Annual Report & Financial Statements for the 52 weeks ended 1 October 2022 2022 Contents Strategic Report Directors and Advisers Chief Executive’s Report Financial Review Key Performance Indicators Principal Risks and Uncertainties 2 3 8 10 11 Governance 15 Corporate Governance Statement Board of Directors 23 24 Remuneration Report Directors’ Report 28 Independent Auditor’s Report to the members of Shoe Zone plc 37 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 Notice of Annual General Meeting 44 45 46 47 48 49 92 93 94 98 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 advisor authorised under the Finanical 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. Strategic Report 1 Directors and Advisers Directors A E P Smith J C P Smith T M Boot M J Collins V J Norrish Secretary C A Bowen Registered office Haramead Business Centre Humberstone Road Leicester LE1 2LH Auditor Cooper Parry Group Limited East Midlands Office Sky View, Argosy Road East Midlands Airport Derby DE74 2SA Bankers NatWest 1 Granby Street Leicester LE1 9GT Registrar Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL Solicitors Dickson Minto 16 Charlotte Square Edinburgh EH2 4DF Corporate broker Zeus Capital Ltd 125 Broad Street 12th Floor London EC2N 1AR Strategic Report 2 Chief Executive’s Report Shoe Zone had a very positive year due to trading for the full 52 weeks, strong trading over our key back to school period and due to the incredible hard work from our teams. Revenues for the year were £156.2m (2021: £119.1m). Within this, stores were £129.8m (2021: £88.6m), due to continuous trading, (2021: 36 weeks). Digital revenues were £26.4m (2021: £30.5m), a reduction of 13.47% which was in line with management expectations post pandemic. Profit before tax was £13.6m (2021: £9.5m) and £11.2m on an adjusted basis. Earnings per share was 21.74p (2021: 14.03p). Our net cash at the end of the year was £24.4m (2021: £14.6m) In the period we paid off the final £4.4m of the CLBILS COVID loan, and are debt free. Our business strategy of Digital, Big Box and Hybrid stores has been refreshed and we have accelerated change across all three formats. Digital Digital continues to be a key area and has traded strongly over the last 12 months. Revenue was 13.6% down on 2021 but is in line with management expectations post pandemic. We continue to invest in our Digital infrastructure and we have further automated the distribution centre by the addition of two automated bagging machines which significantly improves throughput. We have redesigned our check out page, introduced two buy now pay later providers (Klarna and Paypal), and have added new dropship partners Digital revenue was £26.4m, 16.9% of total revenues (2021: £30.6m, 25.7%, 2020: £19.3m) growth of 37% on a 2-year basis. Trading contribution was £7.0m (2021: £8.5m). The gross margin achieved was 58.1% (2021: 57.8%). The email database grew to 1.21m (2021:1.06m) of engaged members with the conversion rate growing to 5.5% (2021: 4.8%). Revenue reduced year on year in line with management expectation. Email revenue £18.8m (2021: £23.4m), paid revenue £3.6m (2021: £3.9m), affiliates £2.3m (2021: £2.4m), eBay £1.2m (2021: £1.8m) and Amazon increased to £9.9m (2021: £8.8m). The returns rate for the year was 11.3% (2021: 8.6%, 2020: 11.6%) and was more consistent with pre pandemic levels. Big Box & Hybrid Big Box numbers are now at 45. Revenue was £24.3m (2021: £17.8m) with a contribution of £3.2m (2021: £0.6m). We have 44 (2021: 16) Hybrid stores with a revenue of £19.1m (2021: £4.1m) and a contribution of £3.4m (2021: £0.3m). Both of these formats have performed extremely well and are key to the property portfolio transformation over the next 3 years, as we continue to refit and relocate existing Shoe Zone stores. Strategic Report 3 Chief Executive’s Report CONTINUED Product Our Big Box stores offer 650 styles per season (350 branded), Hybrid stores offer 475 styles per season (175 branded) and Original stores offer 300 core styles per season. As we refit existing stores to our new formats, the branded mix will continue to form a higher proportion of our overall sales. Our Digital shoehub platform offers the full store ranges plus approximately 2,500 online exclusive styles per season which will grow to at least 4,000 over the next 12 months. Property We ended the period trading from 360 stores, having closed 63 stores, opened 13 new stores and converted a further 11 existing stores to our new formats. Our average lease length is 1.8 years, giving us the opportunity to respond to changes in any retail location at short notice. Property supply continues to outstrip demand and we will take advantage of this and significantly improve our property portfolio over the medium term. Total capital expenditure was £5.2m (2021: £1.4m), of which £3.1m was for our refit and relocation programme. We achieved rent reductions on 48 store renewals of £0.6m (2021: £1.9m) on an annualised