section above, we determined the matters described below to be
the key audit matters to be communicated in our report. This is not a complete list
of all risks identified by our audit.
The key audit matters below are consistent with last year.
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Financial statements continued
Independent auditors’ report to the members of ScS Group plc continued
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Impairment of assets in relation
to loss making stores (group)
Refer to pages 93 (Audit
Committee Report) and 143
(Critical accounting estimates
and assumptions – Impairment
of property, plant and equipment
and right-of-use assets). ScS
Group plc has 100 ScS-branded
stores at year end (2022: 99
stores). The directors are required
to consider if there has been any
indicators of impairment on a
store by store basis. Where there
is an indicator of impairment in
a store’s value, management
test the carrying value of assets
by reference to the future
discounted cash flows that the
store is expected to generate. For
the year ended 29 July 2023 ScS
has recorded impairment of £2.4m
(2022: £nil).There are a number
of judgements and estimates
involved in the impairment of
asset calculation, including
forecasting of future results,
length of leases, allocation of
costs and use of an appropriate
discount rate. As such, the
judgements and estimates
involved in the impairment of
asset calculation were an area of
focus for our audit.
• We obtained the impairment workings from management
and checked their arithmetical accuracy.
• We have agreed the inputs to the workings to board
approved budgets.
• We agreed the allocation of fixed assets on a sample basis
by vouching to invoice for any new additions and fixed asset
register for owned assets.
• We assessed the store by store allocation of revenue and
direct costs for reasonableness by comparing to previous
year actuals.
• We agreed that central costs had been allocated on a
reasonable basis to the underlying stores, and all material
costs had been allocated on a reasonable basis to the
underlying stores, and all material costs have been
allocated.
• We agreed that the rental charge was correctly excluded
from the stores cash flows.
There were no issues noted with the underlying data used in
calculating the impairment provision.
Management’s assessment of which stores were at risk
of impairment were based on the forecasted future
performance of individual stores in the group’s portfolio.
• We agreed the FY24 forecasted results used in the asset
impairment calculation were consistent with board
approved budgets.
• We assessed the reasonableness of the assumptions
used in the calculation and performed sensitivities
where appropriate. This included, but was not limited to,
assessment of discount rate and store growth rates with
reference to macro-economic and industry predictions.
We concluded that the level of impairment of fixed assets
and right of use assets in the store portfolio was materially
correct.
Carrying value of investment
(parent)
Refer to pages 93 (Audit
Committee Report) and 158
(Critical accounting estimates
and assumptions – carrying value
of investments). ScS Group plc
(parent) has a £70.0m investment
balance held on the company’s
balance sheet and as at the
date of our testing the market
capitalisation of the group was
below the carrying value of
the investment. Management
concluded that this was an
impairment trigger and therefore
have prepared an assessment of
the recoverable amount of the
investment. There are a number
of judgements and estimates
involved in the assessment,
including assessment of market
capitalisation and control
premiums, and assessment of
the group’s discounted cash
flows. As such, the judgements
and estimates involved in the
assessment were an area of
focus for our audit.
• We agreed with management’s assessment that there
was an impairment trigger based on market capitalisation
being lower than the carrying value of investments.
• We obtained management’s impairment assessment
which included an analysis of the market capitalisation of
the group and an assessment of the group’s discounted
cash flows.
• We have reviewed management’s paper and assessed
management’s use of the market capitalisation and
control premium judgements to support the investment
value.
• We have also obtained the discounted cash flow model,
tested the inputs to the model by assessing forecast
cash flows through comparing these to board approved
budgets. We tested the integrity of the model and its
mathematical accuracy.
• We assessed the reasonableness of the assumptions
used in the calculation and performed sensitivities where
appropriate.
• We have assessed the completeness and accuracy of
the related disclosures within the financial statements.
We are satisfied the assumptions made by management in
determining the asset impairment and the related disclosures
in the financial statements are appropriate.
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 structure of the group and the company, the accounting processes
and controls, and the industry in which they operate.
• We have assessed the completeness and accuracy of the
related disclosures within the financial statements.
We are satisfied the assumptions made by management
in determining the asset carrying value and the related
disclosures in the financial statements are appropriate.
As part of designing our audit, we determined materiality and assessed 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
128
ScS Group plc Annual Report and Accounts 2023 evaluating whether there was evidence of bias by the directors that represented
a risk of material misstatement due to fraud.
expectation is that climate change disclosures will evolve as the understanding of
the actual, and potential, impacts on the group’s future operations are established
with greater certainty.
We have performed an audit of the complete financial information of A Share &
Sons Limited, which is the only financially significant component within the group.
This provides 98.7% coverage of the group’s revenue. We have also audited the
group consolidation adjustments as a full scope component.
The impact of climate risk on our audit
Climate change is expected to present both risks and opportunities for the group.
As explained in the “Responsibility and sustainability report” section within the
Strategic Report, the group is mindful of its impact on the environment and is
focussed on ways to reduce climate-related impacts as management continues
to develop its plans towards Net Zero by 2050. Management’s climate change
initiatives and commitments will impact the group in a variety of ways, and while
the group has started to quantify some of the impacts that may arise on its net
zero pathway, the future financial impacts are clearly uncertain given the medium
to long term horizon. Disclosure of the impact of climate change risk based on
management’s current assessment is incorporated in the Task Force on Climate-
related Financial Disclosures (‘TCFD’) section of the Annual Report.
As part of our audit, we made enquiries of management to understand the extent
of the potential impact of climate change on the group’s business and the financial
statements, including reviewing management’s climate change risk assessment
which was prepared with support from management’s external expert. We used
our knowledge of the group to evaluate the risk assessment performed by
management.
We assessed that the key areas in the financial statements which are more likely to
be materially impacted by climate change are those areas that are based on future
cash flows. As a result, we particularly considered how climate change risks and the
impact of climate commitments made by the group could impact the assumptions
made in the forecasts. Our procedures did not identify any material impact on
our audit for the year ended 29 July 2023. We also checked the consistency of the
disclosures in the TCFD section of the Annual Report with the relevant financial
statement disclosures, including the going concern section of the accounting
policies, and with our understanding of the business and knowledge obtained in the
audit.
Materiality
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 in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial
statements as a whole as follows:
Financial statements – group
Financial statements – company
£1,425,000 (2022: £3,250,000).
£700,000 (2022: £708,000).
Overall
materiality
How we
determined it
1% of revenue capped at 20% of adjusted
profit before tax
1% of total assets
Rationale for
benchmark
applied
Based on our professional judgement
and our knowledge of the client,
materiality was based on 1% of revenue
which is a standard materiality
benchmark particularly in low margin
businesses such as ScS Group plc.
However it is important that we are
mindful of our materiality level in the
context of the business's profitability.
Consequently we capped the materiality
level applied at 20% of the adjusted profit
before tax (2022: profit before tax).
Based on our professional judgement
and our knowledge of the client our
materiality was based on 1.0% (2022:
1.0%) of total assets. We used this as
the benchmark for our materiality
calculations due to the entity being a
holding company with limited activity and
our judgement around what would affect
the decisions of the members.
For each component in the scope of our group audit, we allocated a materiality
that is less than our overall group materiality. The range of materiality allocated
across components was £1,000,000 – £1,290,000. Certain components were audited
to a local statutory audit materiality that was also less than our overall group
materiality.
We confirmed with management and the Audit Committee that the estimated
financial impacts of climate change will be reassessed prospectively and our
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
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Financial statements continued
Independent auditors’ report to the members of ScS Group plc continued
determining the scope of our audit and the nature and extent of our testing
of account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to £1,068,750 (2022: £2,437,500) for the group financial
statements and £525,000 (2022: £529,000) for the company financial statements.
In determining the performance materiality, we considered a number of factors
– the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls – and concluded that an amount in the middle of our
normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above £71,250 (group audit) (2022: £162,500) and £35,400
(company audit) (2022: £35,000) as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
Reporting on other information
The other information comprises all of the information in the Annual Report other
than the financial statements and our auditors’ report thereon. The directors
are responsible for the other information, which includes reporting based on the
Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
If we identify an apparent material inconsistency or material misstatement, we
are required to perform procedures to conclude whether there is a material
misstatement of the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that
fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered
whether the disclosures required by the UK Companies Act 2006 have been
included.
Based on our work undertaken in the course of the audit, the Companies Act 2006
requires us also to report certain opinions and matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Strategic report and Directors’ report for the period
ended 29 July 2023 is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their
environment obtained in the course of the audit, we did not identify any material
misstatements in the Strategic report and Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has
been properly prepared in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to
going concern, longer-term viability and that part of the corporate governance
statement relating to the company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review. Our additional responsibilities
with respect to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the corporate governance statement is materially
consistent with the financial statements and our knowledge obtained during
the audit, and, except for the matters reported in the section headed ‘Material
uncertainty related to going concern’, we have nothing material to add or draw
attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment
of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what
procedures are in place to identify emerging risks and an explanation of how
these are being managed or mitigated;
• The directors’ statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them, and their identification of any material uncertainties to the
group’s and company’s ability to continue to do so over a period of at least
130
ScS Group plc Annual Report and Accounts 2023 twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the group’s and
company’s prospects, the period this assessment covers and why the period
is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation
financial statements in accordance with the applicable framework and for being
satisfied that they give a true and fair view. The directors are also responsible for
such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to
fraud or error.
that the company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any
related disclosures drawing attention to any necessary qualifications or
assumptions.
