Shoe Zone plc
Annual Report 2016

Plain-text annual report

2016 Annual Report & Accounts This document is important and requires your immediate attention. If you are in any doubt as to the action you should take, you should contact an appropriate independent adviser authorised under the Financial Services and Markets Act 2000 (as amended) immediately. If you have sold or otherwise transferred all of your shares in Shoe Zone plc you should forward this document to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was affected for transmission to the purchaser or transferee. Shoe Zone is the leading UK Specialist Value Footwear Retailer “In August 2016, months of planning and preparation came to fruition as we opened our first 'Big Box' store, going on to open three by the end of October. The 'Big Box' stores stock the full Shoe Zone range alongside some of the best known footwear brands with a new concept store environment and updated brand image.” - Nick Davis, C.E.O. Shoe Zone Big Box in Durham, following the launch of a new concept store 26 August 2016 Contents Strategic Report Financial Highlights Chief Executive’s Report Financial Review Key Performance Indicators Principal Risks and Uncertainties Governance Corporate Governance Statement Board of Directors Remuneration Report Directors’ Report Independent Auditor’s Report 2 3 7 8 9 11 12 14 18 22 Financial Statements Consolidated Income Statement Consolidated Statement of Total Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Company Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements Shareholder Information Directors and Advisers Notice of Annual General Meeting 23 24 25 26 27 28 64 65 66 69 70 1 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Financial Highlights Revenue £159.8m (2015: £166.8m)¹ Profit before tax £10.3m (2015: £10.1m) Net cash £15.0m (2015: £14.2m) Product gross margin 62.0% (2015: 61.5%) Earnings per share 16.9p (2015: 16.2p) Interim dividend 3.3p Final dividend 6.8p Total dividend 10.1p Special dividend 8.0p ¹ Reduction due to planned closure of unprofitable stores and difficult trading conditions in H1 2 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Chief Executive’s Report Introduction The 2016 financial year was a positive year for Shoe Zone given the challenging retail environment we faced. We have continued to make good progress on our core strategy while maintaining our robust cost control and effective property portfolio management The business delivered revenue of £159.8m (2016: £166.8m) and continues to generate cash effectively from a sound financial position and a debt free balance sheet. Profit before tax increased by 1.1% to £10.3m (2015: £10.1m) while earnings per share increased 4.3% to 16.9p (2015: 16.2p). Dividends Following another successful year of cash generation, the business closed with £15.0m of cash. As a result, the Board is proposing two dividends to be paid: a final dividend of 6.8p per share (2015: 6.5p), resulting in a total dividend for the year of 10.1p (2015: 9.7p) per share, and a special dividend of 8.0p per share (2015: 6.0p). The total distribution for the year of 18.1p (2015: 15.7p) represents an increase of 15.3% over the previous year. The aim of the special dividend is to distribute any surplus cash back to shareholders. We continue to believe the business can operate on an opening/closing cash position of £11m and any excess above this level will be paid out to shareholders unless there is a change in business requirement. The dividends will be paid to shareholders on the register on 24 February 2017, payable on 15 March 2017 if approved at the Annual General Meeting to be held on 2 March 2017. The shares will be ex-dividend on 23 February 2017. Product We remain committed to offering our customers the best value possible and have maintained key price points for our Core Value Lines despite difficult currency headwinds. Along with our low prices we have increased the value proposition by extending the number of lines in multi-buy deals (e.g. ‘2 for £8’). This, along with range enhancements has improved average transaction value by 5% during the year. We have continued to increase our direct sourcing and as a result, footwear orders placed directly with overseas factories increased to 72.2% (2015: 62.1%) of total footwear orders. Working closely with our source of manufacture has helped maintain gross product margins as well as improving communication and control across the supply chain. 3 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationChief Executive’s Report (continued) Non-footwear ranges including handbags, school bags, lunch boxes, purses and accessories continue to grow with sales from non-footwear up 26% on the previous year. Our ‘right price, first time’ strategy which helps control the amount of markdown value as a percentage of turnover, continues to ensure we are industry leaders in driving low markdown. This year was no exception in achieving a level of 7.1%. (2015: 6.3%). In July 2016 we appointed a new Brands Manager to develop a range of brands to complement the existing Shoe Zone range both online and in our new ‘Big Box’ stores. Our trend of falling rents continues (albeit at a slower pace) with rents at the lease renewal date in the 12 months falling by 17% (2015: 27.2%). We expect that rent reductions will continue to be realised and will be complemented with a reduction in rates payable following the government’s review of business rates. The business continues to benefit from a flexible portfolio with an average lease length of only 2.6 years. Our lease structure gives us significant opportunity to respond to changes in shopping habits in any retail location. As part of our ongoing investment in updating our store portfolio we have developed new store branding with a more contemporary feel. The new modern logo will be rolled out with future store refits and has already been adopted in all instore and web marketing. Project ‘Big Box’ Stores We closed the year operating from 510 stores with 17 new store openings (including 10 relocations). We completed 41 refits during the year, at a total capital expenditure of £3.4m. We will continue to optimise our store portfolio and close loss making stores to drive profitability. We believe that approximately 500 stores is the right number for our standard Shoe Zone offering. We continue to drive profitability by opening larger Grade 1 stores and closing smaller Grade 3 stores which is demonstrated in the following table. Stores at 1 October 2016 Stores at 3 October 2015 Stores at 4 October 2014 Big Box Grade 1 (large) Grade 2 (medium) Grade 3 (small) TOTAL 2 284 110 114 510 - 231 168 136 535 - 203 178 164 545 We have had a very encouraging start to the launch of our new trial Project ‘Big Box’. During August and September we opened two stores, Launceston (Cornwall) and Durham, followed by Kirkstall Bridge (Leeds) post the period end in October. These stores on average are twice the size of a Grade 1 store and benefit from an enhanced branded product range, driving a higher average transaction value in an enhanced shopping environment. The three trial stores are all located out of town and therefore this concept creates significant opportunity for Shoe Zone in this space with all future openings being out of town location or in larger high street units. This new growth opportunity is a key strategic development for the business, broadening the reach of the Shoe Zone brand and enabling us to improve our market share. 4 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Chief Executive’s Report (continued) E-commerce In the summer of 2016, the Group’s e-commerce operations were moved to a dedicated online distribution zone in the Leicester distribution centre. This segregated area now holds the majority of online stock with close links to online administration and customer services. This development has improved the customer focus creating a cleaner environment with stronger quality control, more accurate stock availability with faster processing times. It has also improved efficiency in the main distribution centre that can now focus on servicing the store network. 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 5.9% 4.4% 5.6% 5.3% 3.9% 3.6% 3.4% 2.9% 2.6% 2016 2015 2014 Desktop Tablet Mobile Our e-commerce strategy has always been based on driving profitability while not focusing on turnover growth. On this basis we have restricted the sale of lower price product on our Amazon and Ebay platforms that struggled to absorb postage and commission costs. This has slowed revenue growth across these channels but resulted in improved cash margin achieved. Overall multichannel revenue is up 11% on the prior year. Employees and Charity As previously announced, during 2016 Ian Filby stepped down as Non-Executive Chairman to enable Anthony Smith, the former CEO, to move to the role of Executive Chairman. Anthony has led Shoe Zone for 20 years through a series of acquisitions and the Company’s IPO in 2014. Anthony will continue to have a hands-on role in the Company and will have particular responsibility for the property portfolio and strategy. Following Anthony’s appointment, Nick Davis was appointed CEO. Nick has been with the business for 13 years and was the natural successor to drive the Company’s growth plans. Jeremy Sharman became Non-Executive Deputy Chairman. Jeremy had been a Non-Executive Director since the IPO and will chair the Audit committee and sit on the Remuneration committee. Jonathan Fearn was appointed as Finance Director. Jonathan has extensive experience in strategic and commercial finance having worked for Celesio Group (UK) (formally LloydsPharmacy) since 2002. We are incredibly proud of all of our team’s effort that has gone in to achieve these results and want to thank them for their ongoing commitment and hard work. We are very thankful for all of the creativity and enthusiasm that has resulted in us collectively raising approximately £150,000 for our chosen charity BBC Children in Need. shoezone.com has had another successful year with a significant shift to selling through mobile devices. Mobile and tablet visits now represent 74.9% (2015: 66%) of all website visits. Customer acquisition is a key strategic objective for our online team and our database has grown by 12% during the year even after a refining process was undertaken to concentrate on active users. We have capitalised on this by sending 12m more emails with greater relevance. Email campaign sales increased by 36% on the prior year and now account for 12% of site revenue. Our conversion rates continue to increase across all devices and we achieved 4.29% over the full year (2015: 4.06%). Instilling a ‘mobile first’ design and implementation ethos has grown mobile conversion to 3.39% (2015: 2.88%). Conversion rates on mobile phones are always likely to be lower than desktops, but we believe we can continue to narrow the gap. The following chart shows the conversion rates (the percentage of people visiting our website that place an order) for customers shopping using different devices: 5 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationChief Executive’s Report (continued) Current trading and Outlook The outlook for consumer spending looks challenging with the current difficult economic conditions likely to continue. Despite this, we are well positioned given our strong value proposition that has proven to be robust in challenging market conditions. We are exposed to fluctuations in the value of sterling but have put significant work into managing the risk through foreign currency hedging and re-sourcing. While we anticipate this pressure may be here for some time we expect to broadly maintain our gross margin percentages. We have continued to manage the store portfolio having opened six new stores since the year end and refitted four. Early signs are that the changes we have made to store rebranding has been favourably received with customers. There are currently five new stores with provisional opening dates and a further 39 full refits planned for the remainder of the year. We plan to open a further six Big Box stores in 2017 at various locations across the UK. These stores will be a mix of out of town and high street locations but will all operate with the new contemporary format, offering a good brand mix, extended product range and broad customer appeal. If the trial continues to be a success through 2017 we will look to accelerate the opening programme of these stores into 2018 and beyond. We expect the business will continue to convert cash effectively but anticipate a small increase in both capital expenditure and contribution to defined benefit pension schemes. We anticipate spending an additional £1.0m more in 2017 on store opening, refits and head office improvements. We are currently contributing £600k to one of our pension schemes and are in discussions around the ongoing funding with the trustees of our two schemes. Our multichannel offering has had some exciting developments since the year end and we are now trading on Amazon marketplaces in France, Germany, Spain and Italy. We plan to continue to grow into new international online marketplaces throughout 2017. Following a Google algorithm change in September we have experienced a step up in organic search on shoezone.com that is also very encouraging. Further online growth in 2017 will come from investment in ‘Personalisation’, implementing new technology to enable us to enhance our conversion rate optimisation, giving our customer a more personal shopping experience. Shoe Zone has made a solid start to the year and trading is in line with expectations. We are making good progress against our strategic objectives and the board remains positive about the outlook for the Group for the remainder of the year. 6 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Financial Review In the 52 weeks to 1 October 2016, Group profit before tax (‘PBT’) increased to £10.3m (2015: £10.1 m), an increase of 1.1% on last year. PBT margin also increased to 6.4% (2015: 6.1%). value being placed on the liabilities of the scheme. The actuarial valuations for the schemes are currently in progress and the company is in discussions with the trustees on the options for the future funding of these schemes. Revenues of £159.8m (2015: £166.8m) declined by 4.2% due to the planned closure of loss making stores and as a result of difficult trading conditions in the first half. Store numbers reduced by a net 25 branches to 510 at the year end (2015: 10 branches closed leaving a total of 535). Multi-channel revenues (excluding store orders) have continued to grow achieving 11.4% during the year (2015: 39.4%), and have developed to 3.9% of total sales (2015: 3.3%). Product gross margin strengthened to 62.0% (2015: 61.5%) reflecting further increases in direct sourcing and management of write downs. Operating expenses increased to £17.4m (2015: £17.0m). Administration expenses, which increased by £0.7m largely due to the impact of unhedged foreign exchange differences were, offset by continuing efficiencies in distribution costs. The effective rate of corporation tax for the year was 21.8% on PBT (2015: 24.4%). Earnings per share increased 4.3% to 16.9p (2015: 16.2p). During the year we opened 17 new stores and completed 41 refits, spending £3.4m on capital expenditure. The Group supports two defined benefit schemes. The accounting valuation as at 1 October 2016 indicates a deterioration of £7.9m within the year (before deferred tax). This reflects an increase in the fair value of assets by £7.1m offset by an increase in the present value of the funded obligations of £15.0m which is due to significant falls in corporate bond yields over the year resulting in a higher The Company continues to utilise a formal financial derivative hedging policy. The Group uses derivative financial instruments, typically forward exchange contracts, to hedge the risk of future foreign currency fluctuations. The hedging policy enables the effective portion of changes in the fair value of designated derivatives to be recognised in other comprehensive income. Historically these movements would have been recognised in the income statement. Further information can be seen in accounting policies note 1 of the financial statements. The Group closed the year with a derivative financial asset of £0.7m; all of which has been involved in a formally designated hedge. The business has a debt free financial structure and generated £13.9m cash from operations, a year on year increase of £2.3m resulting in a net cash position of £15.0m (2015: £14.2m) at the year end, underpinning a strong balance sheet. The Group’s current bank facilities consist of an on demand overdraft facility of £5.0m with HSBC. This facility has not been used within the year. The Board is proposing two dividends to be paid; a final dividend of 6.8p (2015: 6.5p) per share and a special dividend of 8.0p (2015: 6.0p) per share. The special dividend is being proposed as the business has £4.1m of excess cash, £11m is currently deemed to be the maximum cash the business requires to operate effectively. The dividends will be paid to shareholders on the register on 24 February 2017, payable on 15 March 2017 if approved at the Annual General Meeting to be held on 2 March 2017. Nick Davis Chief Executive Officer 10 January 2017 7 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationKey Performance Indicators The Group uses the following Key Performance Indicators (KPIs) to measure the performance and position of the business and its progress against strategic objectives. Online Participation % Product Cash Balance Gross Margin % Online Sales as a percentage of total sales. Online sales exclude orders placed in store. The online participation increased by 60 basis points to 3.9% (2015: 3.3%). This performance reflects the growth of our offering on Ebay and Amazon. Product Gross Profit expressed as a percentage of revenue. Cash held by the Group at the period end. The Product Gross Margin increased by 50 basis points to 62.0% (2015: 61.5%) reflecting the continued success of increasing our direct sourcing. We finished the year with a healthy cash balance of £15.0m (2015: £14.2m). 