basis, an average reduction of 30.0% (2021: 52.9%). Dividend The previous CLBILS loan balance of £4.4m which was paid off in January 2022 enabled us to restart dividends. An interim of 2.5 pence per share was paid in August 2022 and an interim of 3.0 pence per share paid in December 2022. It is proposed that a final dividend of 3.3 pence per share will be paid in March 2023 on the basis of a 40% pay-out ratio. The Board will also propose an additional special dividend of 8.2 pence per share, bringing the total payment to 17.0 pence per share. Outlook We continue to accelerate our store refit and relocation programme and to drive our digital lead strategy on the back of these solid set of results. The hard work completed to reduce costs, streamline operations and accelerate investment, positions us well for the year ahead. Strategic Report 4 Chief Executive’s Report CONTINUED Capital expenditure We will spend a minimum of 3% of sales per annum to cover 50 store projects (35 new relocations and 15 refits) and Head Office infrastructure changes, IT projects and vehicles. Property We continue to transform our property portfolio with relocations/new stores being partially funded by landlords through rent free periods of typically 12 months. We will see a number of existing stores refitted to our new formats and many stores relocated to prime locations within key towns at lower rents. We ended the year with 45 Big Box, 44 Hybrid and 271 Original stores. This year we expect to relocate or open a further 35 stores and continue to close a number of older stores, and we will refit a minimum of 15 stores to our new formats. Digital We will continue to invest in our Digital Shoehub platform and in the next 12 months we will implement a new returns portal, introduce Google pay, Apple pay and Clearpay. Product We expect markdown levels and product margin levels to be maintained. Supplier payments remain up to date as they did at the year-end. Our buying and shipping teams are doing an exceptional job of managing the direct from factory supply chain, which is still very volatile, and we are confident we are performing better than the market average. Conclusion A lot of work undertaken in the last 2 years underpins our strategy as we look forward with cautious optimism going into the New Year a stronger and more resilient business, especially having reached our goal of becoming debt free 2 years earlier than expected. The pipeline of property projects gives us confidence the group’s performance will be in line with market expectations as we look to accelerate our refit and relocation programme, which is showing strong results. People form a key part of our business success, even more so as we look forward to the next generation of our strategy. We will continue to invest in our team by increasing training and career development plans, offering more qualification sponsorship. I would like to thank all of our Shoe Zone team for their amazing support and commitment over the last 12 months. Strategic Report 5 Chief Executive’s Report CONTINUED Director’s statement of compliance with the duty to promote the success of the group (Section 172(1) statement) The Directors have acted in a way that they consider, in good faith, promotes the success of the Group for the benefit of its members as a whole, and in doing so have given regard to (amongst other matters): External relationships The vast majority of the Group’s products are manufactured overseas in China and to a lesser extent in India and Europe. As a result, the Group is subject to the risks associated with international trade, particularly those 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 standards and the burden of complying with a variety of foreign laws and changing foreign government policies. The Group’s policy for the payment of suppliers is to agree payment terms in advance and to abide by such terms. The Group continually develops strategies to further improve its strong relationship with its suppliers. Our people Our long-term success depends on looking after the best interests of our employees, customers, shareholders and suppliers. All employees are able to contribute to the ongoing success of the business through regular contact between management and employees. We promote equal opportunities and do not tolerate discrimination of any kind. We operate a non-contractual profit share scheme that rewards employees based on the overall company profit performance. Details on the number of people employed can be found in note 7 of the financial statements. The Board meets regularly and communicates with our people on a regular basis to ensure they all understand our strategic objectives both short and long-term. Charity We donated over £350,000 to charitable causes. These donations are mainly targeted at children in poverty/difficult circumstances locally, nationally and internationally and delivered via The Shoe Zone Trust and we commit to contributing