Our review of the directors’ statement regarding the longer-term viability of
the group and company was substantially less in scope than an audit and only
consisted of making inquiries and considering the directors’ process supporting
their statement; checking that the statement is in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and
understanding of the group and company and their environment obtained in the
course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded
that each of the following elements of the corporate governance statement is
materially consistent with the financial statements and our knowledge obtained
during the audit:
• The directors’ statement that they consider the Annual Report, taken as a
whole, is fair, balanced and understandable, and provides the information
necessary for the members to assess the group’s and company’s position,
performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness
of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the
directors’ statement relating to the company’s compliance with the Code does
not properly disclose a departure from a relevant provision of the Code specified
under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of
the financial statements, the directors are responsible for the preparation of the
In preparing the financial statements, the directors are responsible for assessing
the group’s and the company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the group or
the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of
these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined above,
to detect material misstatements in respect of irregularities, including fraud. The
extent to which our procedures are capable of detecting irregularities, including
fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the
principal risks of non-compliance with laws and regulations related to the
Companies Act 2006, the Listing Rules and UK tax legislation, and we considered
the extent to which non-compliance might have a material effect on the financial
statements. We evaluated management’s incentives and opportunities for
fraudulent manipulation of the financial statements (including the risk of override
of controls), and determined that the principal risks were related to posting
inappropriate journal entries to overstate revenue or the company’s EBITDA, and
management bias through judgements and assumptions in significant accounting
estimates. Audit procedures performed by the engagement team included:
• Discussion with management, including consideration of known or suspected
instances of non-compliance with laws and regulations and fraud;
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ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Financial statements continued
Independent auditors’ report to the members of ScS Group plc continued
• Review of board minutes;
• Review of legal expenditure in the year to identify potential non-compliance
with laws and regulation;
• Evaluation of management’s controls designed to prevent and detect
•
irregularities;
Identifying and testing journal entries, in particular any journal entries posted
with unusual account combinations which enhance EBITDA; and
• Challenging assumptions and judgements made by management in their
accounting estimates, in particular stock provisions and impairment of
assets.
There are inherent limitations in the audit procedures described above. We
are less likely to become aware of instances of non-compliance with laws and
regulations that are not closely related to events and transactions reflected in
the financial statements. Also, the risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However,
it typically involves selecting a limited number of items for testing, rather than
testing complete populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the
sample is selected.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained 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
• certain disclosures of directors’ remuneration specified by law are not made; or
• the company 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.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the
directors on 3 November 2009 to audit the financial statements for the year ended
31 July 2009 and subsequent financial periods. The period of total uninterrupted
engagement is 15 years, covering the years ended 31 July 2009 to 29 July 2023. The
audit went out to competitive tender for the year ended 27 July 2019 and we were
reappointed as auditors on 21 November 2018.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance and
Transparency Rule 4.1.14R, these financial statements form part of the ESEF-
prepared annual financial report filed on the National Storage Mechanism of the
Financial Conduct Authority in accordance with the ESEF Regulatory Technical
Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether
the annual financial report has been prepared using the single electronic format
specified in the ESEF RTS.
Andy Ward (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
24 October 2023
132
ScS Group plc Annual Report and Accounts 2023 Consolidated statement of comprehensive income
For the year ended 29 July 2023
Gross sales
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Analysed as:
Underlying operating profit (non-GAAP measure)
Adjusting items included within administrative expenses
Operating profit
Finance costs
Finance income
Net finance costs
Profit before taxation
Income tax charge
Profit and total comprehensive income for the year
Attributable to:
Owners of the parent
Profit and total comprehensive income for the year
Earnings per share (expressed in pence per share):
Basic earnings per share (pence)
Diluted earnings per share (pence)
There are no other sources of comprehensive income/(expense).
Note
3
3
4
5
7
8
9
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
343,457
344,710
325,865
(173,467)
152,398
(21,828)
(122,224)
8,346
9,593
(1,247)
8,346
(4,322)
1,961
(2,361)
5,985
(1,535)
4,450
331,569
(175,305)
156,264
(21,304)
(114,761)
20,199
17,629
2,570
20,199
(3,856)
15
(3,841)
16,358
(2,774)
13,584
4,450
13,584
10
10
12.8p
12.1p
36.2p
35.0p
133
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Financial statements continued
Consolidated statement of financial position
As at 29 July 2023
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Current income tax liabilities
Trade and other payables
Provisions
Lease liabilities
Total current liabilities
Non-current liabilities
Provisions
Lease liabilities
Total non-current liabilities
Total liabilities
Capital and reserves attributable to the owners of the parent
Share capital
Share premium
Capital redemption reserve
Treasury reserve
Merger reserve
Retained earnings
Equity attributable to the owners of the parent
Total equity
Total equity and liabilities
134
Note
11, 19
12
13
17
14
15
16
18
13
18
13
20
20
20
28
As at
29 July 2023
£’000
As at
30 July 2022
£’000
The notes on pages 137 to 155 are an integral
part of these consolidated financial
statements.
The financial statements on pages 133 to 155
were approved by the Board and authorised
for issue on 24 October 2023 and signed on its
behalf by:
Steve Carson
Chief Executive Officer
ScS Group plc: Registered number 03263435
3,753
21,303
88,960
1,873
115,889
24,633
6,336
69,538
100,507
216,396
159
68,047
231
20,246
88,683
1,048
81,098
82,146
170,829
34
16
19
(203)
25,511
20,190
45,567
45,567
2,494
18,076
96,996
1,845
119,411
19,791
6,011
70,819
96,621
216,032
309
57,328
303
19,721
77,661
1,192
87,012
88,204
165,865
37
16
16
(681)
25,511
25,268
50,167
50,167
216,396
216,032
ScS Group plc Annual Report and Accounts 2023 Consolidated statement of changes in equity
For the year ended 29 July 2023
Share
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
At 1 August 2021
Profit and total comprehensive income
Total comprehensive income
Share-based payment charge (note 22)
Repurchase of own shares (note 20)
Cancellation of repurchased shares (note 20)
Purchase of treasury shares (note 28)
Issue of treasury shares to employees (note 28)
Dividend paid (note 21)
Total transactions with shareholders
At 30 July 2022
At 31 July 2022
Profit and total comprehensive income
Total comprehensive income
Share-based payment charge (note 22)
Repurchase of own shares (note 20)
Cancellation of repurchased shares (note 20, 28)
Purchase of treasury shares (note 28)
Issue of treasury shares to employees (note 28)
Dividend paid (note 21)
Total transactions with shareholders
At 29 July 2023
38
–
–
–
–
(1)
–
–
–
(1)
37
37
–
–
–
–
(3)
–
–
–
(3)
34
16
–
–
–
–
–
–
–
–
–
16
16
–
–
–
–
–
–
–
–
–
15
–
–
–
–
1
–
–
–
1
16
16
–
–
–
–
3
–
–
–
3
Merger
reserve
£’000
25,511
–
–
–
–
–
–
–
–
–
25,511
25,511
–
–
–
–
–
–
–
–
–
Treasury
reserve
£’000
(549)
–
–
–
–
–
(1,476)
1,344
–
(132)
(681)
(681)
–
–
–
–
116
(148)
510
–
478
Retained
earnings
£’000
19,479
13,584
13,584
153
(2,201)
–
–
(1,304)
(4,443)
(7,795)
Total
equity
£’000
44,510
13,584
13,584
153
(2,201)
–
(1,476)
40
(4,443)
(7,927)
25,268
50,167
25,268
4,450
4,450
598
(4,776)
(116)
–
(510)
(4,724)
(9,528)
50,167
4,450
4,450
598
(4,776)
–
(148)
-
(4,724)
9,050
16
19
25,511
(203)
20,190
45,567
135
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Financial statements continued
Consolidated statement of cash flows
For the year ended 29 July 2023
Cash flows from operating activities
Profit before taxation
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Impairment of non-current assets
Loss on disposal of tangible and intangible assets
Profit on termination of lease of right-of-use assets
Share-based payment charge
Finance costs
Finance income
Changes in working capital:
Increase in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operating activities
Income taxes paid
Net cash flow generated from operating activities
Cash flows used in investing activities
Acquisition of business combination
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
Dividends paid
Purchase of own shares
Sale of treasury shares
Interest paid
Interest paid on lease liabilities
Payment of capital element of leases
Net cash flow used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
136
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
Note
5,985
16,358
12
13
11
5
22
7
8
14
15
19
8
21
20, 28
20, 28
7
7
4,179
20,269
1,185
2,438
270
(346)
598
4,322
(1,961)
36,939
(4,715)
(325)
9,881
41,780
(1,713)
40,067
(875)
(7,550)
(1,708)
1,961
(8,172)
(4,724)
(4,924)
–
(265)
(4,057)
(19,206)
(33,176)
(1,281)
70,819
69,538
4,162
21,523
882
–
–
–
153
3,856
(15)
46,919
(2,463)
(1,064)
(14,908)
28,484
(3,457)
25,027
–
(3,741)
(1,004)
15
(4,730)
(4,443)
(3,677)
40
(418)
(3,438)
(25,192)
(37,128)
(16,831)
87,650
70,819
ScS Group plc Annual Report and Accounts 2023 Notes to the consolidated financial statements
1. General information
ScS Group plc (the ‘Company’) is a public limited company, limited by shares,
which is listed on the London Stock Exchange, incorporated and domiciled in
England, within the UK (Company registration number 03263435). The address of
the registered office is 45-49 Villiers Street, Sunderland, SR1 1HA.
The Company’s principal activity is to act as a holding company for its
subsidiaries. The Company and its subsidiaries’ (the ‘Group’s’) principal activity is
the provision of furniture and flooring, trading under the name ScS and Snug.
2. Accounting policies
Basis of preparation
The financial statements are prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those
standards. The Group’s financial statements are presented in sterling and
all values are rounded to the nearest thousand pounds (£’000) except when
otherwise indicated. They are prepared on the historical cost basis, except for
share-based payments that have been measured at fair value. The financial
statements for the year have been prepared for the 52 weeks ended 29 July
2023 (2022: 52 weeks ended 30 July 2022). The accounting policies which follow
have been applied in preparing the financial statements for the year ended
29 July 2023. These policies have been consistently applied to all of the years
presented, unless otherwise stated.
Going concern
At the time of approving the financial statements, the Board is required to
formally assess that the business has adequate resources to continue in
operational existence for the foreseeable future and as such can continue to
adopt the ‘going concern’ basis of accounting.
Liquidity
The most significant factor in considering whether current resources are
adequate is to consider the Group’s liquidity. At 29 July 2023, the Group’s cash
balance totalled £69.5m and £33.3m was owed as trade payables for goods
delivered. The Group has no drawn down debt, and further liquidity is available
through the £12.0m revolving credit facility (RCF) granted on 6 October 2022.
This facility is committed for a term of 36 months and would be renegotiated
well in advance of this maturity date. The RCF is subject to certain covenants in
respect of fixed charge cover, liquidity and leverage.
Cash flows
As part of the Group’s ongoing review of going concern, the Directors have
reviewed the results for the 12 months to 29 July 2023 and have modelled cash
flow forecasts under the following scenarios:
• A ‘base case’ scenario to July 2026 which reflects the challenging economic
environment whilst also recognising the impact of our strategic progress on
the Group’s results. We assume no further lockdown periods or direct impact
on our store and distribution operation.