3.9% 3.3% 62.0% 61.3% 61.5% 2.3% 14.2m 15.0m 9.1m 2014 2015 2016 2014 2015 2016 2014 2015 2016 Earnings per Share Growth Rental % of Turnover The percentage movement in Earnings per share. Store rent as a percentage of turnover. Earnings per Share made a significant improvement this year despite the fall in turnover. EPS for the year is 16.9p (2015:16.2p). 16.9p The rental % of turnover has reduced from 13.0% to 12.9% reflecting the ongoing focus on rent negotiations. 16.1p 16.2p 13.9% 13.0% 12.9% 2014 2015 2016 2014 2015 2016 8 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Principal Risks and Uncertainties We set out below the principal risks and uncertainties that the Directors consider could impact the business. The list highlights the key risks but there may be other risks to which the business is exposed. The list is not intended to be exhaustive. Market and Competition The value footwear retail market is highly competitive, particularly with respect to price, product selection, quality and store location. The markets the Group operates in are, on a comparative basis, free and open markets with low barriers to entry. The Group competes at national and local levels with a diverse group of retailers of varying sizes and covering different product categories and geographic markets. These competitors include local, national and global retailers, including other specialist footwear retailers, supermarkets, online retailers and local independent retailers. Some competitors may have greater market presence, name recognition, financial resources and economies of scale or lower cost bases than the Group and may be able to withstand, or respond more swiftly to, changes in market conditions, any of which could give them a competitive advantage over the Group. In addition, like many other retailers, because the Group does not have exclusive rights to many of the elements that comprise its in-store experience and product offering, competitors may seek to copy or improve on the Group’s business strategy, which could significantly harm the Group’s competitive position. The Board monitors competitor activities and discusses them on a weekly basis. The Group has adopted a strategy which intends to differentiate itself from its closest competitors and endeavours to price match on any cross over product lines. Maintaining price competitiveness is a key focus of the business. Identifying fashion and trends The success of the Group’s business depends in part on its ability to innovate and to identify, anticipate and respond to evolving trends in consumer preferences and demographics and fashion trends, and to translate these trends into appropriate, saleable products. The Group seeks to change and refresh its product offering seasonally in order to drive customer traffic through its stores and online offering but demand for, and market acceptance of, these new products is uncertain. Trends and demands are continually reviewed by knowledgeable and experienced employees who have a high level of market awareness. The Board monitors on a weekly basis best sellers and evaluates the performance of new lines. Economic factors Poor economic conditions in the UK, the Republic of Ireland and globally, as well as economic factors such as unemployment levels, consumer debt levels, lack of available credit, energy costs, inflation, interest and tax rates, may adversely affect the disposable income of the Group’s customers, which could result in lower sales. In particular, in times of economic uncertainty or recession or lack of consumer confidence, there may be a decrease in discretionary purchases generally, which could have a material adverse effect on the Group’s business, results of operations and financial condition. Global economic conditions and uncertainties may also impact the Group’s manufacturers and suppliers in ways that could adversely affect the Group’s business. In recent months the UK Government has confirmed the aim to pursue the exit of the UK from the EU. This has caused some uncertainty in the both the equity and the currency markets. Shoe Zone operates a hedging policy for US dollar purchases which protects the business from this exposure in the short term. It is unclear what the longer term impacts of Brexit will be on the UK and international economies. The Board considers very carefully the economic climate in planning its product ranges and pricing structure. As the business is focussed on offering low prices it is more resilient to reductions in consumer expenditure than other footwear retailers. Reliance on overseas suppliers Like many retailers, the Group is dependent on being able to source suitable products from manufacturers and other suppliers at a sufficiently low cost and in a timely manner. Although the Group enjoys good relationships with a wide range of manufacturers and other suppliers and is not overly reliant on any one supplier, there is still potential for the Group to be exposed to adverse operational and financial risks should there be a deterioration in relationships with a number of its key suppliers or if the Group is unable to identify and develop relationships with suitable suppliers who can satisfy its standards for price, quality, safety and its quantity and delivery requirements. The vast majority of the Group’s retail products are manufactured overseas by suppliers located in China and to a lesser extent India, Turkey, Italy and Portugal. As a result, the Group is also subject to the risks associated with international trade, particularly those risks which are common in the importation of goods from developing countries, including the imposition of taxes or other charges on imports, compliance with and changes to import restrictions and regulations, and exposure to different legal 9 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationPrincipal Risks and Uncertainties (continued) standards and the burden of complying with a variety of foreign laws and changing foreign government policies. Data security and IT reliability The Board are always seeking out new sources of supply with a clear strategy of diversification. Members of the Management Team frequently visit overseas suppliers to ensure that existing factories are being regularly monitored and new factories are being sourced that meet our price, quality and safety standards. Reputational risk The Group’s sales are dependent in part on the strength and reputation of the brands it offers, including own label brands, and are dependent on consumers’ perceptions of the Group and its products. The vast majority of the Group’s profits are derived through sales of its own label brands. Maintaining broad market acceptance of its own label brands depends on many factors, including value, quality and consumer perception. The Group may not in the future achieve or maintain its expected sales of its own label brands, which could have a material adverse effect on the Group’s business, results of operations and financial position. The Board has sufficient internal processes to ensure that it receives feedback from stores and customers on the design and quality of its products. The business’ reputation is carefully managed through internal procedures by the Board. The Group relies to a significant degree on the uninterrupted operation of its computer and communications systems and infrastructure, as well as the equivalent systems and infrastructure of third parties, for the efficient running of its business, including with respect to inventory, merchandising, finance, human resources, distribution and logistics and store operations. The Group must comply with restrictions on the use of customer data and ensure that confidential information (such as credit or debit card numbers) is transmitted in a secure manner over public networks. Despite controls to ensure the confidentiality and integrity of customer data, the Group may breach restrictions or may be subject to attack from computer programmes that attempt to penetrate the network security and misappropriate confidential information. Any such breach or compromise of security could adversely impact the Group’s reputation with customers and consumers, lead to litigation or fines, and as a result, have a material adverse effect on its business, results of operations and financial position. The business has appropriate disaster recovery and business interruption plans. The IT systems have been developed significantly in-house reducing the businesses dependency on any third parties. Reputable third party antivirus, anitspam and web filtering software is in use and its appropriateness regularly reviewed. Loss of key operating site Reliance on key personnel The Group has a single distribution centre and its head office located at premises in Leicester and therefore the Group is currently entirely dependent on the continued efficient operation of the Leicester Premises. Any disruption to the operation of the Leicester Premises may therefore have an adverse effect upon the Group’s financial condition, operations and business prospects. The premises may suffer prolonged power or equipment failures, failures in its IT systems or networks or damage from fire, flood, or other disasters or unforeseen events which may not be covered by, or may be in excess of, its insurance coverage. Damage resulting from any of these events may take considerable time to repair. A prolonged period before rectification could have an adverse effect upon the Group’s financial condition, operations and business prospects. During the past year the Business Continuity Plan has been refreshed and key employees briefed on their responsibilities in the case of the unlikely scenario of disruption to the Leicester premises. The business retains appropriate insurance to mitigate the risk of such a loss. The Group depends on a relatively small senior management team and the loss of a material number of such individuals or the inability to attract appropriate personnel in a timely manner could impact upon the Group’s future performance. The Group’s Remuneration Policy is designed to attract, retain and motivate management. Succession plans are in place for key roles. The strategic report was approved by the Board. On behalf of the Board N J Davis Chief Executive Officer Date: 10 January 2017 10 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Corporate Governance Statement Principles of Corporate Governance The Directors acknowledge the importance of the principles set out in the UK Corporate Governance Code (the ‘UK Code’). The UK Code is not compulsory for AIM quoted companies; therefore this report does not describe compliance with or departures from the UK Code. However, the Directors intend to apply certain principles of the UK Code where the Board considers it appropriate for the size and nature of the Company. The Group supports the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 which are widely recognised as the benchmark for corporate governance of smaller quoted companies and are therefore most appropriate for the Company. Appointments to the Board and re-election The Company is governed by its Articles of Association (‘Articles’). Under the Articles the Board has the power to appoint a Director during the year but any person so appointed must stand for election at the next Annual General Meeting (‘AGM’). The Articles require that each Director retires and seeks re-election by the members every three years. The UK Code recommends that directors should be subject to annual re-election by members and, in line with the Company’s intention to apply certain principles of the UK Code, each Director will stand for re-election at each of the Company’s AGMs. The Board The Board comprises three Executive Directors (including the Chairman) and three Non-Executive Directors. The Board composition meets the recommendations of the QCA guidelines. The Board is committed to maintaining high standards of corporate governance and to being transparent about its arrangements. The key responsibilities of the Board are: the overall management of the Group; ρ approval of corporate strategy; ρ approval of income, expenditure and capital budgets; ρ ρ oversight of operations ensuring adequate systems of internal control and risk management are in place; to review business performance against the objectives that it has set; to monitor the integrity of the financial statements and approve the annual and interim reports; approval of the dividend policy; ρ ρ determining changes to the structure and ρ ρ composition of the Board; ρ determining remuneration policy; ρ approval of communications with shareholders and the market. Details of each of the Directors is given in their biographies on pages 12 and 13. Board committees The Board has established a Remuneration Committee and an Audit Committee. Due to the nature and size of the Group, the Directors have decided that issues concerning the nomination of Directors will be dealt with by the Board rather than a nomination committee. Membership of the two Board Committees is comprised of the two independent Non-executive Directors. Each Board Committee has approved Terms of Reference setting out their responsibilities. The Terms of Reference were approved by the Board during the year. All of the Board Committees are authorised to obtain, at the Company’s expense, professional advice on any matter within the Terms of Reference and to have access to sufficient resources to carry out their duties. The Audit Committee is chaired by Jeremy Sharman. The committee meets as necessary to monitor the Group’s risk management and internal control systems and is also concerned with any major accounting and audit related issues. Executive Directors and senior management are responsible for managing the risk framework and internal control systems and must report on their effectiveness to the Audit Committee. Details of the duties of the Remuneration Committee are set out in the Remuneration report on page 14. 