at least 2% of profits into the trust each year. Strategic Report 6 Chief Executive’s Report CONTINUED Environment We recognise the impact of our activities on the environment. We continually review our consumption of single use plastics and have eliminated them in all own label products. We recycle all cardboard and plastic waste from our stores and Head Office. We use sea transportation to reduce emissions, we use 100% renewable sources, our distribution centre is powered by solar panels, gas boilers are being replaced by heat pumps in a number of stores, we are replacing existing lighting with more efficient LED lighting and we have taken delivery of our first all electric car. Political donations During its last financial period the Group made no political donations and incurred no political expenditure. The Group does not intend to make any such donations or incur any such expenditure this year. Strategic Report 7 Financial Review In the 52 weeks to 1 October 2022, total revenues were £156.2m (2021: £119.1m) having traded for the full 52 weeks (FY 2021: 36 weeks). We ended the year with 360 stores (2021: 410) having closed 63 and opened 13. Profit before Tax was £13.6m (2021: £9.5m), adjusted by profit on sale of freeholds (£1.4m) and foreign exchange gains on revaluation (£1.0m), therefore an adjusted Profit before Tax of £11.2m. The year on year increase is primarily due to the 52 weeks of continuous trade compared to 36 weeks in the FY 2021 and strong second half trading which included our key back to school period. We continue to actively reduce our cost base in all areas of the business and have reduced our rent bill through proactive discussions with landlords with further savings on renewals. Digital revenues stood at £26.4m (2021: £30.6m) a reduction of 13.6%. The reduction reflects a return to a normalised level of revenue post pandemic and is in line with management expectations, but is significantly ahead of pre-pandemic levels. Profit contribution from Digital was £7.0m (2021: £8.5m) in the year. Product margins were broadly in line with last year at 61.2% (2021: 61.5%). This is due to contrasting impacts of increasing container prices and a higher mix of lower margin branded product, and improved stock management due to less supply chain volatility. Statutory gross profit increased to £36.4m (2021: £32.5m) due to the normalised trading period post pandemic. Cost of sales increased by £31.1m due to higher stock purchases £22.8m, COVID related retail grants not received £6.9m, branch wages increase post furlough £8.0m, offset by a reduction in rents £1.9m and a reduction in Right of Use Assets depreciation £2.3m. Admin expenses reduced by £0.3m to £16.6m (2021: £16.9m) due to the profit on sale of 14 freehold properties £1.4m, a forex gain movement of £1.0m, offset by an increase in the contribution to the Shoe Zone Trust £0.5m, higher repairs and dilapidation cost £0.6m, higher salaries post furlough £0.5m and other asset write offs and impairment costs £0.5m. Distribution costs increased by £0.6m to £5.1m (2021: £4.5m), due to higher warehouse and distribution wages post furlough £0.4m and Distribution fuel costs £0.2m. The corporation tax charge through the P&L is £2.7m (2021: tax charge of £2.4m). Earnings per share are 21.74p (2021: 14.03p). Stock levels increased by £7.1m to £32.2m (2021: £25.1m), which is due to the earlier timing of deliveries of Winter 2022 product and an increase in the proportion of higher value branded product. Last year end c£4.0m of stock was delayed due to supply chain disruption and in this financial year a portion of the AW 2022 product was delivered earlier to ensure supply. Strategic Report 8 Financial Review CONTINUED Capital expenditure increased to £5.2m (2021: £1.4m) as we restarted our programme of store relocations and refits to expand our Hybrid formats. We also invested £1.0m in our central distribution centre to further improve our Digital efficiency. This total is the gross value expended and is partially offset by £1.0m of rent free cash received via landlords when we relocate stores. At the year-end the net cash was £24.4m (2021: £14.6m). During the year we paid off the remaining £4.4m CLBILS loan to take us once again to a debt free position. The increase in cash is due to the higher level of profitability from trading activities and the additional £3.6m from the sale of 14 freehold properties, offset by the additional capital expenditure. The Group’s current bank facilities also include an on demand overdraft facility of £3.0m, which has not been used during the year. We have £7.0m cash on deposit (£5.0m 3 months, £2.0m 12 months). The pension liability in the schemes reduced by £7.7m to a surplus of £1.8m (2021: deficit £5.9m) We show a zero position on the statement of financial position to the effect of an asset ceiling. The reduction is due to an increase in bond yields which reduces the value placed on the scheme’s liabilities