• A minor sensitivity which sees a reduction in revenue due to a downturn
in consumer confidence whilst being able to maintain our assumed gross
margin as per the ‘base case’ scenario.
• A moderate sensitivity which sees a reduction in gross margin versus ‘base
case’ representing an increasingly challenging economic environment.
• A ‘severe but plausible’ downside sensitivity which models much more
significant reductions in sales and margin, together with the assumption that
our suppliers have the credit insurance they use to support their payment
terms with the Group withdrawn, seeing our suppliers request earlier payment
dates to alleviate their working capital challenges.
Under each sensitivity, the Group has modelled associated reductions in
marketing and distribution costs, bonus costs and sales-related commission
payments in response to the downturn in the Group’s performance brought on
by the challenging economic environment, and the Group maintains suitable
liquidity headroom. Under the ‘severe but plausible downside’ scenario more
severe cash preservation methods are implemented, such as reducing capital
expenditure, suspending shareholder returns and reducing headcount.
Throughout the ‘severe but plausible downside’ scenario, the Group would
have significant cash headroom. Including the withdrawal of supplier credit
insurance, the cash low point at the end of July 2024 remains substantial at
£21.2m. Forecasts show there is no requirement for any additional sources of
financing throughout the extended viability period.
Following the year end, on 24 October 2023 a wholly-owned subsidiary of
Poltronesofà S.p.A. announced a recommended cash offer for the Company of
270p per share. It is intended that the acquisition will be implemented by way of
a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act
and is expected to complete in the first quarter of 2024.
137
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
2. Accounting policies continued
Going concern continued
The Group’s existing committed debt facilities contain a standard change of
control clause that will be triggered once the acquisition completes. This could
result in the existing committed debt facilities being withdrawn. The Group does
not have visibility of the post completion funding for the Group at this time.
Therefore, this could create some uncertainty as to the Group’s going concern.
The Directors note the Poltronesofà S.p.A. intention statements included within
the announcement on 24 October 2023, which state that following completion of
the acquisition, Poltronesofà S.p.A. intends to support the Group by leveraging
its significant, pan-European industry expertise and providing the capital
necessary to accelerate the Group’s strategy. Poltronesofà S.p.A. is highly
supportive of the management’s vision for the business and the long-term
ambitions of being the UK’s best value-for-money home retailer and recognises
and values the strong strategic, operational and product positioning and setup
of the Group, as well as the expertise of its management team and employees.
Poltronesofà S.p.A. therefore intends to work closely with the Group’s senior
management to undertake a strategic review of the Group in order to determine
how its short and long-term objectives can best be delivered or exceeded.
Notwithstanding Poltronesofà S.p.A.’s stated intentions, the current Directors
will not have full control over the acquired Group and therefore they do not
currently have full knowledge of the new ultimate parent undertaking’s future
intentions and funding plans in relation to the Group. Therefore the change of
control position indicates a material uncertainty which may cast significant
doubt upon the Group and the Company’s ability to continue as a going concern.
The financial statements do not include the adjustments that would result if the
Group and the Company were unable to continue as a going concern.
Having considered all of the above, the Board is of the opinion that the going
concern basis adopted in the preparation of the consolidated statements is
appropriate.
New standards, amendments and interpretations
At the date of authorisation of these financial statements, new standards,
amendments and interpretations which had been issued but were not yet
mandatory are not expected to have a material impact on the consolidated
financial statements.
138
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.
The financial year represents the 52 weeks ended 29 July 2023 (prior financial
year 52 weeks ended 30 July 2022).
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group
has control. The Group controls an entity where the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred
to the Group. They are deconsolidated from 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.
Adjusting items
Adjusting items are defined as items of income and expenditure which are
material and unusual in nature and which are considered to be of such
significance that they require separate disclosure on the face of the income
statement. Any future movements on items previously classified as adjusting will
also be classified as adjusting for consistency.
Gross sales and revenue
For the purposes of managing its business the Group focuses on gross sales, which
is defined as the total amount payable by customers excluding discounts, returns,
value added taxes and amounts payable to third parties relating to warranty
products for which the Group acts as an agent. Gross sales is also stated prior to
any accounting adjustments for interest-free credit fees. The Board believes gross
sales is a more transparent measure of the activity levels and performance of its
showrooms and online channels as it is not affected by customer preferences
on payment options. Accordingly, gross sales is presented in this Annual Report,
in addition to statutory revenue, as an alternative performance measure, with a
reconciliation between the two measures provided in note 3.
ScS Group plc Annual Report and Accounts 2023 2. Accounting policies continued
Gross sales and revenue continued
Revenue is measured as the total amount payable by the customer net of
discounts, returns and value added taxes. Revenue is measured net of the
charges associated with interest-free credit sales and amounts payable to third
parties relating to warranty products for which the Group acts as an agent.
Both gross sales and revenue are recognised at a point in time when the Group
has satisfied its performance obligations by transferring control of the goods or
service to the customer. This is deemed to be when the goods have been delivered
to the customer before which payment is received. Warranty services, once sold,
are subsequently provided by third parties. The Group does not control warranty
products before they are transferred to the customer and therefore acts as an
agent in these transactions. Amounts recognised in gross sales and revenue where
the Group acts as an agent represent the net income receivable by the Group.
The Group operates a negative working capital model whereby customers pay
a deposit at the point of order and, unless the order is to be financed using
consumer credit, settle outstanding balances before delivery. Payment of part
of the consideration is often, therefore, taken before the Group has fulfilled its
performance obligation. These deposits taken from customers are referred to
as contract liabilities under IFRS 15, and are presented as payments received
on account within current liabilities, until the goods or services are delivered.
A very small number of deposits are refunded without delivery of product, and
therefore, materially, the value of customer deposits will be realised within 12
months. Where the outstanding balance is settled subsequent to the delivery
of goods via consumer credit, the full financed balance is received within two
working days of delivery from our third-party finance providers, who are then
responsible for collecting subsequent payments from the customer.
The Group holds a sales return provision in the consolidated statement of
financial position to provide for expected levels of returns on sales made before
the year end but returned after the year end. The Group recognises the expected
value of revenue relating to returns within sales provisions and the expected
value of cost of sales relating to the returned items is included within inventories.
Segmental reporting
In accordance with IFRS 8 ‘Operating Segments’ the results of Snug have been
aggregated with the rest of the Group into one reportable segment (see note
3 – Segment analysis).
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The
consideration transferred for the acquisition of a subsidiary comprises the:
• Fair values of the assets transferred;
• Liabilities incurred to the former owners of the acquired business;
• Equity interests issued by the Group;
• Fair value of any asset or liability resulting from a contingent consideration
arrangement; and
• Fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in
a business combination are, with limited exceptions, measured initially at their
fair values at the acquisition date. The Group recognises any non-controlling
interest in the acquired entity on an acquisition-by-acquisition basis either
at fair value or at the non-controlling interest’s proportionate share of the
acquired entity’s net identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the:
• Consideration transferred;
• Amount of any non-controlling interest in the acquired entity; and
• Acquisition-date fair value of any previous equity interest in the acquired entity
over the fair value of the net identifiable assets acquired is recorded as goodwill.
Intangible assets
Goodwill
Goodwill represents the excess of the consideration paid over the fair value of
the identifiable assets (including intangible assets) of the acquired entity at
the date of the acquisition. Goodwill is recognised as an asset and assessed
for impairment annually or as triggering events occur. Any impairment in value is
recognised within the income statement.
Acquired intangible assets
Acquired intangible assets are capitalised at cost and amortised on a straight-
line basis over their useful economic life. The useful economic lives used are as
follows:
Intellectual Property
Commercial records
10% straight-line per annum
33% straight-line per annum
139
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
2. Accounting policies continued
Intangible assets continued
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
20-33% straight-line per annum
Assets in the course of construction are not amortised until they are brought
into use.
Lease liabilities
The lease liability is measured at the present value of the lease payments,
discounted at the lessee’s incremental borrowing rate specific to the term
and start date of the lease, unless the interest rate implicit in the lease can be
readily determined. Lease payments include:
• Fixed payments (including in-substance fixed payments), less any lease
incentives receivable;
• Variable lease payments that are based on an index or a rate, initially
measured using the index or rate as at the commencement date;
• Amounts expected to be payable by the Group under residual value guarantees;
• The exercise price of a purchase option if the Group is reasonably certain to
exercise that option; and
The carrying value of intangible assets is reviewed for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable.
• Payments of penalties for terminating the lease, if the lease term reflects the
Group exercising that option.
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 improvements
Freehold buildings
10-20% straight-line per annum
20-33% 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.
Leases
The Group assesses whether a contract is, or contains, a lease at inception of
the contract. Typically, lease contracts relate to properties such as showrooms
and distribution centres, and vehicles leases. For leases in which the Group
is a lessee, the Group recognises a right-of-use asset and a lease liability at
commencement of the lease.
The lease liability is subsequently measured at amortised cost using the
effective interest rate method. It is remeasured, with a corresponding
adjustment to the right-of-use asset, if there is a modification, a change in
the lease term or a change in the fixed lease payments. Interest charges are
included in finance costs in the consolidated income statement.
Right-of-use assets
The right-of-use asset is initially measured at cost, comprising:
• The amount of the initial measurement of lease liability;
• Any lease payments made at or before the commencement date less any
lease incentives received;
• Any initial direct costs; and
• Restoration costs.
The right-of-use asset is subsequently depreciated using the straight-
line method over the shorter of the asset’s useful life or the lease term.
Depreciation on right-of-use assets is included in administrative and
distribution costs in the consolidated income statement. The right-of-use asset
is tested for impairment if there are any indicators of impairment.
Leases of low value assets and short-term leases of 12 months or less are
expensed to the Group income statement.
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.
140
ScS Group plc Annual Report and Accounts 2023 2. Accounting policies continued
Inventories continued
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 less any further costs to be
incurred to disposal.
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. As a requirement of applying IFRS 9, the Group has applied an
expected credit loss (ECL) model when calculating impairment losses on its
trade and other receivables.
The majority of the trade receivables are due from finance houses with which
there is a very low likelihood, and no previous history, of default, and therefore,
there has been no material impact of the ECL model.