11 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationBoard of Directors Anthony Smith Executive Chairman Nick Davis Chief Executive Officer Charles Smith Chief Operating Officer Anthony joined Shoe Zone in 1993 as Marketing Manager and held various roles within Marketing and Retail divisions before becoming Chief Executive Officer in 1997. Since his appointment as Chief Executive Officer, Shoe Zone has carried out three major acquisitions and traded successfully through two recessions. Anthony was appointed Executive Chairman in June 2016. Anthony is a founder and Trustee of the Shoe Zone Trust. Anthony is a Trustee of Uppingham School and Chairman of the Uppingham School Foundation. Nick joined Shoe Zone in 2003 as Management Accountant from PKF where he had been a Senior Business Advisor in Audit and Assurance. Nick became Financial Controller of Shoe Zone in 2005 and then joined the Board as Finance Director in 2006. As Chief Financial Officer in 2014 he successfully joint led the company’s IPO process and has recently in 2016 been appointed as Chief Executive Officer. He is FCA qualified and holds a BSC in Economics from Loughborough University. Outside of Shoe Zone Nick also serves as a Board member and Trustee of three charities. Charles joined Shoe Zone in 1998 and quickly progressed through Store Manager and Area Manager, joining the Board as Retail Director in 2001. Over the past 15 years, Charles has worked closely with his brother, Anthony, and other members of the management team to ensure integration of acquired businesses with Shoe Zone’s existing business and the Shoe Zone culture. As Chief Operating Officer his main areas of responsibility are Retail and HR. Charles holds a Business Studies degree from Leicester DeMontfort University. Charles is a founder and Trustee of Shoe Zone Trust. Outside of Shoe Zone he is a Board member and Trustee of three charities. 12 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Board of Directors (continued) Jeremy Sharman Non-Executive Deputy Chairman Charlie Caminada Non-Executive Director Malcolm Collins Non-Executive Director Jeremy Sharman has over 25 years of experience acting as a non-executive director on the boards of various companies, primarily in the consumer and internet sectors. He was one of the founding partners of HgCapital where he served from 1990 to 2005. He now acts as an independent investing director. He has served as chairman or non-executive director on the boards of Premier Marinas, Park Resorts, Hoseasons, Villarenters. com, Travelsphere, Page and Moy and Belfast International Airport amongst others. Jeremy took up the post of Non-Executive Director at Shoe Zone in 2012. Jeremy holds an MA in Mathematics from Oxford University. He is founder and chairman of two charities and chairman of Witham Hall and Dolphin Preparatory Schools. Charlie has over 20 years’ executive board experience of brand building for entertainment, media and retail organisations, including 16 years’ experience on the boards of London Stock Exchange traded companies and 12 years’ experience as a COO. Charlie spent seven years as Chief Operating Officer at Ludorum plc between 2005 and 2012, heading the company’s listing on AIM in 2006. Prior to that he was a founding member and Chief Operating Officer at HIT Entertainment plc for 15 years. Charlie is currently non-executive director at Hornby plc, Specialist Advisor & Member of the Development Board to the Centre of Social Justice and a Specialist Advisor to the UK Trade & Investment (UKTI). He is a Governor of Heathfield School, Ascot. Malcolm Collins joined the Board as a Non-Executive Director in June 2016. Malcolm has extensive experience in retail, most recently as Group Buying and Design Director for footwear and accessories at New Look. Malcolm oversaw the group’s £550m footwear division which he and his team grew from a zero base to market leaders, representing 30% of group turnover. Prior to Malcolm’s 16 years at New Look, he spent 23 years at the international retailer, wholesaler and manufacturer, Clarks Shoes. Malcolm worked in a number of roles during his career at Clarks, including 13 years as Womens Footwear Buyer. 13 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationRemuneration Report This is the Company’s third Directors’ Remuneration Report since it listed on AIM in May 2014. The Committee consists of two Non-executive Directors. Charlie Caminada is the Chairman and Jeremy Sharman also serves on the Committee. Anthony Smith, Nick Davis and Charles Smith may attend the Committee meetings by invitation. Duties The main duties of the Remuneration Committee are set out in its Terms of Reference adopted 25 April 2014 and include: ρ responsibility for agreeing with the Board, the framework or broad policy for the remuneration of all Executive Directors of the Company, including pension rights, compensation payments bonuses, incentive payments, share options and benefits in kind; ρ obtain reliable, up-to-date information about remuneration in other companies of comparable scale and complexity and market practice generally; ρ be exclusively responsible for selecting any remuneration consultants who advise the Committee; ρ approve the design and determine targets for any performance-related pay schemes operated by the Company and approve the total annual payments made under such schemes; ρ monitor the level and structure of remuneration for senior management and note annually the remuneration trends across the Group; ρ ρ review the design and implementation of all share incentive plans for approval by the Board and shareholders. For such plans, determine each year whether awards will be made, and if so, the overall amount of such awards; ensure the contractual terms on termination, and any payments made, are fair to the individual and the Company, and in accordance with any legal and regulatory requirements; ρ oversee any major change in employee benefit structures throughout the Group; ρ agree the policy for authorising claims for expenses from the Directors 14 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Remuneration Report (continued) Directors and Directors’ interests The Directors listed below all served throughout the year. Their interests in the issued share capital of the Company as at the date of this report were as follows: Number of ordinary shares Percentage of issued share capital Executive Directors Anthony Smith 13,895,592 (1) Nick Davis 15,700 (3) Charles Smith 11,109,408 (2) Non-Executive Directors Ian Filby Nil Jeremy Sharman 234,375 Charlie Caminada Malcolm Collins 15,625 Nil (1) (2) (3) The registered holder of these shares is Slawston Limited, an entity 100% owned by Anthony Smith The registered holder of these shares is Sheepy Magna Limited, an entity 100% owned by Charles Smith The registered holder of these shares is the wife of Nick Davis 27.79% 0.03% 22.22% - 0.47% 0.03% - 15 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationRemuneration Report (continued) Directors’ Remuneration Directors’ remuneration information for those individuals who have served as a Director for the year are presented below. The information presented in respect of these Directors is for the full financial year. Individual Financial year Basic Salary and fees £ Profit Share (Bonus) £ Benefits £ Pension Contribution £ Total £ Executive Directors Anthony Smith Nick Davis Charles Smith Non–Executive Directors Ian Filby Jeremy Sharman Charlie Caminada Malcolm Collins Total FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 250,000 250,000 - - 36,338 35,373 - - 286,338 285,373 162,657 72,000 10,304 19,000 263,961 143,594 79,269 10,444 17,931 251,238 200,000 200,000 41,666 60,000 30,000 30,000 30,000 30,000 5,493 - - - - - - - - - - - 29,158 21,354 - - - - - - - - - - - - - - - - - - 229,158 221,354 41,666 60,000 30,000 30,000 30,000 30,000 5,493 - 719,816 72,000 75,800 19,000 886,616 713,594 79,269 67,171 17,931 877,965 The Company currently does not operate any share option or share award schemes to its employees. 16 Anthony Smith Nick Davis Charles Smith Jeremy Sharman Charlie Caminada Malcolm Collins £ 250,000 200,000 160,000 £ 30,000 30,000 20,000 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Remuneration Report (continued) Directors’ Service contracts and employment letters The Executive Directors have entered into service agreements with the Company with effect from 1 May 2014. Salaries for the current year are set out below: Anthony Smith Nick Davis Charles Smith £ 250,000 200,000 160,000 Each Executive Director’s employment will continue until terminated by either party by written notice. The notice periods applicable are 12 months for Anthony Smith, Charles Smith, and Nick Davis. Other fixed elements of the Executive Directors’ remuneration comprise a company car provision, life assurance and private medical insurance. Nick Davis is entitled to a Pension Contribution of 12% of basic salary. The Company may elect to terminate the employment of each Executive Director by making a payment in lieu of notice equal to their basic salary payable in monthly instalments. Each of the Executive Directors has agreed to post-termination restrictions in order to protect confidential information, trade secrets and business connections. These restrictions last for 9 months. The Non-Executive Directors have entered into appointment letters. Under the terms of these letters, the Non-Executive Directors are entitled to an annual fee as set out below: Jeremy Sharman Charlie Caminada Malcolm Collins £ 30,000 30,000 20,000 The appointments are terminable by either party with one month’s written notice. The Company may pay the Non-Executive Directors in lieu of their notice period. The remuneration report was approved by the Board. On behalf of the Board C J Caminada Chairman of the Remuneration Committee Date: 10 January 2017 17 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationDirectors’ Report for the 52 weeks ended 1 October 2016 The Directors present their Annual Report and audited financial statements of the Company and the Group for the 52 weeks ended 1 October 2016. The disclosure requirements of the Companies Act 2006 have been met by the contents of this Directors’ Report, along with the Strategic Report, and the Directors’ Remuneration Report which should therefore be read in conjunction with this report. The Company Shoe Zone plc (the ‘Company’) is a company incorporated and domiciled in the UK, with the registered company number 08961190. The company is listed on the AIM market of the London stock exchange. Share Capital Details of the share capital of the company are shown in note 20 of the financial statements. The company’s share capital consists of one class of ordinary shares. As at 1 October 2016 there were 50,000,000 ordinary shares of £0.01 each. The authorised share capital of the Company is unlimited. At the AGM held on 4 March 2016, the board was granted authority to allot shares in the company of up to approximately a third of the Company’s issued share capital. The board was also granted authority to allot further shares having an aggregate nominal value of £166,666 in connection with a pre-emptive rights issue (representing approximately a further third of the Company’s issued share capital). At the 2017 AGM, shareholders will be asked to renew this authority for a further year. Directors The Directors who held office during the year and up to the date of signing the financial statements were: Ian Filby (Resigned 21 June 2016) Anthony Smith Nick Davis Charles Smith Jeremy Sharman Charlie Caminada Malcolm Collins (Appointed 21 June 2016) Directors’ Interests Information about the Directors’ interests in the shares of the Company can be found in the Directors’ Remuneration Report. Directors’ Indemnities As permitted by the Articles of Association, the Directors have the benefit of an indemnity provision as defined by s234 of the Companies Act 2006. The indemnity was in force throughout the financial year and at the date of approval of the financial statements. The Group maintains Directors’ and Officers’ liability insurance. In accordance with the Articles of Association, all the Directors offer themselves for re-election at the AGM, as they were appointed during the year. Employees The Group employed 3,561 (3 October 2015: 3,721) employees at the year end. The Group’s policy is to actively involve its employees in the business to ensure that matters of concern to them, including the Group’s aims and objectives and the financial and economic factors which impact them are communicated in an open and regular manner. The Directors are committed to delivering the highest standards of health and safety for employees, customers and others that might be affected by the Group’s activities. The Group is committed to employing the right people, training them well and promoting from within wherever possible. Well trained and motivated employees are key to delivering good service to our customers and are fundamental to the long-term success of the business. The Group operates an equal opportunities policy that aims to treat individuals fairly and not to discriminate on the basis of sex, race, ethnic origin, disability or any other basis. Applications for employment are fully considered on their merits, and employees are given appropriate training and equal opportunities for career development and promotion. Annual general meeting The Company’s third AGM will be held on Thursday, 2 March 2017 at 11am at the Company’s registered office at Haramead Business Centre, Humberstone Road, Leicester, Leicestershire LE1 2LH. The Notice of AGM appears on pages 70 to74. Set out below is an explanation of certain of the resolutions which will be proposed at the AGM. 18 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016 Directors’ Report for the 52 weeks ended 1 October 2016 (continued) Dividends (resolutions 2 and 3) Final Dividend The Directors are proposing a final dividend of 6.8p per ordinary share, amounting to a total dividend of approximately £3.4m, which is subject to approval by the shareholders at the AGM. In line with the requirements of IAS 10 – ‘Events after the reporting period’, this dividend has not been recognised as a liability in the financial statements. Special Dividend The Directors are also proposing a special dividend of 8.0p per ordinary share. In light of the continued strong performance, cash generation and the robustness of the Company’s balance sheet, the Directors consider it appropriate to propose a cash return to shareholders of, in aggregate, approximately £4m (in addition to the final dividend proposed in resolution 2), which is structured as a special dividend of 8.0p per ordinary share. The approval of this resolution is not dependent on the approval of resolution 2, nor is the approval of resolution 2 dependent on the approval of this resolution. Re-election of Directors (resolutions 4 to 9) The UK Corporate Governance Code recommends that directors should be subject to annual re-election by shareholders. In line with the Company’s intention to apply certain principles of the UK Corporate Governance Code, each Director will stand for election or re-election (as the case maybe) at the AGM. Biographical details of each Director appear on pages 12 and 13. The Board believes that each Director continues to demonstrate his commitment to his role and that, collectively; the Directors’ skills complement each other and enhance the overall operation of the Board. Political donations (resolution 12) The Company is