and positive assumption moves in mortality rates. This is partially offset by lower than expected investment returns and a rise in future inflation expectations. An interim dividend of 2.5 pence per share (paid 17 August 2022) and a second interim of 3.0 pence per share (paid on 21 December 2022) was approved by the board. It is proposed that a final dividend of 3.3 pence per share will be paid in March 2023 based on a 40% pay-out ratio. The Board is also to propose an additional special dividend of 8.2 pence per share giving a total dividend of 17.0 pence per share. The Company started a share buy-back programme in August 2022 and as at the year end had purchased 955,813 shares (of which 500,000 had been cancelled with the balance held in treasury) at an average price of £1.79 equating to a spend of £1.7m. The buy-back programme will continue for the foreseeable future. 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 in note 1 of the financial statements. Strategic Report 9 Key Performance Indicators The Group uses the following performance measures to monitor progress against strategic objectives. ONLINE PARTICIPATION % 16.9% 2021: 25.7% Online sales as a percentage of total sales. Online sales exclude orders placed in store. The online participation reduced to 16.9% (2021: 25.7%). This performance reflects the normalised level of trading post pandemic and is in line with management expectations. PRODUCT GROSS MARGIN % 61.2% 2021: 61.3% Product Gross Profit expressed as a percentage of revenue. Product Gross Margins were 61.2% (2021: 61.3%). Broadly in line year on year despite supply chain challenges and an increase in container prices. CASH BALANCE £24.4m 2021: £14.6m Cash held by the Group at the period end. We finished the year with a net cash balance of £24.4m (2021: £14.6m), with no debt. EARNINGS PER SHARE 21.74p 2021: 14.03p The value of earnings per share. Earnings per Share increased to 21.74p (2021: 14.03p). Strategic Report 10 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 footwear 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, 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 best sellers on a weekly basis and evaluates the performance of new lines. Strategic Report 11 Principal Risks and Uncertainties CONTINUED Economic factors We continue to see uncertain economic conditions in the UK and globally, as well as economic factors such as the impact of the war in Ukraine, significant increases in energy costs, high levels of inflation, increases in the national minimum wage, pressure on currency exchange rates, increase in interest rates, all of which 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. 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 and Europe. 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 standards and the burden of complying with a variety of foreign laws and changing foreign government policies. The Board is always seeking out new sources of supply with a clear strategy of diversification. Members of the Management Team have historically visited 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. We are currently unable to travel to our key sourcing markets due to COVID restrictions but will restart as soon as we are able. Strategic Report 12 Principal Risks and Uncertainties CONTINUED 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 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. Loss of key operating site 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. The business has developed and maintains a business continuity plan for the unlikely scenario of long term disruption to the Leicester premises. The business retains appropriate insurance to mitigate the risk of such a loss. Data security and IT reliability 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 Strategic Report 13 Principal Risks and Uncertainties CONTINUED 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 business’s dependency on any third parties. Reputable third party antivirus, anti-spam and web filtering software are in use and its appropriateness regularly reviewed. Reliance on key personnel 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. Product Shoe Zone continues to review the potential risks and opportunities that the post Brexit environment presents. Within the Shoe Zone product range, less than 2.5% of all stock is purchased from within the EU, this limits any potential risks. The import of finished product from the Far East represents the main areas of risk, with less disruption at ports as COVID lockdowns in China have reduced. The weakening of Sterling on the currency markets, particularly against the US Dollar is largely mitigated as container prices start to reduce. We are fully hedged for the spring/summer season 2023. We continue to monitor all risk factors. Going concern Please see page 35 in Director’s report regarding going concern. The strategic report was approved by the Board. On behalf of the Board