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.
Treasury shares
Treasury shares are those shares bought back by the Company. Shares in the
Company held in treasury are included in the balance sheet at cost including
any directly attributable incremental costs.
Subsequent consideration received for the sale of such shares is also
recognised in equity, with any difference between the sale proceeds and the
original cost being taken to retained earnings. No gain or loss is recognised in
the financial statements on transactions in treasury shares.
The Employee Benefit Trust (EBT) provides for the issue of shares to Group
employees, principally under share option schemes. Shares in the Company
held by the EBT are also included in the balance sheet as treasury shares.
Share capital and reserves
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.
The Group accounts for share buybacks using the cost method. Under
this method, the consideration paid for the repurchased shares, including
transaction costs directly attributable to the buyback, is recorded as a
reduction in shareholders’ equity in the Group’s consolidated statement of
financial position.
The merger reserve was created following a Group capital reorganisation
exercise as part of the preparation for the IPO of ScS Group plc in January 2015.
Trade payables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
The Group can redeem shares by repaying the market value to the shareholder,
whereupon the shares are cancelled. The capital redemption reserve
represents the nominal value of shares redeemed.
Borrowings
Borrowings, if applicable, would be 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
For the purpose of presentation in the consolidated statement of cash flows,
cash and cash equivalents includes cash on hand.
Store 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.
141
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
2. Accounting policies continued
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. The balance receivable at year end is included within other
receivables within the consolidated statement of financial position.
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
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates
to a business combination, or items recognised directly in equity or other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the balance
sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the liability method, on temporary differences
at the balance sheet date between the tax base of assets and liabilities and their
carrying amounts for financial reporting purposes, to the extent that the Directors
consider 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.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
142
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, which includes the
Executive Directors of the Group. 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.
Dividends
Interim and final dividends are recognised when they are paid to the Group’s
shareholders.
Provisions
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 Group’s financial statements requires management
to make judgements, estimates and assumptions in applying the Group’s
accounting policies to determine the reported amounts of assets, liabilities,
income and expenses. The estimates and associated assumptions are based
on historical experience and various other factors that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an
ongoing basis, with revisions to accounting estimates applied prospectively.
ScS Group plc Annual Report and Accounts 2023 sensitivity analysis. Management sets the budgets based on past experiences
and expectations of future changes in the market and estimates discount rate
using pre-tax rates that reflect the current market assessment of the time value
of money and the risks specific to the CGUs, deriving from the Group’s post-
tax weighted average cost of capital. If the recoverable amount of an asset or
CGU is estimated to be less than its carrying amount, the carrying amount of
the asset or CGU is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately. Where an impairment loss subsequently
reverses, the carrying amount of the asset or CGU is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined had no
impairment loss been recognised for the asset or CGU in prior years. A reversal of
an impairment loss is recognised as income immediately.
As a consequence of the current view of future projections for the business an
impairment charge of £2,438,000 has been recognised on the assets associated
with a number of our stores. This has been split between the right-of-use asset,
£1,930,000, and tangible assets, £508,000, apportioned based on net book value.
If the discount rate of 11.75% applied in management’s calculations at 29 July 2023
were to increase or decrease by 1%, this would have led to the recognition of an
additional impairment charge of £217,000 or reversal of £210,000 in these financial
statements. At 30 July 2022, an equivalent increase/decrease would not have
resulted in an impairment charge being recognised in the prior year.
2. Accounting policies continued
Critical accounting estimates and assumptions
Management considers that accounting estimates and assumptions made in
relation to the following items have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities.
Stock provisions
The Group holds £24.6m of inventory at the year end, and the majority of this stock
is held for display in our showrooms. Due to the nature of this stock, it will often be
subject to the wear and tear associated with use in a showroom environment, and
some items may have also been in our showroom for an extended period of time. As
such, this stock is often unable to achieve the same margin as the ‘special order’
stock purchased and delivered directly to our customers, and may occasionally be
sold at a level lower than cost following a business decision to refresh the range
or better utilise the space. The Group’s policy in relation to stock provisioning is,
therefore, to provide for obsolete, slow-moving and defective stock, and therefore,
ensure that stock is held at the most appropriate estimate of net realisable value.
In estimating this value, management has made judgements in respect of the
quality of the Group’s products and saleability, and applied a provision based on
historic sales levels. Whilst management considers that the methodologies and
assumptions adopted in the valuation are supportable, reasonable and robust,
because of the inherent uncertainty of the sale price of stock currently held,
those estimated values may differ from the final sale and the total differences
could potentially be significant.
Impairment of property, plant and equipment and right-of-use assets
Management considers each store to be a cash-generating unit (CGU). At each
balance sheet date, the Group reviews the carrying amounts of its property,
plant and equipment, right-of-use assets and intangible assets to determine
whether there is any indication of impairment at a store following poor
performance. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss, if any.
Recoverable amounts for CGUs are the higher of fair value less costs of disposal,
and value in use. Value in use is calculated from discounted cash flow projections
based on the Group’s internal budgets extrapolated over the remaining showroom
lease length, and management’s expectations of estimated growth rates.
The key estimates for the value in use calculations are those regarding the
discount rate used and expected changes to future cash flows. Management
considers the potential impact of changes in these key estimates in performing
143
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
3. Segment analysis
The Board has determined the operating segments based on the operating
reports reviewed by the Executive Board (the Executive Directors and the other
Directors of the trading subsidiaries, A. Share & Sons Limited and Snug Furniture
Limited), that are used to assess both performance and strategic decisions. The
Board has identified that the Executive Board are the chief operating decision
makers in accordance with the requirements of IFRS 8 ‘Operating Segments’.
The Board determined that although Snug is identifiable as an operating
segment, it meets all of the aggregation criteria under IFRS 8 and as such, has
been aggregated into one reportable operating segment with the rest of the
Group. The Board considers that the Group, including Snug, operates one type
of business generating gross sales and revenue from the retail of furniture and
flooring. All gross sales and revenue 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 and revenue is as follows:
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
340,998
2,459
343,457
(17,592)
325,865
340,580
4,130
344,710
(13,141)
331,569
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
263,541
28,940
33,384
325,865
269,781
31,704
30,084
331,569
Sale of goods
Associated sale of warranties
Gross sales
Less: costs of interest-free credit
Revenue
Of which:
In-store furniture
In-store flooring
Online
Revenue
144
4. Operating profit
Operating profit is stated after charging/(crediting):
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
Fees payable to the Company auditors for the audit of
Company and consolidated financial statements
Fees payable to the Company’s auditors and their associates
for other services to the Group
• audit of the Company’s subsidiaries pursuant to
legislation
• other services (see Audit Committee report on page 95 for
further information)
Loss on disposal of tangible and intangible assets
Profit on termination of lease of right-of-use assets
Depreciation of property, plant and equipment – owned
Depreciation of right-of-use assets
Amortisation of intangible assets
Impairment of property, plant and equipment and right-of-
use assets
40
200
30
270
(346)
4,179
20,269
1,185
2,438
30
171
25
–
–
4,162
21,523
882
–
During the year, the Group received retail business rates relief from the UK
government of £nil (2022: £2,570,000) in response to the COVID-19 outbreak.
5. Operating adjusting items included within administrative expenses
In order to provide a clearer understanding of underlying profitability, underlying
operating profit excludes adjusting items, this non-statutory measure relates
to costs that, either by their size or nature, require separate disclosure in order
to give a fuller understanding of the Group’s financial performance. Adjusting
items, booked to operating costs, comprised the following:
Impairment charge associated with stores
Snug acquisition and pre-trading costs
Business interruption insurance claim
Exit of the Cambridge store
Business rates relief
Total adjusting items
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
(2,438)
(849)
1,250
790
–
(1,247)
–
–
–
–
2,570
2,570
ScS Group plc Annual Report and Accounts 2023 5. Operating adjusting items included within administrative expenses
continued
Impairment charge associated with stores
As a consequence of the current view of future projections for the business an
impairment charge of £2,438,000 has been recognised on the assets associated
with a number of our stores. This has been split between the right-of-use asset,
£1,930,000, and tangible assets, £508,000, apportioned based on net book value.
Snug acquisition and pre-trading costs
Adjusting items include £849,000 of costs relating to the acquisition costs
(including legal and professional fees) and pre-trading expenses.
Business interruption insurance claim
The Group received a business interruption insurance payment of £1,250,000
in relation to loss of profit as a result of the initial lockdown period during the
COVID-19 pandemic.
Exit of the Cambridge store
The Group exited its Cambridge store in July 2023, ahead of the lease expiry date.
As part of the exit agreement, a termination payment of £650,000 was received
from the landlord. The Group also realised an IFRS 16 gain on disposal of the
lease of £341,000 offset partly by disposal of assets with a remaining net book
value of £201,000. Given the one-off nature of the transaction, the profit from the
exit has been disclosed as an adjusting item.
Business rates relief
During the prior period, the Group benefitted from £2,570,000 of retail business
rates relief provided in response to the COVID-19 outbreak. No further benefit
was received in the year ended 29 July 2023.
6. Employees and Directors
6.1 Staff costs
The aggregate remuneration of all employees including Directors comprises:
The average monthly number of employees (including Executive Directors)
during the year was as follows:
Sales
Office and managerial
Services and warehousing
Cleaning
Total
52 weeks
ended
29 July 2023
52 weeks
ended
30 July 2022
721
527
518
35
722
500
546
34
1,801
1,802
Details of Directors’ remuneration, share options, long-term incentive schemes
and pension entitlements are disclosed in the Directors’ remuneration report on
pages 97 to 119.
6.2 Key management compensation
Key management comprises the Directors of the trading subsidiary, A. Share &
Sons Limited, and the Group Directors and excludes the Non-Executive Directors.
The key management compensation is as follows:
Short-term employee benefits
Defined contribution pension cost
Share-based payment charge
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
2,333
167
598
2,648
112
153
Further detail on the above can be found in the Directors’ remuneration report
along with details of shares exercised by the highest paid Director.
The share-based payment charge of £598,000 (2022: £153,000) relates to the
Group’s trading performance against the EPS targets under the Group’s Long-
Term Incentive Plan as set out in note 22.