prohibited under the Companies Act 2006 from making donations to EU political parties or organisations or to independent election candidates in the EU of over £5,000 a year without shareholder approval. The Companies Act 2006 uses very broad definitions of political donations and expenditure which may extend to normal business activities which might not be thought of as political expenditure in the more usual sense. Activities which could be caught include representing the Company in the business community or at special interest groups which the Company may wish to support. In addition, the sponsorship of industry forums, the funding of seminars and other functions to which politicians are invited may also be caught. The Company is therefore proposing this resolution to ensure that it does not inadvertently breach the rules whilst carrying out its normal business activities. During its last financial period the Company made no political donations and incurred no political expenditure. The Company does not intend to make any such donations or incur any such expenditure this year. Authorities to allot shares (resolutions 13,14 and 15) By law, the Directors are not permitted to allot new shares (or to grant rights over shares) unless authorised to do so by shareholders. Resolution 13 seeks shareholder authority to allow the Directors to allot shares having an aggregate nominal value of £166,666 representing approximately a third of the Company’s issued share capital on 10 January 2017. In addition, shareholder authority is sought to allot further shares having an aggregate nominal value of £166,666 in connection with a pre-emptive rights issue (representing approximately a further third of the Company’s issued share capital on 10 January 2017). Resolutions 14 and 15 concern the dis-application of pre-emption rights. Under the Companies Act 2006, all shareholders are entitled to participate on a pre-emptive basis in all issues of shares for cash, unless shareholders have authorised the Directors otherwise. Paragraph (a) of resolution 14 gives the Directors authority to make arrangements dealing with certain legal, regulatory and practical matters in connection with a pre-emptive issue of shares. Paragraph (b) of resolution 14 gives the Directors the necessary authority to either allot shares or sell shares held in treasury for cash on a non pre-emptive basis up to an aggregate nominal amount of £25,000 (being 2,500,000 shares). This is the equivalent to approximately 5% of the issued share capital of the Company on 10 January 2017. This resolution also disapplies statutory pre-emption rights to the extent necessary to facilitate rights issues. Resolution 15 is being proposed as a separate resolution to authorise the Directors to allot a further 5% of issued ordinary share capital of the Company otherwise than in connection with a pre-emptive offer for the purposes of financing a transaction (or refinancing within six months of the transaction) which the Directors determine to be an acquisition or other capital investment contemplated by the Pre-emption Group’s Statement of Principles (the ‘Pre- emption Group Principles’). These disapplication authorities are in line with the authority sought at last year’s AGM and with institutional shareholder guidance, in particular the Pre-emption Group Principles. The Pre-emption Group Principles were updated in March 2015 and provide the Company with greater flexibility to undertake non-pre-emptive issuances in connection with acquisitions and specified capital investments by allowing 19 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationDirectors’ Report for the 52 weeks ended 1 October 2016 (continued) the Company to allot shares with a nominal value of up to £25,000 (representing 5% of the issued share capital of the Company as at 10 January 2017 for cash where that allotment is in connection with an acquisition or specified capital investment (as described in the Pre-emption Group Principles) which is announced at the same time as the allotment, or which has taken place in the preceding six- month period and is disclosed in the announcement of that allotment. The Board does not intend to allot shares for cash on a non-pre-emptive basis above 7.5% of the total issued share capital of the Company over a rolling three-year period without consulting shareholders first. The Directors consider that it is appropriate for these authorities to be granted to preserve maximum flexibility for the future. However, the Directors currently have no plans to exercise these powers. The authorities sought will apply until the conclusion of the next AGM of the Company to be held in 2018 or 31 March 2018, whichever is earlier. Form of Proxy Shareholders will find enclosed a Form of Proxy for use at the AGM. For shares held through CREST, proxy appointments may be submitted via the CREST proxy voting system. Votes should be lodged as soon as possible in accordance with the instructions in the Notice of AGM and on the Form of Proxy, whether or not shareholders intend to be present at the AGM. Appointing a proxy will not preclude a shareholder from attending the AGM and voting in person. All proxy appointments should be submitted so as to be received no later than 11am on 28 February 2017. Recommendation The Board considers that the resolutions to be proposed at the AGM are in the best interests of the Company and are most likely to promote the success of the Company for the benefit of its members as a whole. The Directors recommend that shareholders vote in favour of each resolution, as the Directors intend to do in respect of their own shareholdings. External auditor BDO LLP have issued their independent report on these financial statements to the shareholders of Shoe Zone plc. The report can be found on page 22. The auditor, BDO LLP, have indicated their willingness to continue in office and a resolution that they be re-appointed will be proposed at the AGM. Financial risk management The Group’s operations expose it to a variety of financial risks that include the effects of liquidity risk, foreign currency risk and interest rate risk. The Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Group by monitoring the management of net cash, and the related finance income and costs. As the Group has both interest bearing assets and interest bearing liabilities, management maintain a close monitoring of the respective balances to ensure any interest rate risk is managed. The Group does not make significant use of derivative financial instruments but does use forward currency contracts when management consider this to be appropriate. External expert advice is sought from the Group’s bankers on the suitability of these currency contracts in respect of the timings and rate. The Group has no exposure to equity securities. Limited credit risk exposure exists given the high level of cash transactions through the store network. Where credit risk arises management have procedures in place to assess the level of risk to be taken, with approval by the Directors for significant credit transactions. Further information can be found in note 3 to the financial statements. Environment The vast majority of our stores in England, Wales and Scotland have a requirement to ensure that all packaging and store waste is returned to our distribution centre to be recycled and re-used. Going Concern The Directors consider that the business is a going concern and that it is appropriate to prepare the financial statements on a going concern basis. In reaching this conclusion, the Directors have assessed the Group’s current performance and position and factors that may affect the Group’s future prospects. The Group’s financial position is strong with healthy positive cash balances at the year end and no debt. It also has in place a £5.0m Revolving Credit Facility (‘RCF’), which matures in April 2017. The RCF requires the Group to comply with certain financial covenants; these have been met during the year, and since the year-end. The RCF has not been utilised since inception. The Directors have reviewed forecasts and projections and consider that the Group has adequate banking facilities and cash resources to meet its operational and capital commitments. The Directors therefore have a reasonable basis on which to satisfy themselves that the business is a going concern. 20 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Directors’ Report for the 52 weeks ended 1 October 2016 (continued) They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the on-going integrity of the financial statements contained therein. Disclosure of information to auditor Each Director in office at the date of approval of this report has confirmed that: ρ So far as he is aware, there is no relevant audit information of which the Company’s auditor are unaware; and ρ He has taken all reasonable steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditor are aware of that information. Approved by the Board and signed on its behalf: N J Davis Chief Executive Officer Date: 10 January 2017 Events after the year-end Between 1 October 2016 and the date of this report, there have been no material events. The Strategic Report, the Directors’ Report and the Remuneration Report were approved by the Board. Directors’ responsibilities statement The Directors are responsible for preparing the strategic report, the Director’s report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: ρ select suitable accounting policies and then apply them consistently; ρ make judgements and accounting estimates that are ρ reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; ρ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. 21 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationIndependent Auditor’s Report to the members of Shoe Zone plc We have audited the financial statements of Shoe Zone Plc for the 52 weeks ended 1 October 2016 which comprise the consolidated income statement, the consolidated statement of total comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows, the related notes and the company statement of financial position. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS “101” ‘Reduced Disclosure Framework’. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditor As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/ auditscopeukprivate. Opinion on financial statements In our opinion: ρ ρ ρ ρ the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 1 October 2016 and of the group’s profit for the 52 week then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company’s financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Strategic report and Directors’ report for the financial period for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: ρ ρ ρ adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or ρ we have not received all the information and explanations we require for our audit. Richard Wilson (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor Nottingham Date: 10 January 2017 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 22 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Consolidated Income Statement for the 52 weeks ended 1 October 2016 Revenue Cost of sales Gross profit Administration expenses Distribution costs Profit from operations Finance income Finance expense Profit before taxation Taxation Profit attributable to equity holders of the parent Earnings per share – basic and diluted Note 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 1, 4, 8 5 5 5 9 9 10 26 159,834 (132,022) 27,812 (11,657) (5,769) 10,386 56 (190) 10,252 (1,801) 8,451 166,819 (139,503) 27,316 (10,939) (6,095) 10,282 44 (186) 10,140 (2,039) 8,101 16.90p 16.20p 23 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Consolidated Statement of Total Comprehensive Income for the 52 weeks ended 1 October 2016 Note 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 Profit for the period Items that will not be reclassified subsequently to the income statement Remeasurement losses on defined benefit pension scheme Movement in deferred tax on pension schemes Effect of change in deferred tax rate on opening liability 23 23 Items that will be reclassified subsequently to the income statement Fair value movements on cash flow hedges Cash flow hedges recognised in inventories Tax on cash flow hedges Effect of change in deferred tax rate on opening liability Other comprehensive expense for the period Total comprehensive income for the period attributable to equity holders of the parent £’000 £’000 8,451 8,101 (8,190) 1,474 (362) 1,683 (1,667) (3) 6 (7,059) 1,392 (499) 100 - 314 - (63) - (148) 7,953 24 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Consolidated Statement of Financial Position as at 1 October 2016 Note 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 Assets Non-current assets Property, plant and equipment Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables Derivative financial assets Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Provisions Corporation tax liability Total current liabilities Non-current liabilities Trade and other payables Provisions Employee benefit liability Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity attributable to equity holders of the company Called up share capital Merger reserve Cash flow hedge reserve Retained earnings Total equity and reserves 12 19 13 14 15 24 16 17 16 17 23 19 20 18,661 1,441 20,102 30,075 7,204 651 15,046 52,976 73,078 (25,348) (922) (1,583) (27,853) (2,316) (75) (13,058) - (15,449) (43,302) 29,776 500 2,662 270 26,344 29,776 18,688 - 18,688 29,172 8,148 553 14,221 52,094 70,782 (23,649) (802) (1,373) (25,824) (3,037) (363) (5,150) (124) (8,674) (34,498) 36,284 500 2,662 251 32,871 36,284 The financial statements were approved and authorised for issue by the Board of Directors. N J Davis Chief Executive Officer Date: 10 January 2017 Registered Number 08961190 25 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Consolidated Statement of Changes in Equity for the 52 weeks ended 1 October 2016 Share capital Merger reserve Cash flow hedge reserve Retained earnings Total £’000 £’000 £’000 £’000 £’000 At 4 October 2014 Profit for the period Other comprehensive expense Total comprehensive income for the period Dividends paid during the year (note 11) Total contributions by and distributions to owners 500 2,662 - - - - - - - - - - - - 251 251 - - 28,569 31,731 8,101 (399) 7,702 8,101 (148) 7,953 (3,400) (3,400) (3,400) (3,400) At 3 October 2015 Profit for the period Other comprehensive income Total comprehensive income for the period Dividends paid during the year (note 11) Total contributions by and distributions to owners 500 2,662 251 32,871 36,284 - - - - - - - - - - - 19 19 - - 8,451 8,451 (7,078) (7,059) 1,373 1,392 (7,900) (7,900) (7,900) (7,900) At 1 October 2016 500 2,662 270 26,344 29,776 Share capital comprises nominal value of shares subscribed for. The merger reserve has arisen as a result of the application of merger accounting to the group reorganisation of 26 March 2014. The cash flow hedge reserve comprises of gains/losses arising on the effective portion of hedging instruments and is carried at fair value in a qualifying cash flow hedge. Retained earnings are all other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. 