Anthony Smith Chief Executive Date: 10 January 2023 Strategic Report 14 Corporate Governance Statement Chairman’s Statement It is with pleasure that I take the opportunity to outline the approach taken to corporate governance within Shoe Zone plc. The Board is committed to maintaining high standards of corporate governance and, with effect from 1 September 2018, the Board has adopted the Quoted Companies Alliance’s (QCA) Corporate Governance Code for small and mid-size quoted companies (the “Code”). The Code was revised in April 2018 to meet the new requirements of AIM Rule 26 and sets out ten broad principles of corporate governance. The code states what are considered to be appropriate corporate governance arrangements for companies. It provides an explanation about how they are meeting the principles through certain prescribed disclosures. The Chairman leads the Board and is responsible for its overall effectiveness in directing the Company. He manages the Board agenda and ensures that all Directors receive accurate, timely and clear information and effectively contribute their various talents and experience in the development and implementation of the Company’s strategy. He ensures that the nature and extent of the significant risks the Company is willing to embrace in the implementation of its strategy are challenged and determined by the Board. The Chairman is responsible for ensuring that the Board implements, maintains and communicates effective corporate governance processes and for promoting a culture of openness and debate designed to foster a positive governance culture throughout the Company. The Board has considered how each principle is applied and provides below an explanation of the approach taken in relation to each and how they support the Company’s medium to long- term success. The Board considers that it does not depart from any of the principles of the QCA Code and there have been no corporate governance matters in the previous year. Charles Smith Chairman Date: 10 January 2023 Governance 15 Corporate Governance Statement CONTINUED THE TEN PRINCIPLES OF THE QCA CODE CATEGORY: DELIVER GROWTH 1 CATEGORY: DELIVER GROWTH 2 PRINCIPLE: ESTABLISH A STRATEGY AND BUSINESS MODEL WHICH PROMOTES LONG- TERM VALUE FOR SHAREHOLDERS. PRINCIPLE: SEEK TO UNDERSTAND AND MEET SHAREHOLDER NEEDS AND EXPECTATIONS. • Shoe Zone is a footwear retailer. Its strategy is: • Digital growth • Town Centre renewal • Big Box expansion • This business model has been developed over many years and has proved successful in both profit performance and cash generation. • The Chief Executive and the Finance Director are primarily responsible for maintaining dialogue with shareholders, supported by the Company’s broker. • The Chief Executive and Finance Director hold both one-to-one and group meetings with shareholders and the investing community following the announcement of the annual and interim results. The Chairman also attends a number of these group meetings. • Following these meetings, the Group’s brokers provide independent and anonymised feedback to the Board on shareholders’ views. Governance Governance 16 16 Corporate Governance Statement CONTINUED CATEGORY: DELIVER GROWTH 3 CATEGORY: DELIVER GROWTH 4 PRINCIPLE: TAKE INTO ACCOUNT WIDER STAKEHOLDER AND SOCIAL RESPONSIBILITIES AND THEIR IMPLICATIONS FOR LONG TERM SUCCESS. PRINCIPLE: EMBED EFFECTIVE RISK MANAGEMENT, CONSIDERING BOTH OPPORTUNITIES AND THREATS, THROUGHOUT THE ORGANISATION. • The key risks and the approach taken to mitigate these is detailed in the Annual Report and Accounts. The key risks identified are listed in the Annual Report elsewhere. • Shoe Zone takes its wider stakeholder population into account within its decision making processes. • Examples of this are: • The Shoe Zone supplier manual outlines minimum working practices that we expect from all our suppliers. • The buying team, and in some instances the Chairman and Chief Executive, visit every factory that supplies us with manufactured product (COVID allowed). • We hold employee forums for the Distribution Centre • We are working with suppliers to eliminate plastic materials from the supply chain as far as possible. • We collect all plastic and cardboard from our stores. Where possible, we reuse or recycle cardboard and recycle plastic through a third party. • Shoe Zone is committed to eliminating all forms of slavery and the company website outlines the actions we are taking to ensure that we are supportive of the wider movement. Governance Governance 17 17 Corporate Governance Statement CONTINUED 5 CATEGORY: MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK 6 CATEGORY: MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK PRINCIPLE: MAINTAIN THE BOARD AS A WELL- FUNCTIONING, BALANCED TEAM LED BY THE CHAIR. PRINCIPLE: ENSURE THAT BETWEEN THEM THE DIRECTORS HAVE THE NECESSARY UP-TO- DATE EXPERIENCE, SKILLS AND CAPABILITIES. • The Board consists of three Executive Directors