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge (note 22)
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
59,687
6,081
1,409
598
67,775
58,062
5,901
1,304
153
65,420
145
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
7. Finance costs
Bank facility renewal fee
Bank facility non-utilisation fees
Other finance costs
Interest on lease liability
8. Finance income
Bank interest received
9. Income tax charge
(a) Analysis of tax charge in the year
Current tax:
UK corporation tax on profits for the year
Adjustments in respect of prior years
Total current tax charge
Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of prior years
Total deferred tax (credit)/charge (note 17)
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
Profit before taxation
49
194
22
4,057
4,322
–
413
5
3,438
3,856
Profit before tax at 21.00% (2022: 19.00%)
Effects of:
Other expenses not deductible
Amounts not deductible/(deductible) in relation to
depreciation and impairment
Amounts (deductible)/not deductible in relation to share
options
Adjustments in respect of prior years
Impact of changes in tax rates
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
5,985
1,257
16,358
3,108
187
251
(102)
(90)
32
39
(232)
56
(40)
(157)
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
1,961
15
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
1,435
128
1,563
190
(218)
(28)
2,571
24
2,595
243
(64)
179
Income tax charge in the consolidated statement of
comprehensive income
1,535
2,774
The total tax charge for the financial year results in an effective rate of 25.6%,
which is higher (2022: 17.0% – lower) than if the standard rate of corporation tax
had been applied, mainly due to the impact of non-qualifying depreciation
on assets, and non-deductible expenses. The prior year benefitted from the
capital allowances super deduction on qualifying additions and the increase in
the rate used to measure the Group’s deferred tax asset.
(c) Factors that may affect future tax charges
The Finance Act 2021 maintained the main rate of UK corporation tax at 19%
until 31 March 2023, before increasing it to 25% from 1 April 2023. These changes
were substantively enacted at the balance sheet date, 29 July 2023, and hence
have been reflected in the measurement of deferred tax balances, resulting in
deferred tax being calculated using an effective rate of 25% as at 29 July 2023.
Income tax charge in the consolidated statement of
comprehensive income
1,535
2,774
(b) Factors affecting tax charge for the year
The tax charge (2022: charge) assessed on the profit (2022: profit) for the year is
higher (2022: lower) than the standard rate of corporation tax in the UK of 21.00%
(2022: 19.00%). The differences are explained below:
146
ScS Group plc Annual Report and Accounts 2023 10. Earnings per share
11. Goodwill and other intangible assets
a) Basic earnings per share attributable to the ordinary
equity holders of the Company
Basic earnings per share from underlying operations
From adjusting items
Total basic earnings per share
b) Diluted earnings per share attributable to the ordinary
equity holders of the Company
Diluted earnings per share from underlying operations
From adjusting items
Total diluted earnings per share
c) Reconciliations of earnings used in calculating earnings
per share
Profit from operations
Adjusting items net of tax
Total profits from underlying operations
52 weeks
ended
29 July 2023
52 weeks
ended
30 July 2022
Goodwill
acquired
from
business
combination
£’000
Other intangible
acquired
from business
combination
£’000
15.9p
(3.0p)
12.8p
15.0p
(2.9p)
12.1p
30.7p
5.5p
36.2p
29.6p
5.4p
35.0p
Cost
At 31 July 2022
Additions
Disposals
As at 29 July 2023
Accumulated amortisation
At 31 July 2022
Charge for the year
Disposals
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
At 29 July 2023
Net book amount
At 29 July 2023
At 30 July 2022
–
500
–
500
–
–
–
–
500
–
–
250
–
250
–
21
21
229
–
4,450
1,055
5,505
13,584
(2,082)
11,502
52 weeks
ended
29 July 2023
number
52 weeks
ended
30 July 2022
number
Cost
At 1 August 2021
Additions
Disposals
At 30 July 2022
d) Weighted average number of shares used as
the denominator
Weighted average number of shares in issue for the
purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options (note 22)
Weighted average number of ordinary shares for the
34,690,701
37,498,925
2,031,118
1,354,896
purposes of diluted earnings per share
36,721,819
38,853,821
Accumulated amortisation
At 1 August 2021
Charge for the year
Depreciation on disposals
At 30 July 2022
Net book amount
At 30 July 2022
At 31 July 2021
Computer
Software
£’000
8,817
1,725
(1,512)
9,030
6,323
1,164
(1,481)
6,006
3,024
2,494
Compute
Software
£’000
8,645
1,133
(961)
8,817
6,402
882
(961)
6,323
2,494
2,243
Total
£’000
8,817
2,475
(1,512)
9,780
6,323
1,185
(1,481)
6,027
3,753
2,494
Total
£’000
8,645
1,133
(961)
8,817
6,402
882
(961)
6,323
2,494
2,243
Amortisation is charged through the administration expense line. Included in
the note are assets under construction with a carrying value of £767,000 at
29 July 2023 (30 July 2022: nil). These assets relate to systems development
and related software.
147
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements The net book value of leasehold improvements is as follows:
As at
29 July 2023
£’000
As at
30 July 2022
£’000
13,553
51
13,604
10,681
51
10,732
Impairment of property, plant and equipment
During year the impairment review which compared the value in use of each CGU
based on the Group’s budget and forecast cash flows to the carrying values as
at 29 July 2023 resulted in an impairment of £508,000 (2022: Nil) against property,
plant and equipment and was recognised as an adjusting item (see note 5).
As disclosed in the accounting policies (note 2), the cash flows used within the
impairment model are based on assumptions which are sources of estimation
uncertainty and small movements in these assumptions could lead to a further
impairment charge or reversal.
13. Leases
This note provides information for leases where the Group is a lessee. The Group
leases retail, distribution and office properties and motor vehicles. The leases
have varying terms which are negotiated on an individual basis and contain a
range of different terms and conditions.
Consolidated statement of financial position
The consolidated statement of financial position as at 29 July 2023 shows the
following amounts relating to leases.
12. Property, plant and equipment
Short leaseholds (up to 25 years)
Long leaseholds (greater than 25 years)
Notes to the consolidated financial statements continued
11. Goodwill and other intangible assets continued
Other intangibles acquired from business combinations relate to the intellectual
property rights and commercial records from the purchase of Snug. Goodwill
also relates the business combination of Snug, See note 19 for further details.
Freehold
land and
buildings
£’000
Leasehold
improvements
£’000
Computer
equipment
£’000
Fixtures
and
fittings
£’000
Total
£’000
159
–
–
159
103
3
–
–
106
53
56
159
–
–
159
100
3
–
103
56
59
54,593
5,321
(3,604)
3,651
1,048
(1,083)
34,816
1,784
(4,026)
93,219
8,153
(8,713)
56,310
3,616
32,574
92,659
43,861
2,233
(3,416)
28
3,069
319
(1,083)
–
28,110
1,624
(3,975)
480
75,143
4,179
(8,474)
508
42,706
2,305
26,239
71,356
13,604
10,732
1,311
582
6,335
21,303
6,706
18,076
55,172
1,323
(1,902)
5,003
395
(1,747)
34,675
2,139
(1,998)
95,009
3,857
(5,647)
54,593
3,651
34,816
93,219
43,546
2,217
(1,902)
43,861
10,732
11,626
4,295
521
(1,747)
3,069
28,687
1,421
(1,998)
28,110
76,628
4,162
(5,647)
75,143
582
708
6,706
18,076
5,988
18,381
Cost
At 31 July 2022
Additions
Disposals
At 29 July 2023
Accumulated depreciation
and impairment
At 31 July 2022
Charge for the year
Depreciation on disposals
Impairment charge
At 29 July 2023
Net book amount
At 29 July 2023
At 30 July 2022
Cost
At 1 August 2021
Additions
Disposals
At 30 July 2022
Accumulated depreciation
and impairment
At 1 August 2021
Charge for the year
Depreciation on disposals
At 30 July 2022
Net book amount
At 30 July 2022
At 31 July 2021
148
ScS Group plc Annual Report and Accounts 2023 13. Leases continued
Consolidated statement of financial position continued
Right-of-use assets
Cost
At 31 July 2022
Additions1
Disposals
At 29 July 2023
Accumulated depreciation
At 31 July 2022
Charge for the year
Depreciation on disposals
Impairment
At 29 July 2023
Net book amount
At 29 July 2023
At 30 July 2022
Cost
At 1 August 2021
Additions1
Disposals
At 30 July 2022
Accumulated depreciation
At 1 August 2021
Charge for the year
Depreciation on disposals
At 30 July 2022
Net book amount
At 30 July 2022
At 31 July 2021
Leasehold
property
£’000
Motor
vehicles
£’000
152,467
13,057
(2,594)
162,930
57,929
18,470
(1,000)
1,930
77,329
85,601
94,538
138,802
15,179
(1,514)
6,783
2,837
(1,889)
7,731
4,325
1,799
(1,752)
–
4,372
3,359
2,458
6,602
710
(529)
Total
£’000
159,250
15,894
(4,483)
170,661
62,254
20,269
(2,752)
1,930
81,701
88,960
96,996
145,404
15,889
(2,043)
152,467
6,783
159,250
39,766
19,677
(1,514)
3,008
1,846
(529)
42,774
21,523
(2,043)
57,929
4,325
62,254
94,538
99,036
2,458
3,594
96,996
102,630
1. Right-of-use asset additions include new leases, lease renewals and increases in term and/or scope for
existing leases.
Impairment of right-of-use assets
During the year the impairment review which compared the value in use of each
CGU based on the Group’s latest budget and forecast cash flows to the carrying
values as at 29 July 2023 resulted in an impairment of £1,930,000 (2022: Nil) against
right-of-use assets and was recognised as an adjusting item (see note 5).
As disclosed in the accounting policies (note 2), the cash flows used within the
impairment model are based on assumptions which are sources of estimation
uncertainty and small movements in these assumptions could lead to a further
impairment.
Lease liabilities
The following tables show the discounted lease liabilities included in the Group
consolidated statement of financial position and a maturity analysis of the
contractual undiscounted lease payments:
Current
Non-current
As at
29 July 2023
£’000
As at
30 July 2022
£’000
20,246
81,098
101,344
19,721
87,012
106,733
Maturity analysis – contractual undiscounted lease payments:
Group
Within one year
Within two to five years
After five years
Total undiscounted lease payments
As at
29 July 2023
£’000
As at
30 July 2022
£’000
24,201
66,787
25,278
116,266
22,971
68,414
27,922
119,307
The Group presents lease liabilities separately in the consolidated balance
sheet.