26 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Consolidated Statement of Cash Flows for the 52 weeks ended 1 October 2016 Note 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 Operating activities Profit after taxation Corporation tax Finance income Finance expense Depreciation of property, plant and equipment Impairment of property, plant and equipment Loss on disposal of property, plant and equipment Pension contributions paid Decrease in trade and other receivables Decrease in foreign exchange contract (Increase)/Decrease in inventories Increase/(Decrease) in trade and other payables Decrease in provisions Cash generated from operations Income taxes paid Net cash flows from operating activities Investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Interest received Net cash used in investing activities Financing activities Dividends paid during the year Interest paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period 11 Cash and cash equivalents at end of period 24 8,451 1,801 (56) 190 3,153 - 309 (472) 8,101 2,039 (44) 186 3,713 459 46 (300) 13,376 14,200 861 239 (1,224) 821 (168) 529 13,905 (2,041) 11,864 (3,195) - 56 (3,139) (7,900) - (7,900) 825 14,221 15,046 303 501 9 (3,148) (264) (2,599) 11,601 (1,538) 10,063 (1,879) 280 44 (1,555) (3,400) (1) (3,401) 5,107 9,114 14,221 27 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notes to the Financial Statements for the 52 weeks ended 1 October 2016 1. Accounting policies General information Shoe Zone plc (the ‘Company’) is a public company incorporated and domiciled in England and Wales. The registered office is at Haramead Business Centre, Humberstone Road, Leicester, LE1 2LH. The company registered number of the Company is 8961190. The Company and its subsidiaries’ (collectively the Group) principal activity is a footwear retailer in the United Kingdom and the Republic of Ireland. Basis of preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied for the 52 weeks ended 1 October 2016. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and Interpretations (collectively IFRSs) issued by the Internal Accounting Standards Board (IASB) as adopted by the European Union (‘adopted IFRSs’) and those parts of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRS. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified for the revaluation of certain financial assets and financial liabilities at fair value. The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the company’s accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2. Basis of consolidation The consolidated financial statements incorporating the financial statements of Shoe Zone plc and its subsidiary undertakings are all made up to 1 October 2016. The results for all subsidiary companies are consolidated using the acquisition method of accounting. Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. De-facto control exists in situations where the company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the company considers all relevant facts and circumstances, including: ρ The size of the company’s voting rights relative to both the size and dispersion of other parties who hold voting rights ρ Substantive potential voting rights held by the company and by other parties ρ Other contractual arrangements ρ Historic patterns in voting attendance. The consolidated financial statements present the results of the company and its subsidiaries (‘the Group’) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. 28 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 1. Accounting policies (continued) Basis of consolidation (continued) The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases. Changes in accounting policies The Group has not early adopted the following new standards, amendments or interpretations that have been issued but are not yet effective. The Directors anticipate that the adoption of these standards will not result in significant changes to the Group’s accounting policies. The Group has commenced its assessment of the impact of these standards but is not yet in a position to state whether these standards would have a material impact on its results of operations and financial position. There were no significant standards or interpretations effective for the first time for periods beginning on or after 4 October 2015. None of the amendments to Standards that are effective from that date had a significant effect on the Group’s financial statements. ρ Annual Improvements to IFRSs 2012–2014 Cycle IFRS 15 Revenue from Contracts with Customers ρ IFRS 9 Financial Instruments ρ IFRS 16 Leases ρ Revenue Revenue is measured at the fair value of consideration received or receivable net of discounts, returns and VAT. Revenue from the sale of footwear is recognised when the company has transferred the significant risks and rewards of ownership to the buyer at the point of sale in the shop. At the point of sale a provision is made for the level of expected returns based on previous experience. Internet sales are recognised when the goods have been paid for, despatched and received by the customer. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as purchase price, cost includes directly attributable costs. Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over the expected useful economic lives. It is provided at the following rates: Leasehold improvements Fixtures and fittings Motor vehicles – – – 5-10 years on a straight line basis 5-10 years on a straight line basis 3-5 years on a straight line basis No depreciation is provided against freehold land. Depreciation is provided against freehold shop properties writing off the original cost less estimated residual value over the useful economic life of the property which is estimated to be 50 years. 29 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 1. Accounting policies (continued) Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Shoe Zone plc Group (a ‘finance lease’), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between interest and capital. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an ‘operating lease’), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. Impairment of non-financial assets The carrying values of non-financial assets are reviewed for impairment when there is an indication that assets might be impaired. When the carrying value of an asset exceeds its recoverable amount, the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash generating unit (i.e. the smallest group of assets in which the asset belongs for which there are separable identifiable cash flows). Impairment charges are included in the consolidated income statement in cost of sales, except to the extent they reverse previous gains recognised in the consolidated statement of comprehensive income. Inventories Inventories are initially recognised at cost on a first in first out basis, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Financial assets The Group classified its financial assets into the categories, discussed below, due to the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity. Derivative financial instruments and hedging activities The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially measured at fair value and subsequently remeasured at fair value. The fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in cost of sales in the income statement. 30 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 1. Accounting policies (continued) Derivative financial instruments and hedging activities (continued) Amounts accumulated in equity are reclassified to inventories in the period when the purchase occurs, matching the hedged transaction. The cash flows are expected to occur and impact on profit and loss within 12 months from the year end. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognised in equity is retained in equity and is recognised when the forecast transaction is ultimately recognised in cost of sales in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Loans and receivables Loans and receivable assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents included within the consolidated statement of financial position. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Financial liabilities The Group classified its financial liabilities as other financial liabilities which include the following: ρ bank loans which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost ensuring the interest element of the borrowing is expensed over the repayment period at a constant rate; and ρ trade payables, other borrowings and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. 31 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 1. Accounting policies (continued) Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted. Deferred tax assets are offset when the Group has legally enforceable rights to set off current tax assets against current tax liabilities and the deferred tax liabilities relate to taxes levied by the same tax authority on either: ρ the same taxable group company; or ρ different company entities which intend to either settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered. Provisions Provision for dilapidations is made at the best estimate of the expenditure required to settle the obligation at the reporting date, where material, discounted at the pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability. A dilapidation provision is only recognised on those properties which are likely to be exited. Where such property is identified the full costs expected are recognised. This provision relates to the liability of wear and tear incurred on the leasehold properties and does not include any removal of shop refits as experience indicates that liabilities do not arise for removal of shop refits. Foreign exchange Transactions entered into the Group entities in a currency other than the functional currency are recorded at the average rate prevailing during the period. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. 32 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 1. Accounting policies (continued) Retirement benefits – defined contribution and benefit schemes The Group operates both defined benefit and defined contribution funded pension schemes. The schemes are administered by trustees and are independent of the Group. Contributions to defined contribution schemes are charged to the consolidated statement of comprehensive income in the year to which they relate. Defined benefit scheme surpluses and deficits are measured at: ρ the fair value of plan assets at the reporting date; less ρ plan liabilities calculated using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; plus ρ ρ unrecognised past service costs; less the effect of minimum funding requirements agreed with scheme trustees. Re-measurements of the net defined obligation are recognised directly within equity. These include actuarial gains and losses, return on plan assets (interest exclusive), and any asset ceilings (interest exclusive). Service costs are recognised in the income statement, and include current and past service costs as well as gains and losses on curtailments. Net interest expense (income) is recognised in profit or loss, and is calculated by applying the discount rate used to measure the defined benefit obligation (asset) at the beginning of the annual period to the balance of the net defined benefit obligation (asset), considering the effects of contributions and benefit payments during the period. Gains or losses arising from changes to scheme benefits or scheme curtailment are recognised immediately in profit or loss. Settlements of defined benefit schemes are recognised in the period in which the settlement occurs. 33 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 2. Critical accounting estimates and judgements The Shoe Zone plc Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Judgements and accounting estimates and assumptions Property, plant and equipment Property, plant and equipment is depreciated over the useful lives of the assets. Useful lives are based on the management’s estimates of the period that the assets will generate revenue, which are reviewed annually for continued appropriateness. The carrying values are tested for impairment when there is an indication that the value of the assets might be impaired. When carrying out impairment tests these would be based upon future cash flow forecasts and these forecasts would be based upon management judgement. Future events could cause the assumptions to change, therefore this could have an adverse effect on the future results of the Shoe Zone plc Group. Defined benefit pension assumptions The costs, assets and liabilities of the defined benefit schemes operated by the Shoe Zone plc Group are determined using methods relying on actuarial estimates and assumptions. Details of the key assumptions are detailed in note 23. The Shoe Zone plc Group takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in the assumptions used may have a significant effect on the consolidated statement of comprehensive income and the statement of financial position. Dilapidation provisions Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. The main assumption is in relation to the expected costs of rectification of the wear and tear incurred. The Shoe Zone plc Group has a team managing the property portfolio and uses historical experience when making a provision. 34 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 3. Financial instruments – risk management The Board has overall responsibility for the determination of the Group’s risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. The Group reports in Pound Sterling. All funding requirements and financial risks are managed based on policies and procedures adopted by the Board of Directors. The Group does use forward currency contracts to mitigate foreign exchange risk. The Group does not issue or use financial instruments of a speculative nature. The Group is exposed to the following financial risks: ρ ρ ρ ρ credit risk; liquidity risk; foreign exchange risk; and interest rate risk. The Group is exposed to risks that arise from its use of financial instruments. The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: trade and other receivables; cash and cash equivalents; forward foreign exchange contracts; trade and other payables; and ρ ρ ρ ρ ρ bank overdrafts. Fair value hierarchy All financial instruments measured at fair value must be classified into one of the levels below: ρ ρ ρ Level 1: Quoted prices in active markets; Level 2: Level 1 quoted prices are not allowable, but fair value is based on observable market data; and Level 3: Inputs that are not based on observable market data. 35 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 3. Financial instruments – risk management (continued) A summary of the financial instruments held by category is provided below: Financial assets at amortised cost Trade receivables Other receivables Cash and cash equivalents Total receivables Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Total financial assets Financial liabilities Trade and other payables Total financial liabilities at amortised cost 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 333 195 15,046 15,574 321 330 651 313 178 14,221 14,712 239 314 553 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 22,816 22,816 20,851 20,851 To the extent financial instruments are not carried at fair value in the consolidated statement of financial position, book value approximates to fair value at 1 October 2016 and 3 October 2015. Trade and other receivables are measured at amortised cost. Book values and expected cash flows are reviewed by the Board and any impairment charged to the consolidated statement of comprehensive income in the relevant period. Cash and cash equivalents are held in Pound Sterling and placed on deposit in UK banks. Trade and other payables are measured at amortised cost. 36 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016 Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 3. Financial instruments – risk management (continued) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counter-party to a financial instrument fails to meet its contractual obligations. At 1 October 2016 the Group has trade receivables of £333,000 (3 October 2015: £313,000). Approximately 20% of the balance is with longstanding suppliers and will be recovered against orders placed for the upcoming season. The remainder is spread over a number of smaller suppliers with the largest balance