and two Non-executive Directors. • Please refer to the Investor Relations section of the website for further details of the Directors. • The Executive Chairman is Charles Smith, who is also a major shareholder with 24.11% shareholding. • The remaining Executive board members are Anthony Smith, Chief Executive and Terry Boot, Finance Director. Anthony Smith is the largest shareholder with 30.15% • The senior Non-Executive Director is Victoria Norrish, who is the Chair of the Audit Committee. • The remaining Non-Executive Director is Malcolm Collins. He is Chairman of the Remuneration Committee. • Within the Executive Directors, Anthony Smith is a full-time Director. Charles Smith is employed for four days a week. • The Non-executive Directors are selected for the specific skills and expertise that they contribute to the business. This ranges from experience of accounting, footwear retail and supply chain expertise. Governance Governance 18 18 Corporate Governance Statement CONTINUED 7 CATEGORY: MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK 8 CATEGORY: MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK PRINCIPLE: EVALUATE BOARD PERFORMANCE BASED ON CLEAR AND RELEVANT OBJECTIVES, SEEKING CONTINUOUS IMPROVEMENT. PRINCIPLE: PROMOTE A CORPORATE CULTURE THAT IS BASED ON ETHICAL VALUES AND BEHAVIOURS. • The Group seeks to promote an open culture where all employees feel that they contribute to the ongoing success of the business. • We operate a non-contractual profit share scheme that rewards employees, based on the overall company profit performance. • The Executive Board consists of the two main shareholders, Anthony Smith and Charles Smith, along with Terry Boot. • Within the organisation there is also a wider Trading Team that has functional responsibility for the business. • The Board is constantly reviewing its own performance and that of the Team including its relevance and constitution as the business develops and grows. We look to identify those individuals who excel in their role and develop them through appointment to the Trading Team and measure their success as part of the Group and the wider group. Governance Governance 19 19 Corporate Governance Statement CONTINUED 9 10 CATEGORY: BUILD TRUST CATEGORY: MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK PRINCIPLE: MAINTAIN GOVERNANCE AND PROCESSES THAT ARE FIT FOR PURPOSE AND SUPPORT GOOD DECISION-MAKING BY THE BOARD. PRINCIPLE: COMMUNICATE HOW THE COMPANY IS GOVERNED AND ITS PERFORMANCE BY MAINTAINING A DIALOGUE WITH SHAREHOLDERS AND OTHER RELEVANT STAKEHOLDERS. • All shareholders are invited to make use of the Group’s Annual General Meeting to raise any questions regarding the management or performance of the Group. • Following the announcement of results the Group will also offer the chance for shareholders to meet the Chairman, Chief Executive and Finance Director to discuss performance and future plans. • All voting results for the Annual General Meeting on resolutions are available on the website and the reports of Board Committees are set out in the Annual Report and Accounts each year. • The Board meets around six times per year. Agendas and papers are issued in advance of the meeting in order to allow each member to prepare thoroughly. All Non-Executive Directors are expected to attend these meetings. • The Remuneration Committee and Audit Committee meet at least once per year and their reports are contained in the Annual Report and Accounts. • Draft minutes are circulated for all meetings and following feedback, approved by the various boards at their next meeting. • Non-Executive Directors are also called on where their expertise or advice would benefit the Group, such as pension negotiations, selection of a new audit partner, product range reviews or the selection of other advisors. • Management meetings are also held periodically with other key senior members of the Group who hold functional responsibility. Information is disseminated through this group to the wider business and updates and feedback sought on key topics and areas. Governance 20 Corporate Governance Statement CONTINUED The Board The Board comprises three Executive Directors (including the Chairman) and two 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; • approval of corporate strategy; • approval of income, expenditure and capital budgets; • 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; • determining changes to the structure and composition of the Board; • determining remuneration policy; and • approval of communications with shareholders and the market. Details of each of the Directors are given in their biographies on pages 23. 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 QCA 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. Governance 21 Corporate Governance Statement CONTINUED 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 all 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 Group’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 Victoria Norrish. 