Consolidated statement of comprehensive income
The Group has recognised depreciation and interest costs in respect of leases,
rather than rental charges of £24,138,000 (2022: £24,403,000). During the year, the
Group recognised £20,269,000 (2022: £21,523,000) of depreciation charges and
£4,057,000 (2022: £3,438,000) of interest costs in respect of these leases. Leases
of low value assets and short-term leases of 12 months or less are expensed to
the Group income statement.
149
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
14. Inventories
Finished goods
As at
29 July 2023
£’000
As at
30 July 2022
£’000
24,633
19,791
The cost of inventories before cash discounts and volume rebates, as an
expense and included in cost of sales relating to continued operations
amounted to £177,144,000 (2022: £180,827,000).
Inventories include a provision of £2,864,000 (2022: £2,945,000). Write-downs of
inventories to net realisable value amounted to £789,475 (2022: £931,000). These
were recognised as an expense during the period and were included in cost of
sales in the consolidated statement of comprehensive income.
15. Trade and other receivables
Trade receivables
Other receivables
Prepayments
As at
29 July 2023
£’000
As at
30 July 2022
£’000
234
3,732
2,370
6,336
314
3,092
2,605
6,011
16. Trade and other payables – current
Trade payables
Payments received on account
Other taxation and social security payable
Accruals
As at
29 July 2023
£’000
As at
30 July 2022
£’000
33,267
18,906
4,729
11,145
68,047
18,374
25,540
2,236
11,178
57,328
The fair value of financial liabilities approximates their carrying value due to
short maturities. Financial liabilities are denominated in Sterling.
Payments received on account represent deposits taken from customers at the
point of order and in advance of the Group fulfilling its performance obligations
to provide goods and services for customer orders. They will be realised in the
next 12 months. The brought forward balance of payments received on account
was recognised as revenue during the year.
17. Deferred tax asset
The Group’s movements in deferred taxation during the current financial year
and previous year are as follows:
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
Sterling.
Opening deferred tax asset
Adjustments in respect of prior years
Adjustment to profit and loss account arising from the
origination and reversal of temporary differences
Closing deferred tax asset
As at
29 July 2023
£’000
As at
30 July 2022
£’000
1,845
218
(190)
1,873
2,024
64
(243)
1,845
The majority of the trade receivables are due from third-party finance providers
with which there is a very low likelihood, and no previous history, of default, and
therefore, there has been no material impact of the Group’s expected credit
loss model.
The bad debt provision is not considered material for disclosure.
Deferred taxation has been fully recognised in respect of:
Accelerated capital allowances
Losses
Other timing differences
Capital gains held over
Adjustment on initial application of IFRS 16
Closing deferred tax asset
As at
29 July 2023
£’000
As at
30 July 2022
£’000
(1,484)
2,430
215
(30)
742
1,873
(675)
1,463
167
(30)
920
1,845
150
ScS Group plc Annual Report and Accounts 2023 17. Deferred tax asset continued
The deferred tax assets include an amount of £2,430,000 (2022: £1,463,000)
which relates to carried-forward tax losses. The Group has concluded that
the deferred assets will be recoverable using the estimated future taxable
income based on the approved business plans and budgets. The Group expects
to continue generating taxable income. The losses can be carried forward
indefinitely and have no expiry date. There is £99,000 (2022: £99,000) of historic
unused losses in the Group’s non-trading subsidiaries which have not been
recognised due to uncertainty that there will be eligible taxable income to offset
the losses against. Deferred tax assets are expected to be utilised in more than
12 months from 29 July 2023.
19. Business combination
On 10 January 2023, the Group announced it had acquired the brand, domain
names, website, intellectual property and stock of Snugsofa.com (‘Snug’) from
the administrators of Snug Shack Limited for consideration of £875,000.
The acquisition of Snug represents further progression in Group’s strategy.
Snug’s strong brand and differentiated digital-first offering will complement the
Group’s existing proposition, further diversifying its customer base and increase
market share.
The purchase has been accounted for as a business combination. Details of the
purchase consideration, the net assets acquired and goodwill are as follows:
18. Provisions
At 31 July 2022
Provisions made during the year
Provisions used during the year
Unwinding of discount
At 29 July 2023
Property
obligations
£’000
1,495
68
(305)
21
1,279
Total
£’000
1,495
68
(305)
21
1,279
Purchase consideration
Cash paid
Total purchase consideration
The assets recognised as a result of the acquisition are as follows:
Property provisions relate to an estimate of dilapidation and decommissioning
costs based on anticipated lease expiries and renewals. These provisions are
expected to be utilised at the end of each specific lease.
As at
29 July 2023
£’000
As at
30 July 2022
£’000
Intangible asset
Inventories
Total identifiable assets
Goodwill
Total asset value
£’000
875
875
Fair Value
£’000
250
125
375
500
875
Current
Non-current
231
1,048
1,279
303
1,192
1,495
The goodwill is attributable to Snug’s strong brand, innovative digital capabilities,
and synergies expected to arise after the Group’s acquisition of the new
subsidiary. It has been allocated to the furniture retail segment.
During the year, the goodwill was assessed for impairment, comparing Snug’s
(the CGU) value in use based on the latest budget and forecast cash flows to the
carrying value as at 29 July 2023, resulting in no impairment charge. The discount
rate used is consistent with the rate used in the Group’s assessment of asset
impairment. If the discount rate used increased by 1%, then this would not lead to
the recognition of an impairment charge. Likewise, if future estimated cash flows
decreased by 10% each year into perpetuity, this would not lead to an impairment
charge.
151
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
19. Business combination continued
Snug’s first year-end date is 31 December 2023, which is 12 months from the
date of incorporation. We intend to align Snug’s year end with the rest of the
Group going forward. Snug contributed revenues of £4,121,000 and a net losses of
£2,787,000 from the period from 10 January 2023 to 29 July 2023.
Pre-trading and acquisition-related costs
Pre-trading and acquisition-related costs of £849,000 are included in
administrative expenses in profit or loss.
20. Share capital and share premium
At 1 August 2021
Cancellation of repurchased shares
At 30 July 2022
Number
of shares
38,012,655
(1,242,208)
36,770,447
Cancellation of repurchased shares
(2,815,773)
At 29 July 2023
33,954,674
Ordinary
shares
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
38
(1)
37
(3)
34
16
-
16
-
16
15
1
16
3
19
Authorised, allotted and fully paid share capital is 33,954,674 of £0.001 each (2022:
36,770,447 of £0.001 each).
At the beginning of the year, the Group held 74,932 shares in treasury that were
subsequently cancelled as part of the share buyback scheme (note 28). During
the year the Group acquired 2,740,841 ordinary shares at an average share price
of 171.6 pence per ordinary share for a total consideration (including associated
fees) of £4,776,000. Following this purchase, the ordinary shares purchased by
the Group were cancelled and the Group’s issued share capital subsequently
consists of 33,954,674 ordinary shares, each with one voting right.
21. Dividends
A final dividend for the year ended 30 July 2022 of 9.0 pence resulted in a
payment of £3,198,000 which was made on 9 December 2022. It has been
recognised in shareholders’ equity in the year to 29 July 2023.
An interim dividend of 4.5 pence (2022: 4.5 pence) per ordinary share was declared
by the Board on 21 March 2023 and resulted in a payment of £1,522,000 which was
made on 11 May 2023. It has been recognised in shareholders’ equity in the year to
29 July 2023.
152
During the year dividend equivalents were paid on the vesting of LTIPs totalling
£4,000.
Given the strength of the Group’s balance sheet coupled with the resilient
result for the year a final dividend of 10.0p has been proposed and, if approved,
will be recorded within the financial statements for the year ending 27 July
2024. Approval of the proposed dividend of 10.0p would result in a payment of
£3,395,000.
22. 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. The LTIP allows for various types of The ScS Group plc Long-Term Incentive
Plan (LTIP) was adopted on 21 January 2015. The LTIP allows for various types of
awards and the following grants over shares in ScS Group plc have been made:
(i) Market value options under an HMRC approved Company Share Option Plan
(CSOP) conditional on the IPO taking place (approved on 21 January 2015).
(ii) Performance-based £nil cost options granted on 14 October 2019. The
performance condition is based on EPS of the Group for the financial year
ended 30 July 2022.
(iii) Performance-based £nil cost options granted on 12 October 2020. The
performance condition is based on EPS of the Group for the financial year
ended 29 July 2023.
(iv) Performance-based £nil cost options granted on 18 October 2021. The
performance condition is based on EPS of the Group for the financial year
ended 27 July 2024.
(v) Performance-based £nil cost options granted on 21 April 2023. The
performance condition is based on EPS of the Group for the financial year
ended 26 July 2025.
Fair value of awards
The awards granted have been valued 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 Group from
ScS Group plc Annual Report and Accounts 2023 22. Share-based payments continued
Fair value of awards continued
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 (CSOP market value
options)
2021, 2022 and 2023 LTIP
(Directors’ awards)
LTIP (all awards)
Share
awards
27,652
–
–
–
(22,772)
4,880
–
–
–
–
Outstanding as at
31 July 2021
Granted
Lapsed
Forfeited
Exercised
Outstanding as at
30 July 2022
Granted
Lapsed
Forfeited
Exercised
Outstanding as at
Average
exercise
price
Share
awards
Average
exercise
price
Share
awards
Average
exercise
price
£1.75
–
–
–
£1.75
1,407,414
584,670
(59,998)
(81,342)
(500,728)
£0.000001
£0.000001
£0.000001
£0.000001
£0.000001
1,435,066
584,670
(59,998)
(81,342)
(523,500)
£1.75 1,350,016 £0.000001 1,354,896
1,106,789
(223,034)
–
(207,533)
£0.000001
£0.000001
£0.000001
£0.000001
1,106,789
(223,034)
–
(207,533)
–
–
–
–
£0.033
£0.000001
£0.000001
£0.000001
£0.08
£0.006
£0.000001
£0.000001
£0.000001
£0.000001
29 July 2023
4,880
£1.75 2,026,238 £0.000001 2,031,118
£0.004
than the minimum target set, a proportion of these options will be awarded.
Further information on the LTIP is available in the Directors’ remuneration report
on pages 101 to 102.