below £110,000. The Directors are unaware of any factors affecting the recoverability of outstanding balances at 1 October 2016 and previously and consequently no provisions have been made for bad and doubtful debts. All cash balances and derivative financial instruments are held with reputable banks and the Board monitors its exposure to counterparty risk on an ongoing basis. Liquidity risk Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances to meet expected requirements for a period of at least 30 days. Trade payables are repayable within 3 months. The Group prepares and maintains detailed cash flow forecasts to monitor cash requirements and manage liquidity risk. The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: At 1 October 2016 Trade and other payables Total At 3 October 2015 Trade and other payables Total Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years £’000 £’000 £’000 £’000 £’000 22,816 22,816 Up to 3 months - - - - - - - - Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years £’000 £’000 £’000 £’000 £’000 20,851 20,851 - - - - - - - - 37 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 3. Financial instruments – risk management (continued) Foreign exchange risk The Group is predominantly exposed to foreign exchange risk on purchases from major suppliers based in the Far East. Purchases are made on a central basis and the risk is mitigated through using forward foreign currency exchange contracts. These contracts will be executed within twelve months from the year end. The fair value of forward foreign exchange contacts has been determined based on discounted market forward currency exchange rates at the balance sheet date. Foreign Currency: Sensitivity Analysis A sensitivity rate of 10% represents the directors’ assessment of a reasonably possible change, based on historic volatility. The analysis assumes that exchange rate fluctuations on currency derivatives that form part of an effective cash flow hedge relationship affect the fair value reserve in equity and the fair value of the hedging derivatives. For foreign exchange derivatives which have ceased to have a hedging relationship, these movements in exchange rates impact the income statement. Positive figures represent an increase in profit or equity. Sterling strengthens by 10% Sterling weakens by 10% Income Statement Equity 2016 £’000 660 (806) 2015 £’000 527 (644) 2016 £’000 1,539 (1,880) 2015 £’000 1,346 (1,645) Year end exchange rates applied in the above analysis are US Dollar 1.30 (2015: 1.52). Strengthening and weakening of Sterling may not produce symmetrical results depending on the proportion and nature of foreign exchange derivatives which cease to qualify for hedge accounting. Interest rate risk The Group is exposed to interest rate risk which is managed centrally. The Group reviews the exposure periodically and will manage its interest rate risk by reviewing appropriate facilities. 38 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 3. Financial instruments – risk management (continued) Capital management In order to maintain or adjust the capital structure, the Group may adjust the value of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group’s capital is made up of share capital, merger reserve, cash and retained earnings totalling £29,776,000 (3 October 2015: £36,284,000). The Group’s objectives when maintaining capital are: ρ ρ to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The capital structure of the Group consists of shareholders’ equity as set out in the consolidated statement of changes in equity. All working capital requirements are planned to be financed from existing cash resources whenever possible. 4. Revenue Revenue arises from: Sales of goods 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 159,834 166,819 39 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 5. Expenses by nature Inventories recognised as an expense Carriage charges on purchases Duty charges on purchases Employee benefit expenses Depreciation of property, plant and equipment Impairment of property, plant and equipment Operating lease expense: ρ Other ρ Land and buildings Loss on disposal of property, plant and equipment Branch running costs Transportation expenses Advertising expenses Financial instruments movement Gain/(Loss) on Foreign Exchange Other costs 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 54,756 1,726 4,762 36,206 3,153 - 631 21,722 309 17,337 1,251 1,015 239 460 5,881 149,448 57,986 2,099 4,733 36,285 3,713 459 682 23,493 51 17,866 1,287 1,029 502 (163) 6,515 156,537 40 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 6. Auditor’s remuneration The audit of the parent company The audit of the company’s subsidiaries 7. Employee benefit expenses Employee benefit expenses (including Directors) comprise: Wages and salaries Social security costs Other pension costs The average monthly number of employees during the period was as follows: Sales and distribution Directors Administration 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 5 53 58 5 53 58 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 33,545 1,729 932 36,206 33,670 1,740 875 36,285 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 No. 3,495 6 155 3,656 No. 3,701 6 154 3,861 41 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 7. Employee benefit expenses (continued) The average monthly number of full time equivalent employees during the period was 1,794 (2015: 1,884). 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 868 19 887 286 - 286 860 18 878 285 - 285 Directors’ remuneration, included in staff costs: Salaries and benefits Pension contributions Information regarding the highest paid Director is as follows: Salary and benefits Pension contribution 8. Segmental information Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker. The chief operating decision maker has been identified as the management team including the Chairman, Chief Executive Officer and Chief Operating Officer. The Board considers that each store is an operating segment but there is only one reporting segment as the stores qualify for aggregation, as defined under IFRS 8. Management reviews the performance of the Group by reference to total results against budget. The total profit measures are operating profit and profit for the year, both disclosed on the face of the consolidated income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial statements. 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 154,463 5,371 159,834 161,761 5,058 166,819 External revenue by location of customers: United Kingdom Republic of Ireland There are no customers with turnover in excess of 10% or more of total turnover. 42 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 8. Segmental information (continued) Non-current assets by location: United Kingdom 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 18,661 18,688 Non-current assets held in the Republic of Ireland are not disclosed on the grounds of materiality. 9. Finance income and expenses Finance income Interest receivable Total finance income Finance expense Other interest payable Net interest expense on defined benefit pension scheme Total finance expense 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 56 56 - (190) (190) 44 44 (1) (185) (186) 43 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 10. Income Tax Current tax expense Current tax on profits for the period Adjustment for under provision in prior periods Total current tax expense Deferred tax expense Origination and reversal of temporary differences (note 19) Tax charge on profit on ordinary activities 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 2,238 12 2,250 (449) 1,801 2,477 (83) 2,394 (355) 2,039 The reason for the difference between the actual tax charge for the period and the standard rate of corporation tax in the United Kingdom applied to profit for the period as follows: Profit for the period Income tax expense Profit before income taxes Expected tax charge based on corporation tax rate of 20% (3 October 2015: 20.5%) Expenses not deductible for tax purposes Effective change of rate Adjustments to tax charge in respect of previous period Total tax expense Factors that may affect future tax charges: 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 8,451 1,801 10,252 2,050 29 (359) 81 1,801 8,101 2,039 10,140 2,079 57 8 (105) 2,039 In addition to the changes in rates of corporation tax disclosed above, further changes to the UK Corporation tax rates were substantively enacted as part of the Finance Bill 2015-16 on 26 October 2015. These include a reduction to the main rate to 19% from 1 April 2017 and to 17% from 1 April 2020. Deferred tax has been calculated at 18% being the rate at which the timing differences are expected to reverse. 44 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 11. Dividends Dividends paid during the year at 15.8p (2015: 6.8p) per share 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 7,900 £’000 3,400 A final dividend of 6.8p (2015: 6.5p) per share is proposed for shareholders on the register on 24 February 2017 payable on 15 March 2017 following approval at the Annual General Meeting on 2 March 2017. A special dividend of 8.0p (2015: 6.0p) per share is proposed for shareholders on the register on 24 February 2017 payable on 15 March 2017 following approval at the Annual General Meeting on 2 March 2017. 45 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 12. Property, plant and equipment Freehold properties Short leasehold and leasehold improvements Motor vehicles Fixtures and fittings Total £’000 £’000 £’000 £’000 £’000 Cost At 4 October 2014 10,667 16,911 Additions Disposals At 3 October 2015 Additions Disposals At 1 October 2016 Depreciation At 4 October 2014 Charge for the period Impairment Disposals At 3 October 2015 Charge for the period Disposals At 1 October 2016 Net book value At 1 October 2016 At 3 October 2015 At 4 October 2014 - (514) 10,153 - - 10,153 1,006 57 290 (220) 1,133 56 - 1,189 8,964 9,020 9,661 577 (513) 16,975 913 (1,132) 16,756 11,582 1,522 84 (498) 12,690 1,284 (999) 12,975 3,781 4,285 5,329 5 - - 5 19 - 24 5 - - - 5 1 - 6 18 - - 30,027 1,377 (856) 30,548 2,504 (1,768) 31,284 57,610 1,954 (1,883) 57,681 3,436 (2,900) 58,217 23,784 36,377 2,134 85 (838) 25,165 1,813 (1,592) 25,386 5,898 5,383 6,243 3,713 459 (1,556) 38,993 3,154 (2,591) 39,556 18,661 18,688 21,233 46 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 13. Inventories Goods for resale Shop fitting materials and other consumables 14. Trade and other receivables Trade receivables Prepayments Other receivables 1 October 2016 3 October 2015 £’000 £’000 29,900 175 30,075 28,991 181 29,172 1 October 2016 3 October 2015 £’000 333 6,676 195 7,204 £’000 313 7,657 178 8,148 47 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 15. Derivative financial instruments At the balance sheet date, details of the forward foreign exchange contracts that the Group has committed to are as follows: Derivative financial assets Derivatives not designated as hedging instruments Derivatives designated as hedging instruments 1 October 2016 3 October 2015 £’000 £’000 321 330 651 239 314 553 The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets/liabilities in the consolidated statement of financial position. The notional principal amounts of outstanding forward foreign exchange contracts at 1 October 2016 were $22,000,000 (3 October 2015: $22,500,000). The fair value of the forward foreign exchange contracts are within the level 2 of the fair value hierarchy and have been valued on the basis of observable market data. The key input into the valuation are market rates of financial instruments at the balance sheet date. 16. Trade and other payables Current Trade payables Social security and other taxes Other payables Accruals Non-current Accruals 48 1 October 2016 3 October 2015 £’000 £’000 12,845 1,488 580 10,435 25,348 11,950 1,727 115 9,857 23,649 1 October 2016 3 October 2015 £’000 £’000 2,316 2,316 3,037 3,037 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016 Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 17. Provisions As at 3 October 2015 Additions Amounts utilised Amounts released As at 1 October 2016 The provisions are aged as follows: Current Non-current As at 1 October 2016 Customer Returns Dilapidations £’000 48 43 (48) - 43 £’000 1,117 605 (235) (533) 954 Customer Returns Dilapidations £’000 £’000 43 - 43 879 75 954 Total £’000 1,165 648 (283) (533) 997 Total £’000 922 75 997 For all products, the Group has incurred an obligation to exchange the item if it is faulty due to a lack of quality or give the client a refund if they are not satisfied. Revenue from the sale of the products is recognised once the product is sold, however, a provision for customer returns based on previous experience is recognised at the same time. Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. The main uncertainty relates to estimating the cost that will be incurred at the end of the lease. 18. Contingent liabilities The Shoe Zone plc Group and subsidiary undertakings have given a duty deferment guarantee in favour of HM Revenue and Customs amounting to £800,000 (3 October 2015: £800,000). 49 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 19. Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 18% (3 October 2015: 20%). The movement on the deferred tax account is as shown below: At beginning of the period Recognised in income statement: Tax expense (note 10) Recognised in other comprehensive income: Actuarial loss on defined benefit pension schemes Foreign exchange contract At end of the period 1 October 2016 3 October 2015 £’000 £’000 (124) 449 1,113 3 1,441 (516) 355 100 (63) (124) The deferred tax has arisen due to the following: 1 October 2016 3 October 2015 Accelerated capital allowances Ineligible buildings Short term timing differences Defined benefit pension scheme £’000 £’000 954 (1,803) (60) 2,350 1,441 1,204 (2,247) (111) 1,030 (124) The Group has an unrecognised deferred tax asset £1,050,000 1 October 2016 (3 October 2015: £1,005,000). There are estimated losses available to offset against future capital taxable profits amounting to approximately £5,250,000 (3 October 2015: £5,025,000). 50 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016 Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 20. Share capital Share capital issued and fully paid 50,000,000 ordinary shares of 1p each 1 October 2016 3 October 2015 £’000 £’000 500 500 500 500 Ordinary shares carry the right to one vote per share at general meetings of the company and the rights to share in any distribution of profits or returns of capital and to share in any residual assets available for distribution in the event of a winding up. 21. Leases Operating leases – lessee The Shoe Zone plc Group has entered into commercial leases on land and buildings. These leases have an average life of between five and ten years. There are no restrictions placed on the Shoe Zone plc Group by entering into these leases. The total future minimum lease payments under non-cancellable operating leases for land and buildings and other items of plant and machinery are as follows: Land and buildings Land and buildings Other Other 1 October 2016 3 October 2015 1 October 2016 3 October 2015 £’000 £’000 £’000 £’000 Not later than one year Later than one year and not later than five years Later than five years 20,040 42,359 7,071 69,470 21,292 47,173 10,492 78,957 471 821 - 526 827 - 1,292 1,353 22 Capital Commitments 1 October 2016 3 October 2015 £’000 £’000 Contracted for but not provided 416 422 51 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs Defined contribution scheme The Group operates a defined contribution pension scheme namely Shoe Zone Worksave Pension Plan contributions amounted to £932,000 (3 October 2015: £875,000). Defined benefit scheme The Group operates two other pension schemes in the UK: the Shoe Zone Pension Scheme and the Shoefayre Limited Pension and Life Assurance Scheme. The Shoe Zone Pension Scheme provided benefits on a defined benefit basis for service up to 30 September 2001. For service after that date, benefits are provided on a defined contribution basis. The Shoefayre Limited Pension and Life Assurance Scheme provided benefits on a defined benefit basis but was closed to future accrual on 30 June 2009. The scheme was acquired on the purchase of Shoefayre Limited on 19 September 2007. The assets of all schemes are held in separate trustee administered funds. The pension contributions to the Shoe Zone Pension Scheme defined contribution element was £2,000 (3 October 2015: £3,000). The schemes are exposed to a number of risks, including: ρ ρ ρ Investment risk: movement of discount rate used (high quality corporate bonds) against the return from plan assets Interest rate risk: decreases/increases in the discount rate used (high quality corporate bonds) will increase/decrease the defined benefit obligation Longevity risk: changes in the estimation of mortality rates of current and former employees. Amounts recognised in the balance sheet at 1 October 2016 Fair value of assets Present value of funded obligations Deficit Amounts recognised in other comprehensive income Return on plan assets Actuarial loss arising from changes in: Experience Loss Demographic assumptions Financial assumptions Total actuarial loss Deferred tax on employee benefit scheme Total amount recognised in other comprehensive income 52 1 October 2016 3 October 2015 £’000 79,704 (92,762) (13,058) £’000 72,636 (77,786) (5,150) 1 October 2016 3 October 2015 £’000 £’000 7,297 715 3,969 547 - - (20,003) (1,214) (15,487) 1,474 (6,716) (1,214) 100 (399) Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) The figures below are based on a full actuarial valuation performed in April 2016 and March 2016 for the Shoe Zone and Shoefayre schemes respectively which was carried out by a qualified independent actuary. This actuarial valuation has been updated to 1 October 2016 for the purpose of calculating the pension surplus and disclosures in the current period. Post retirement mortality Life expectancy Male currently aged 45 Female currently aged 45 Male currently aged 65 Female currently aged 65 Financial assumptions Deferred pension revaluation Pension increases Discount rate Consumer Price Index Retail Price Index 1 October 2016 3 October 2015 Years Years 90 92 88 90 90 92 88 90 1 October 2016 3 October 2015 % 2.35 3.20 2.40 2.35 3.35 % 2.30 3.30 3.85 2.30 3.30 The weighted average duration of the defined benefit obligation for the Shoe Zone scheme at 1 October 2016 is 16.5 years (3 October 2015 – 16.5 years). The weighted average duration of the defined benefit obligation for the Shoefayre scheme at 1 October 2016 is 18.5 years (3 October 2015 – 18.5 years). 53 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoe Zone Pension Scheme Assets The major categories of assets as a percentage of total assets are as follows: Asset Category Equities Property Gilts/bonds Cash Diversified Growth Funds Liability Driven Investment Target Return Funds 1 October 2016 3 October 2015 29% 9% 20% 1% 33% 8% - 100% 27% 10% 39% 1% - - 23% 100% The actual return on the Scheme’s assets net of expenses over the period to the review date was a gain of £6,872,000 (3 October 2015: £2,001,000). The assets do not include any investments in shares of the company. The expected return on assets is a weighted average of the assumed long-term returns available on high quality corporate bonds in line with the method used to value the liabilities. Equity and property returns are developed based on the selection of an appropriate risk premium above the risk free rate which is measured in accordance with the yield on the government bonds. Bond returns are selected by reference to the yields on the government and corporate debt, as appropriate to the scheme holdings of these instruments. The expected returns on the Target Return Funds are equal to the fund’s targets. Amounts recognised in the income statement over the period 1 October 2016 3 October 2015 £’000 £’000 (1,658) 1,609 (49) (1,698) 1,666 (32) Interest cost Expected return on assets 54 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoe Zone Pension Scheme (continued) Amounts recognised in the statement of financial position Fair value of assets Present value of funded obligations Deficit Amounts recognised in other comprehensive income Return on plan assets Actuarial loss arising from changes in: Experience losses Demographic assumptions Financial assumptions Total actuarial loss Deferred tax on employee benefit scheme Total amount recognised in other comprehensive income 1 October 2016 3 October 2015 £’000 £’000 47,556 (50,387) (2,831) 42,899 (44,168) (1,269) 1 October 2016 3 October 2015 3,044 440 (10,260) £’000 5,263 (6,776) 272 (1,241) - - (778) £’000 335 (778) 89 (354) 55 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoe Zone Pension Scheme (continued) Reconciliation of assets and defined benefit obligation The change in assets over the period was: Fair value of assets at the beginning of the period Expected return on assets Benefits paid Actuarial gain Fair value of assets at the end of the period The change in defined benefit obligation over the period was: Defined benefit obligation at the beginning of the period Interest cost Benefits paid Actuarial loss Defined benefit obligation at the end of the period 1 October 2016 3 October 2015 £’000 £’000 42,899 1,609 (2,215) 5,263 47,556 42,423 1,666 (1,525) 335 42,899 1 October 2016 3 October 2015 £’000 £’000 44,168 1,658 (2,215) 6,776 50,387 43,217 1,698 (1,525) 778 44,168 56 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoe Zone Pension Scheme (continued) Shoe Zone Retail Limited expects to make no contributions to the scheme during the following period. Sensitivity of the value placed on the liabilities: Adjustments to assumptions Approximate effect on liabilities Discount rate Plus 0.50% Minus 0.50% Inflation Plus 0.50% Minus 0.50% Life Expectancy Plus 1.0 years Minus 1.0 years -8% +9% +2% -2% +4% -4% Note that the above sensitivities are approximate and only show the likely effect of an assumption being adjusted whilst all other assumptions remain the same. 57 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoefayre Limited Pension and Life Assurance Scheme The company operates the Shoefayre Limited Pension and Life Assurance Scheme. The scheme provided benefits on a defined benefit basis but was closed to future accrual on 30 June 2009. The major categories of assets as a percentage of total assets are as follows: Asset Category Equities Property Gilts/bonds Cash Diversified Growth Funds Liability Driven Investment Target Return Funds 1 October 2016 3 October 2015 17% 11% 30% 1% 33% 8% - 100% 13% 12% 47% 1% - - 27% 100% The actual return on the Scheme’s assets net of expenses over the period to the review date was a gain of £3,164,000 (3 October 2015: £1,522,000). The assets do not include any investments in shares of the company. The expected return on assets is a weighted average of the assumed long-term returns available on high quality corporate bonds in line with the method used to value the liabilities. Equity and property returns are developed based on the selection of an appropriate risk premium above the risk free rate which is measured in accordance with the yield on the government bonds. Bond returns are selected by reference to the yields on the government and corporate debt, as appropriate to the scheme holdings of these instruments. The expected returns on the Target Return Funds are equal to the fund’s targets. Amounts recognised in the statement of financial position 1 October 2016 3 October 2015 £’000 £’000 32,148 (42,375) (10,227) 29,737 (33,618) (3,881) Fair value of assets Present value of funded obligations Net liability 58 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoefayre Limited Pension and Life Assurance Scheme (continued) Amounts recognised in other comprehensive income Return on plan assets Actuarial loss arising from changes in: Experience Demographic assumptions Financial assumptions Total actuarial loss Deferred tax on employee benefit scheme Total amount recognised in other comprehensive income Amounts recognised in the income statement over the period Interest cost Expected return on assets 1 October 2016 3 October 2015 925 107 (9,743) £’000 2,034 (8,711) 1,202 (5,475) - - (436) £’000 380 (436) 11 (45) 1 October 2016 3 October 2015 £’000 £’000 (1,271) 1,130 (141) (1,295) 1,142 (153) 59 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoefayre Limited Pension and Life Assurance Scheme (continued) Reconciliation of assets and defined benefit obligation The change in assets over the period was: Fair value of assets at the beginning of the period Expected return on assets Employer contributions Benefits paid Actuarial gain on assets Fair value of assets at the end of the period The change in defined benefit obligation over the period was: Defined benefit obligation at the beginning of the period Interest cost Benefits paid Actuarial loss on obligation Defined benefit obligation at the end of the period 1 October 2016 3 October 2015 £’000 £’000 29,737 1,130 472 (1,225) 2,034 32,148 28,883 1,142 300 (968) 380 29,737 1 October 2016 3 October 2015 £’000 £’000 33,618 1,271 (1,225) 8,711 42,375 32,855 1,295 (968) 436 33,618 Contributions of £595,000 are expected to be made during the year ended 30 September 2017 by Shoe Zone Retail Limited. 60 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 23. Pension costs (continued) Defined benefit scheme - Shoefayre Limited Pension and Life Assurance Scheme (continued) Sensitivity of the value placed on the liabilities: Adjustments to assumptions Approximate effect on liabilities Discount rate Plus 0.50% Minus 0.50% Inflation Plus 0.50% Minus 0.50% Life Expectancy Plus 1.0 years Minus 1.0 years -9% +10% +4% -4% +3% -3% Note that the above sensitivities are approximate and only show the likely effect of an assumption being adjusted whilst all other assumptions remain the same. 24. Cash and cash equivalents Cash and cash equivalents for the purpose of the statement of cash flow comprise: Cash at banks and in hand Cash and cash equivalents 1 October 2016 3 October 2015 £’000 £’000 15,046 15,046 14,221 14,221 61 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 25. Related party transactions Balances and transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. During the period, the Group entities entered into the following trading transactions with Group pension schemes: Rent paid to Zone Executive Pension Scheme Contributions to the: Shoe Zone Worksave Pension Plan Shoe Zone Pension Scheme Shoefayre Limited Pension and Life Assurance Scheme 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 163 930 2 472 163 872 3 300 1,567 1,338 During the period, the key management personnel remuneration included within staff costs are as follows: Short term employee benefits Post-employment benefit Employers national insurance Key management personnel are considered to be the Directors of Shoe Zone plc. 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 868 19 105 992 860 18 104 982 62 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Financial Statements for the 52 weeks ended 1 October 2016 (continued) 26. Earnings per share Earnings per share is calculated by dividing profit for the year by the weighted average number of shares outstanding during the year. 52 weeks ended 1 October 2016 52 weeks ended 3 October 2015 £’000 £’000 Numerator Profit for the year and earnings used in basic and diluted EPS 8,451 8,101 Denominator Weighted average number of shares used in basic and diluted EPS 50,000,000 50,000,000 1 October 2016 3 October 2015 27. Ultimate controlling party The company is controlled by the Smith family albeit there is not a single controlling party. 63 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationCompany Statement of Financial Position as at 1 October 2016 Note 1 October 2016 3 October 2015 £’000 £’000 Fixed assets Investments Current assets Debtors Creditors: amounts falling due within one year Net current liabilities Net assets Capital and reserves Called up share capital Merger reserve Profit and loss account Total shareholders’ funds 2 3 4 5 6 6 68,644 68,644 17 17 (979) (962) 67,682 500 586 66,596 67,682 68,644 68,644 14 14 (1,118) (1,104) 67,540 500 586 66,454 67,540 The financial statements were approved and authorised for issue by the Board of Directors: N J Davis Chief Executive Officer Date: 10 January 2017 Registered Number 08961190 64 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Company Statement of Changes in Equity for the 52 weeks ended 1 October 2016 Share capital Merger reserve Retained earnings Total £’000 £’000 £’000 £’000 At 4 October 2014 Profit for the period Total comprehensive income for the period Dividends paid during the year (note 6) Total contributions by and distributions to owners At 3 October 2015 Profit for the period Total comprehensive income for the period Dividends paid during the year (note 6) Total contributions by and distributions to owners 500 586 68,521 69,607 - - - - - - - - 1,333 1,333 1,333 1,333 (3,400) (3,400) (3,400) (3,400) 500 586 66,454 67,540 - - - - - - - - 8,042 8,042 8,042 8,042 (7,900) (7,900) (7,900) (7,900) At 1 October 2016 500 586 66,596 67,682 Share capital comprises nominal value of shares subscribed for. The merger reserve has arisen as a result of the application of merger accounting to the group reorganisation of 26 March 2014. Retained earnings are all other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. 65 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notes to the Company Financial Statements for the 52 weeks ended 1 October 2016 1. Accounting policies Basis of preparation The Company’s financial period is 1 October 2016. The financial statements are prepared on the going concern basis, under the historical cost convention and in accordance with the Companies Act 2006 and applicable accounting standards in the United Kingdom. The Company has taken advantage of the exemption contained in Section 408(4) of the Companies Act 2006 from presenting its own profit and loss accounts. The profit dealt with in the accounts of the Company was £8,042,000 (3 October 2015: loss of £1,333,000) The financial statements have been prepared in accordance with Financial Reporting Standard 100 ‘Application of Financial Reporting Requirements’ and Financial Reporting Standard 101 “Reduced Disclosure Framework”. The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. As permitted by FRS 101, the company has taken advantage of all the disclosure exemptions available under that standard. Accounting policies have been applied consistently throughout the period. Investments Investments held as fixed assets are stated at cost, less any provision for impairment. 