The fair value of share options issued and the assumptions used in the
calculation are as follows:
2015
2020
2021
2022
2023
Grant date
Share price at grant date
Exercise price
Number of employees
Shares granted
Expected volatility
Expected life (years)
Risk-free interest rate
Expected dividend yield
Fair value per share
Actual/estimated vesting
21 Jan
2015
£1.75
£1.75
6
68,659
36.2%
5
1.06%
8%
£0.24
100%
14 Oct
2019
£2.36
£nil
7
562,340
–1
3
–1
–1
£2.36
48%
12 Oct
2020
£2.00
£nil
6
627,163
–1
3
–1
–1
£2.00
33%
18 Oct
2021
£2.63
£nil
6
21 Apr
2023
£1.77
£nil
8
584,670 1,106,789
–1
3
–1
–1
£1.77
53%
–1
3
–1
–1
£2.63
0%
1. LTIP participants are entitled to receive dividend equivalents on unvested awards, and therefore, dividend
yield does not impact the fair value calculation. Furthermore, volatility and risk-free rates do not impact
the fair value calculation for awards with no exercise price or market-based performance conditions.
The total charge for the year relating to employee share-based payment plans
was £598,000 (2021: £153,000) which is in relation to equity-settled share-based
payment transactions. There are no liabilities arising from share-based payment
transactions.
Exercisable at
29 July 2023
Exercisable at 30 July
4,880
£1.75
2022
4,880
£1.75
Weighted average
remaining
contractual life
(months)
Weighted average
share price at
exercise
–
–
–
£1.75
–
–
21
–
–
–
–
–
4,880
£1.75
4,880
£1.75
23. Capital commitments
Capital commitments contracted for but not provided amounted to £1,455,000
in relation to property plant and equipment and £371,000 in relation to intangible
assets, totalling £1,826,000 (2022: £643,000).
21
–
–
£1.75
24. 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 6.
Amounts outstanding at the year end were £349,000 (2022: £353,000) and are held
in accruals.
As at 29 July 2023, 377,518 of the outstanding LTIP share options relate to the 2021
LTIP, which vested as at the year-end date. Due to the Group’s EPS being higher
153
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the consolidated financial statements continued
25. 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 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 the 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.
These financial assets all meet the conditions to be recognised at amortised
cost under IFRS 9.
Other than trade and other payables (note 16) and provisions (note 18), the Group
had no financial liabilities within the scope of IFRS 9 as at 29 July 2023 (2022: £nil).
Balances within trade and other payables will mature within one year and lease
liabilities are measured at amortised cost.
The fair value of the Group’s financial assets and liabilities is not materially
different from their carrying values. Financial assets and liabilities comprise
principally of trade receivables and trade payables and the only interest-
bearing balances are the bank deposits and borrowings which attract interest
at variable rates.
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.
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 self-generated cash flow.
At 29 July 2023, the Group’s cash balance totalled £69.5m, and £33.3m was owed
as trade payables for goods delivered. The Group has no drawn down debt, and
further liquidity is available through the £12.0m RCF granted on 6 October 2022.
This facility is committed for a term of 36 months and would be renegotiated
well in advance of this maturity date. The RCF is subject to certain covenants in
respect of fixed charge cover, liquidity, leverage and capital spending.
Financial instruments by category
Financial assets and liabilities are classified in accordance with IFRS 9. 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. The Group’s main financial assets comprise cash and cash
equivalents and trade receivables (note 15) arising from the Group’s activities.
154
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.
26. Related parties
Holdings in subsidiaries and any relevant related party transactions are
disclosed in the Company financial statements in note 5. Only ScS Furnishings
Limited and the ScS Group plc Employee Benefit Trust are not included in the
consolidation on the grounds of materiality.
27. 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.
ScS Group plc Annual Report and Accounts 2023 28. Treasury reserve
As at 1 August 2021
Purchase of own shares
Sale of treasury shares
Issue of shares to employees
As at 30 July 2022
Purchase of own shares
Cancellation of treasury shares
Issue of shares to employees
As at 29 July 2023
£’000
549
1,476
(51)
(1,293)
681
148
(116)
(510)
203
During the period, the Group’s Employee Benefit Trust purchased a further
106,637 ordinary shares of 0.1 pence each in the Group at an average price of
139.00 pence per ordinary share, and 228,008 ordinary shares were used to
satisfy management incentive awards.
74,932 shares which were purchased into treasury in the prior year have
subsequently been transferred to retained earnings in the period, at an average
price of 154.56 pence per ordinary share, and cancelled as part of the share
buyback programme.
As at 29 July 2023 the Group holds 131,360 of its own ordinary shares of 0.1 pence
each in the Group at an average purchase price of 154.9 pence.
During the prior year, the Group’s Employee Benefit Trust purchased 624,453
ordinary shares of 0.1 pence each in the Group at an average price of 236.4
pence per ordinary share, and 554,204 shares were used to satisfy management
incentive awards. As at 30 July 2022 the Group held 327,663 of its own ordinary
shares of 0.1 pence each in the Group at an average purchase price of 207.7
pence.
29. Net debt
Cash and cash equivalents
Lease liabilities
Net debt
As at
29 July 2023
£’000
As at
30 July 2022
£’000
69,538
(101,344)
70,819
(106,733)
(31,806)
(35,914)
As a result of IFRS 16, the Group is in a net debt position due to the recognition of
a lease liability.
The change in lease liabilities from £106,733,000 to £101,344,000 was a result of
£4,057,000 (2022: £3,438,000) interest charged, £23,263,000 (2022: £28,630,000)
principal and interest repayments and lease modifications of £13,817,000 (2022:
£15,864,000).
30. Post balance sheet events
Subsequent to the 29 July 2023, a further £1,250,000 business interruption
insurance payment was received relating to loss of profit as a result of the
COVID-19 pandemic. As at the year end the Group did not have a high level of
certainty that this payment would be received, or the timeframe on which it may
do so, and therefore did not disclose it is a receivable. As such, in line with the
treatment of the £1,250,000 received during the year to 29 July 2023, we expect to
recognise and disclose this item as an adjusting item to consolidated income in
the year to 27 July 2024.
On 24 October 2023, a wholly-owned subsidiary of Poltronesofà S.p.A. announced
a recommended offer for the entire issued and to be issued share capital of
the Company of 270p per share in cash. In addition, shareholders who are on the
register at the close of business on 17 November 2023 will be entitled to receive
the final dividend of 10.0p (in respect of the year ended 29 July 2023).
It is intended that the acquisition will be implemented by way of a Court-
sanctioned scheme of arrangement under Part 26 of the Companies Act.
Cerezzola Limited (a wholly-owned subsidiary of Poltronesofà S.p.A.) has
indicated its intention (subject to the requisite acceptance thresholds being
achieved referred to in the announcement of 24 October 2023) to delist the
Company from the London Stock Exchange as soon as practicable following
the cancellation of listing and trading of the Company’s shares. This process
will take place following the release of the Annual Report and is targeted to
complete in the first quarter of 2024.
155
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Company financial statements
Company statement of financial position
As at 29 July 2023
Non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Deferred tax asset
Cash at bank and in hand
Total current assets
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Capital and reserves
Called-up share capital
Share premium account
Capital redemption reserve
Treasury share reserve
Retained earnings
Total shareholders’ funds
Total equity
Total equity and liabilities
As at
29 July 2023
£’000
As at
30 July 2022
£’000
Note
5
6
7
8
9
9
9
12
70,000
70,000
27
1,111
–
1,138
71,138
25,319
25,319
25,319
34
16
19
(203)
45,953
45,819
45,819
71,138
70,000
70,000
32
813
–
845
70,845
19,193
19,193
19,193
37
16
16
(681)
52,264
51,652
51,652
70,845
The notes on pages 158 to 161 form an integral part of these financial statements.
The total comprehensive income for the year included within the financial statements of the Company is £3,815,000 (2022: £3,451,000).
The financial statements on pages 156 to 161 were approved by the Board and authorised for issue on 24 October 2023 and signed on its behalf by:
Steve Carson
Chief Executive Officer
156
ScS Group plc Annual Report and Accounts 2023 Company statement of changes in equity
For the year ended 29 July 2023
At 1 August 2021
Profit and total comprehensive income
Repurchase of own shares (note 9)
Cancellation of repurchased shares (note 9)
Purchase of treasury shares (note 12)
Issue of treasury shares to employees (note 12)
Dividend paid (note 10)
At 30 July 2022
At 31 July 2022
Profit and total comprehensive income
Repurchase of own shares (note 9)
Cancellation of repurchased shares (note 9)
Purchase of treasury shares (note 12)
Issue of treasury shares to employees (note 12)
Dividend paid (note 10)
At 29 July 2023
Called-up
share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Treasury
reserve
£’000
Retained
earnings
£’000
38
–
–
(1)
–
–
–
37
37
–
–
(3)
–
–
–
34
16
–
–
–
–
–
–
16
16
–
–
–
–
–
–
16
15
–
–
1
–
–
–
16
16
–
–
3
–
–
–
19
(549)
–
–
–
(1,476)
1,344
–
(681)
(681)
–
–
116
(148)
510
–
(203)
56,761
3,451
(2,201)
–
–
(1,304)
(4,443)
52,264
52,264
3,815
(4,776)
(116)
–
(510)
(4,724)
45,953
Total
equity
£’000
56,281
3,451
(2,201)
–
(1,476)
40
(4,443)
51,652
51,652
3,815
(4,776)
–
(148)
–
(4,724)
45,819
157
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the Company financial statements
1. General information
ScS Group plc (the ‘Company’) is a company limited by shares incorporated and
domiciled in England, within the UK (Company registration number 03263435). The
address of the registered office is 45-49 Villiers Street, Sunderland, SR1 1HA. The
Company’s principal activity is to act as a holding company for its subsidiaries,
and its shares are listed on the London Stock Exchange (LSE).
2. Accounting policies
The principal accounting policies applied in the preparation of these financial
statement are set out below. These policies have been consistently applied to
all the years presented, unless otherwise stated.
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
The financial statements have been prepared under the historical cost
convention and in accordance with the Companies Act 2006 as applicable to
companies using FRS 101.
As permitted by FRS 101, the Company has taken advantage of the disclosure
exemptions available under that standard in relation to business combinations,
financial instruments, capital management, presentation of comparative
information in respect of certain assets, standards not yet effective,
impairment of assets and related party transactions. Where required, equivalent
disclosures are given in the consolidated financial statements of ScS Group plc.