66 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notes to the Company Financial Statements for the 52 weeks ended 1 October 2016 (continued) 2. Fixed Asset Investments Cost Impairment of investment in Castle Acres Development Limited Total 1 October 2016 3 October 2015 £’000 £’000 70,586 (1,942) 68,644 70,586 (1,942) 68,644 The subsidiaries of the company, all of which have been included in the consolidated financial statements, are as follows: Name of investment Place of Principal activity Ownership incorporation Castle Acres Development England & Wales Limited Non-trading company 100% owned by company Shoe Zone Retail Limited England & Wales Trading company 100% owned by company Zone Property Limited England & Wales Property holding company 100% owned by company Zone Group Limited England & Wales Non-trading company 100% owned by company Shoe Zone (Ireland) Limited England & Wales Non-trading company 100% owned by Shoe Zone Retail Limited Shoe Zone Pension Trustees England & Wales Limited Non-trading company 100% owned by Castle Acres Development Limited Stead & Simpson Limited England & Wales Non-trading company 100% owned by Zone Group Limited Zone Footwear Limited England & Wales Non-trading company 100% owned by Zone Group Limited Zone Retail England & Wales Non-trading company 100% owned by Zone Group Limited Walkright Limited England & Wales Non-trading company 100% owned by Zone Group Limited 67 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notes to the Company Financial Statements for the 52 weeks ended 1 October 2016 (continued) 3. Debtors Prepayments 1 October 2016 3 October 2015 £’000 17 £’000 14 4. Creditors: amounts falling due within one year Amounts owing to group undertakings Accruals 5. Share capital Allotted, called up and fully paid: 50,000,000 ordinary shares of 1p each 6. Reserves At 3 October 2015 Profit for the financial period Dividends paid during the year At 1 October 2016 1 October 2016 3 October 2015 £’000 973 6 979 £’000 1,104 14 1,118 1 October 2016 3 October 2015 £’000 £’000 500 500 500 500 Merger reserve Profit and loss account £’000 £’000 586 - - 586 66,454 8,042 (7,900) 66,596 7. Related party transactions Transactions between the Company and its 100% owned subsidiaries, which are related parties of the Company, are not disclosed in this note due to the advantage being taken of the exemption provided by FRS 101 ‘Reduced Disclosure Framework’. There have been no other related party transactions during the year. 68 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Directors and Advisers Directors I F Filby (resigned 21 Jun 2016) A E P Smith N J Davis J C P Smith J W Sharman C J Caminada M J Collins (appointed 21 Jun 2016) Secretary N J Davis (resigned 21 Jun 2016) L S Hennell (appointed 21 Jun 2016) Registered office Haramead Business Centre Humberstone Road Leicester LE1 2LH Auditor BDO LLP Regent House Clinton Avenue Nottingham NG5 1AZ Bankers HSBC Bank plc 2-6 Gallowtree Gate Leicester LE1 1DA Registrar Capita Asset Services The Registry 34 Beckenham Road Kent BR3 4TU Solicitors Dickson Minto W.S. Broadgate Tower 20 Primrose Street London EC2A 2EW Corporate broker Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT 69 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Shoe Zone plc (the ‘Company’) will be held at its registered office at Haramead Business Centre, Humberstone Road, Leicester, Leicestershire LE1 2LH on Thursday, 2 March 2017 at 11am to consider and, if thought fit, pass the reso- lutions set out below. Resolutions 1 to 13 will be proposed as ordinary resolutions and Resolutions 14 and 15 will be proposed as special resolutions. 1. To receive and adopt the Company’s annual accounts for the financial period ended 1 October 2016 and the associated reports of the Directors of the Company and the auditors of the Company. 2. To declare a final dividend of 6.8p per ordinary share for the financial period ended 1 October 2016. 3. To declare a special dividend of 8.0p per ordinary share. 4. To re-elect Anthony Smith as a Director. 5. To re-elect Charles Smith as a Director. 6. To re-elect Nick Davis as a Director. c. incur political expenditure, not exceeding £50,000.00 in total, such authority to expire on the earlier of 31 March 2018 and the conclusion of the annual general meeting of the Company to be held in 2018. For the purposes of this resolution the terms ‘political donation’, ‘political parties’, ‘independent election candidates’, ‘political organisation’ and ‘political expenditure’ have the meanings given by sections 363 to 365 of the Act. 13. That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Directors of the Company be and are hereby generally and unconditionally authorised pursuant to and in accordance with section 551 of the Companies Act 2006 (the ‘Act’) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company: a. up to an aggregate nominal amount of £166,666.00; and 7. To re-elect Charlie Caminada as a Director. b. up to an aggregate nominal amount of 8. To re-elect Jeremy Sharman as a Director. 9. To elect Malcolm Collins as a Director. 10. To re-appoint BDO LLP as auditors of the Company to hold office from the conclusion of the annual general meeting until the conclusion of the annual general meeting of the Company to be held in 2018. 11. To authorise the Directors of the Company to determine the remuneration of BDO LLP as auditors of the Company. 12. That, in accordance with section 366 of the Companies Act 2006 (the ‘Act’), the Company and its subsidiaries be and are hereby authorised, in aggregate, to: a. make political donations to political parties and/or independent election candidates, not exceeding £50,000.00 in total; b. make political donations to political organisations other than political parties, not exceeding £50,000.00 in total; and £333,332.00 (such amount to be reduced by any shares allotted, or rights to subscribe for or to convert any security into shares granted, under paragraph (a) of this resolution) in connection with an offer by way of a rights issue: i. to holders of ordinary shares of £0.01 each in the capital of the Company in proportion (as nearly as may be practicable) to their existing holdings; and ii. to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary or permitted by the rights of those securities, and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with treasury shares, fractional entitlements or securities represented by depositary receipts, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or the requirements of any regulatory body or stock exchange or any other matter, 70 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notice of Annual General Meeting (continued) provided that this authority shall expire on the earlier of 31 March 2018 and the conclusion of the annual general meeting of the Company to be held in 2018, save that the Company may before such expiry make an offer or enter into an agreement which would or might require shares to be allotted, or rights to subscribe for or to convert securities into shares to be granted, after such expiry and the Directors may allot shares or grant such rights in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. 14. That, subject to the passing of resolution 13 proposed at the annual general meeting of the Company convened for 2 March 2017 (‘Resolution 13’) and in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Directors of the Company be and are hereby generally empowered pursuant to sections 570 and 573 of the Companies Act 2006 (the ‘Act’) to allot equity securities (within the meaning of section 560(1) of the Act) (including the grant of rights to subscribe for, or to convert any securities into, ordinary shares of £0.01 each in the capital of the Company (‘Ordinary Shares’)) for cash pursuant to the authorities conferred by Resolution 13 and/or by way of a sale of treasury shares within the meaning of section 560(3) of the Act, as if section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be limited to: a. the allotment of equity securities and the sale of treasury shares for cash in connection with an offer of, or invitation to apply for, equity securities (but in the case of the authority granted under paragraph (b) of Resolution 13, by way of a rights issue only): i. to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their existing holdings; and ii. to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary or permitted by the rights of those securities, and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with any treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or the requirements of any regulatory body or stock exchange or any other matter (including any such problems arising by virtue of equity securities being represented by depositary receipts); and b. the allotment of equity securities and the sale of treasury shares (other than under paragraph (a) of this resolution) up to an aggregate nominal amount of £25,000.00, and shall expire on the earlier of 31 March 2018 and the conclusion of the annual general meeting of the Company to be held in 2018, save that the Company may before such expiry make an offer or enter into an agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. 15. That, subject to the passing of resolution 13 proposed at the annual general meeting of the Company convened for 2 March 2017 (‘Resolution 13’) and in addition to any authority granted pursuant to resolution 14 proposed at the annual general meeting of the Company convened for 2 March 2017, the Directors of the Company be and are hereby generally empowered pursuant to sections 570 and 573 of the Companies Act 2006 (the ‘Act’) to allot equity securities (within the meaning of section 560(1) of the Act) (including the grant of rights to subscribe for, or to convert any securities into, ordinary shares of £0.01 each in the capital of the Company (‘Ordinary Shares’)) for cash pursuant to the authorities conferred by Resolution 13 and/or by way of a sale of treasury shares within the meaning of section 560(3) of the Act, as if section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be: a. limited to the allotment of equity securities and the sale of treasury shares for cash up to an aggregate nominal amount of £25,000.00; and 71 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder Information Notice of Annual General Meeting (continued) b. used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Directors of the Company determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre- Emption Rights most recently published by the Pre-Emption Group prior to the passing of this resolution, and shall expire on the earlier of 31 March 2018 and the conclusion of the annual general meeting of the Company to be held in 2018, save that the Company may before such expiry make an offer or enter into an agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursu- ance of such an offer or agreement as if the power conferred hereby had not expired. By order of the Board L S Hennell Company Secretary Date: 10 January 2017 Registered Office Haramead Business Centre Humberstone Road Leicester Leicestershire LE1 2LH 72 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Notice of Annual General Meeting (continued) Notes 1. Attending the Annual General Meeting in person If you wish to attend the Annual General Meeting in person, you should arrive at the venue for the Annual General Meeting in good time to allow your attendance to be registered. It is advisable to have some form of identification with you as you may be asked to provide evidence of your identity to the Company’s registrar, Capita Asset Services Limited (the ‘Registrar’), prior to being admitted to the Annual General Meeting. 2. Appointment of proxies Members are entitled to appoint one or more proxies to exercise all or any of their rights to attend, speak and vote at the Annual General Meeting. A proxy need not be a member of the Company but must attend the Annual General Meeting to represent a member. To be validly appointed, a proxy must be appointed using the procedures set out in these notes and in the notes to the accompanying Form of Proxy. If members wish their proxy to speak on their behalf at the meeting, members will need to appoint their own choice of proxy (not the Chairman of the Annual General Meeting) and give their instructions directly to them. Members can only appoint more than one proxy where each proxy is appointed to exercise rights attached to different shares. Members cannot appoint more than one proxy to exercise the rights attached to the same share(s). If a member wishes to appoint more than one proxy, they should contact the Registrar at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU or by telephone on 0871 664 0300. Calls cost 12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 9.00 a.m. to 5.30 p.m. (London time) Monday to Friday excluding public holidays in England and Wales. A member may instruct their proxy to abstain from voting on any resolution to be considered at the Annual General Meeting by marking the ‘Vote Withheld’ option when appointing their proxy. It should be noted that a vote withheld is not a vote in law and will not be counted in the calculation of the proportion of votes ‘For’ or ‘Against’ the resolution. The appointment of a proxy will not prevent a member from attending the Annual General Meeting and voting in person if they wish. 3. Appointment of a proxy using a Form of Proxy A Form of Proxy for use in connection with the Annual General Meeting is enclosed. To be valid, a Form of Proxy or other instrument appointing a proxy, together with any power of attorney or other authority under which it is signed or a certified copy thereof, must be received by post or (during normal business hours only) by hand by the Registrar at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 48 hours before the time of the Annual General Meeting or any adjournment of that meeting. If you do not have a Form of Proxy and believe that you should have one, or you require additional Forms of Proxy, please contact the Registrar. 4. Appointment of a proxy through CREST CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual and by logging on to the following website: www. euroclear.com/CREST. CREST personal members or other CREST sponsored members, and those CREST members who have appointed (a) voting service provider(s), should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy, or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Registrar (ID RA10) no later than 48 hours before the time of the Annual General Meeting or any adjournment of that meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 73 Shoe Zone plc Annual Report and Accounts 2016GovernanceStrategic ReportFinancialsShareholder InformationNotice of Annual General Meeting (continued) Notes (continued) 6. Corporate representatives Any corporation which is a member can appoint one or more corporate representatives. Members can only appoint more than one corporate representative where each corporate representative is appointed to exercise rights attached to different shares. Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s). 7. Entitlement to attend and vote To be entitled to attend and vote at the Annual General Meeting (and for the purpose of determining the votes they may cast), members must be registered in the Company’s register of members at 6.00 p.m. on 28 February 2017 (or, if the Annual General Meeting is adjourned, at 6.00 p.m. on the day two days (excluding non-working days) prior to the adjourned meeting). Changes to the register of members after the relevant deadline will be disregarded in determining the rights of any person to attend and vote at the Annual General Meeting. 8. Voting rights As at 10 January 2017 the Company’s issued share capital consisted of 50,000,000 ordinary shares of £0.01 each carrying one vote each. No shares are held by the Company in treasury. Therefore, the total voting rights in the Company as at 10 January 2017 were 50,000,000 votes. 4. Appointment of a proxy through CREST (continued) CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed (a) voting service provider(s), to procure that their CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001 (as amended). 5. Appointment of a proxy by joint holders In the case of joint holders, where more than one of the joint holders purports to appoint one or more proxies, only the purported appointment submitted by the most senior holder will be accepted. Seniority shall be determined by the order in which the names of the joint holders stand in the Company’s register of members in respect of the joint holding. 74 Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report and Accounts 2016Shoe Zone plc Annual Report & Accounts 2016 www.shoezone.com email: investorrelations@shoezone.com 

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