Going concern
The Company is the ultimate holding company to a group which is highly cash
generative, and which holds sufficient medium and long-term facilities in place
to enable it to meet its obligations as they fall due. The Directors are, therefore,
satisfied that the Company has adequate resources to continue in operational
existence for the foreseeable future.
Further information on the Group’s going concern and ongoing viability is
provided in note 2 of the Group financial statements.
Following the year end, on 24 October 2023 the Board announced a
recommended offer for the Company of 270p per share in cash, from a wholly-
158
owned subsidiary of Poltronesofà S.p.A. It is intended that the acquisition will
be implemented by way of a Court-sanctioned scheme of arrangement under
Part 26 of the Companies Act and is forecast to complete in the first quarter of
2024. The Group’s existing committed debt facilities contain a standard change
of control clause that will be triggered once the acquisition completes. This
could result in the existing committed debt facilities being withdrawn. The Group
does not have visibility of the post completion funding for the Group at this time.
Therefore, this could create some uncertainty as to the Group’s going concern.
The Directors note the detailed intentions statement included within the
announcement on 24 October 2023, which state that following completion of
the acquisition, Poltronesofà S.p.A. intends to support the Group by leveraging
its significant, pan-European industry expertise and providing the capital
necessary to accelerate the Group’s strategy. Poltronesofà S.p.A. is highly
supportive of management’s vision for the business and the long-term
ambitions of being the UK’s best value-for-money home retailer and recognises
and values the strong strategic, operational and product positioning and setup
of the Group, as well as the expertise of its management team and employees.
Poltronesofà S.p.A. therefore intends to work closely with the Group’s senior
management to undertake a strategic review of the Group in order to determine
how its short and long-term objectives can best be delivered or exceeded.
Notwithstanding Poltronesofà S.p.A.’s stated intentions, the current Directors
will not have full control over the acquired Group and therefore they do not
currently have full knowledge of the new ultimate parent undertaking’s future
intentions and funding plans in relation to the Group. Therefore the change of
control position indicates a material uncertainty which may cast significant
doubt upon the Group and the Company’s ability to continue as a going concern.
The financial statements do not include the adjustments that would result if the
Group and the Company were unable to continue as a going concern.
Having considered all of the above, the Board is of the opinion that the going
concern basis adopted in the preparation of the consolidated statements is
appropriate.
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.
ScS Group plc Annual Report and Accounts 2023 2. Accounting policies continued
Carrying value of the investment
Management has considered the carrying value of the investment and
calculated a value in use from cash flow projections based on the Group’s
internal budgets, which are then extrapolated into perpetuity and discounted
using the Group’s cost of capital. The key estimates for the value in use
calculations are those regarding the discount rate used and expected future
cash flows. Management utilised the budget and discount rate consistent with
those use in the Group’s assessment of asset impairment. Management’s value
in use calculation provided significant headroom over the carrying investment
value and if the discount rate increased or decreased by 1%, this would not have
led to the recognition of an impairment charge or reversal in these financial
statements. Similarly, if future estimated cash flows decreased by 10% each year
into perpetuity, this would not lead to an impairment charge.
Capital management
The Company follows the same capital management as the Group – see page 154
in the Group financial statements.
New standards, amendments and interpretations
For the latest amendments and interpretations, please refer to page 138 in the
Group financial statements.
Fixed asset investments
Fixed asset investments in subsidiary undertakings are recorded at cost plus
incidental expenses less any provision for impairment.
Trade receivables
Trade receivables for the Company refer to prepayments made for services
performed in the ordinary course of business. 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. Trade payables are
recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method.
Treasury shares
Treasury shares are those shares bought back by the Company. Shares in the
Company held in treasury are included in the balance sheet at cost including
any directly attributable incremental costs.
Subsequent consideration received for the sale of such shares is also
recognised in equity, with any difference between the sale proceeds and the
original cost being taken to retained earnings. No gain or loss is recognised in
the financial statements on transactions in treasury shares.
The Employee Benefit Trust (EBT) provides for the issue of shares to Group
employees, principally under share option schemes. Shares in the Company
held by the EBT are also included in the balance sheet as treasury shares.
Taxation
The tax charge for the financial year is based on the profit for the financial year.
Related parties
In these financial statements, the Company has taken advantage of the
following disclosure exemptions available under FRS 101:
• The requirement of paragraph 17 of IAS 24 ‘Related Party Transactions’; and
• The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related
party transactions entered into between two or more members of a group,
provided that any subsidiary which is party to the transaction is a wholly-
owned by such a member.
3. Income statement and statement of cash flow exemption
The Company has elected to take the exemption under section 408 of the
Companies Act 2006 from presenting the Income Statement or a Statement of
Comprehensive Income for the Company. Total comprehensive income for the
Company for the year was £3,815,000 (2022: £3,451,000).
The Company has taken advantage of the disclosure exemptions under FRS 101 in
relation to the requirements of IAS 7 ‘Statement of Cash Flows’.
4. Directors’ emoluments
No Executive Directors received any remuneration for their services to the
Company (2022: £nil). All Executive Directors’ remuneration was borne by another
Group company, A. Share & 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 Directors’ remuneration report on page 108.
The Company does not employ any staff other than the Non-Executive Directors
noted above.
159
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Notes to the Company financial statements continued
4. Directors’ emoluments continued
The aggregate remuneration of the Non-Executive Directors comprises:
Wages and salaries
Social security costs
Other pension costs
Total
5. Investments
Cost and net book value
At 30 July 2022 and 29 July 2023
52 weeks
ended
29 July 2023
£’000
52 weeks
ended
30 July 2022
£’000
351
43
–
394
262
33
–
295
Subsidiary
undertaking
£’000
70,000
The subsidiaries, which were owned and incorporated in the United Kingdom are
as follows:
Name
Principal activity
Parlour Product Topco Limited
Holding company
Held by subsidiary undertakings
Parlour Product Holding Limited
A. Share & Sons Limited
ScS Furnishings Limited
Snug Furniture Limited
Holding company
Specialist retailer of
upholstered furniture
Dormant company
Specialist retailer of
upholstered furniture
Class of
shares held
% of
holdings
Ordinary
100%
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
The registered office address for all of the subsidiaries is 45-49 Villiers Street,
Sunderland, SR1 1HA.
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 management’s value in use model (see note 2).
Parent company guarantee
For the year ended 29 July 2023, Snug Furnishings Limited is exempt from the
requirement of the Companies Act 2006 relating to the audit of individual
accounts by virtue of Section 479A of that act relating to subsidiary companies.
6. Trade and other receivables
Prepayments
As at
29 July 2023
£’000
As at
30 July 2022
£’000
27
32
7. Deferred tax asset
The Company’s movements in deferred taxation during the current financial year
and previous year are as follows:
Opening deferred tax asset
Credited to profit and loss account arising from the
origination and reversal of temporary differences
Closing deferred tax asset
As at
29 July 2023
£’000
As at
30 July 2022
£’000
813
298
1,111
442
371
813
Deferred taxation has been fully recognised in respect of:
Losses
Closing deferred tax asset
8. Trade and other payables
Amounts owed to Group undertakings
Accruals and deferred income
As at
29 July 2023
£’000
As at
30 July 2022
£’000
1,111
1,111
813
813
As at
29 July 2023
£’000
As at
30 July 2022
£’000
24,942
377
25,319
18,785
408
19,193
ScS Furnishings Limited is exempt from audit as it is dormant. Its aggregate
amount of capital and reserves is £1.
Amounts owed to Group undertakings are unsecured, interest-free and
repayable on demand.
160
ScS Group plc Annual Report and Accounts 2023 11. 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 25 of the Group financial
statements.
12. Treasury share reserve
Details of the Company’s share capital and share buybacks are given in note 28
of the Group financial statements.
13. Post balance sheet events
Details of the Company’s post balance sheet events are given in note 30 of the
Group financial statements.
9. Share capital and share premium
At 31 July 2022
Cancellation of repurchased
shares
At 29 July 2023
Number of
shares
36,770,447
(2,815,773)
33,954,674
Ordinary
shares
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
37
(3)
34
16
–
16
16
3
19
Authorised, allotted and fully paid share capital is 33,954,674 of £0.001 each (2022:
36,770,447 of £0.001 each).
At the beginning of the year, the Group held 74,932 shares in treasury that were
subsequently cancelled as part of the share buyback scheme. During the year
the Group acquired 2,740,841 ordinary shares at an average share price of 171.6
pence per ordinary share for a total consideration including associated fees of
£4,776,000. Following this purchase, the ordinary shares purchased by the Group
were cancelled and the Group’s issued share capital subsequently consists of
33,954,674 ordinary shares, each with one voting right.
10. Dividends
A final dividend for the year ended 30 July 2022 of 9.0 pence resulted in a payment
of £3,198,000 which was made on 9 December 2022. It has been recognised in
shareholders’ equity in the year to 29 July 2023.
An interim dividend of 4.5 pence (2022: 4.5p) per ordinary share was declared by the
Board on 21 March 2023 and resulted in a payment of £1,522,000 which was made on
11 May 2023. It has been recognised in shareholders’ equity in the year to 30 July
2023.
During the year dividend equivalents were paid on the vesting of LTIPs totalling
£4,000.
Given the strength of the Group’s balance sheet coupled with the resilient result
for the year a final dividend of 10.0p has been proposed and, if approved, will be
recorded within the financial statements for the year ending 27 July 2024. Approval
of the proposed 10.0p dividend would result in a payment of £3,390,000.
161
ScS Group plc Annual Report and Accounts 2023Strategic reportGovernance reportFinancial statements Company information
Registered office
ScS Group plc
45-49 Villiers Street
Sunderland
SR1 1HA
Tyne and Wear
Tel: 0191 731 3000
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: 0345 607 6838
www.equiniti.com
162
Independent auditors
PricewaterhouseCoopers LLP
5th & 6th Floor
Central Square South
Orchard Street
Newcastle Upon Tyne
NE1 3AZ
Tel: 0191 232 8493
www.pwc.co.uk
Brokers
Shore Capital Group Ltd
Cassini House
57 St James’s Street
London
SW1A 1LD
Tel: 020 7408 4050
www.shorecap.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
ScS Group plc Annual Report and Accounts 2023 CBP021540
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