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 24. Governance 22 Board of Directors Chairman CHARLES SMITH Charles joined Shoe Zone in 1998, becoming Chief Operating Officer in 2001. He was appointed Chairman in January 2020. Charles is a founder and Trustee of the Shoe Zone Trust. Chief Executive ANTHONY SMITH Anthony joined Shoe Zone in 1993 as Marketing Manager before becoming Chief Executive in 1997. Anthony was appointed Chairman in June 2016. He was re-appointed as Chief Executive in August 2019. Anthony is a founder and Trustee of the Shoe Zone Trust. Finance Director TERRY BOOT Terry Joined Shoe Zone in March 2021 as Finance Director. He was most recently the Finance Director and then CEO at the Company of Master Jewellers, having previous been in the footwear retailing industry for 26 years. From 1998 to 2016 he was the Finance Director at Brantano and Jones Bootmaker. Company Secretary CATHERINE BOWEN Catherine joined Shoe Zone in September 2018 as General Counsel and was appointed Company Secretary in September 2019. Catherine qualified as a solicitor in 2001 and has extensive legal experience in the retail sector, and is a specialist in landlord and tenant matters. Catherine also taught, part time, on the Law Degree at the University of Leicester for eight years, while continuing to practice. Non-executive Director MALCOLM COLLINS Malcolm joined as a Non-Executive Director in June 2016. Malcolm was most recently Group Buying and Design Director for footwear and accessories at New Look, overseeing the Group’s £550m footwear division. Prior to Malcolm’s 16 years at New Look, he worked for 23 years at Clarks Shoes including 13 years as Women’s Footwear Buyer. Non-executive Director VICTORIA NORRISH Victoria joined as a Non-Executive Director in August 2020. Victoria joined Blue Light Card Limited in January 2021 as Chief Financial Officer. She was previously at TheWorks.co.uk plc from 2008 to 2020 as Supply Chain Director (January 2019 to December 2020), Strategic Development Director (July 2018 to January 2019) and Finance Director (November 2008 to July 2018). She commenced her accountancy career as an auditor with KPMG and Godkin & Co. Governance 23 Remuneration Report This is the Company’s eighth Directors’ Remuneration Report since it listed on AIM in May 2014. The Remuneration Committee consists of the Non-executive Directors. Malcolm Collins is the Chairman and Victoria Norrish also serves on the Committee. Anthony Smith 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: • responsibility for agreeing, with the Board, the framework or broad policy for the remuneration of all Executive Directors of the Group, including pension rights, compensation payments bonuses, incentive payments, share options and benefits in kind; • obtain reliable, up-to-date information about remuneration in other companies of comparable scale and complexity and market practice generally; • be exclusively responsible for selecting any remuneration consultants who advise the Committee; • approve the design and determine targets for any performance-related pay schemes operated by the Group and approve the total annual payments made under such schemes; • monitor the level and structure of remuneration for Directors and note annually the remuneration trends across the Group; • ensure the contractual terms on termination, and any payments made, are fair to the individual and the Group, and in accordance with any legal and regulatory requirements; and • oversee any major change in employee benefit structures throughout the Group; and • agree the policy for authorising claims for expenses from the Directors. Governance Governance 24 24 Remuneration Report CONTINUED Directors and Directors’ interests The Directors listed below all served through the year. Their interests in the issued share capital of the Company as at the date of this report were as follows: Executive Directors Anthony Smith Charles Smith Terry Boot Non-executive Directors Victoria Norrish Malcolm Collins Number of ordinary shares Percentage of issued share capital 14,926,557 (1) 11,933,694 (2) 32,626 Nil Nil 30.15% 24.11% 0.07% Nil Nil (1) (2) The registered holder of these shares is Slawston Investments Limited, an entity jointly owned by Anthony and Catherine Smith The registered holder of these shares is Sheepy Magna Investments Limited, an entity jointly owned by Charles and Sian Smith Governance Governance 25 25 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) LTIP paid within year Benefits Pension Contribution £ £ £ Executive Directors Anthony Smith FY22 350,000 175,250 FY21 350,000 175,000 Charles Smith FY22 224,000 112,250 FY21 224,000 112,000 Terry Boot Petter Foot Non–executive Directors Malcolm Collins Victoria Norrish FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY22 127,500 69,590 - 50,199 20,000 19,000 30,000 28,500 65,250 35,788 - - - - - - Total FY22 751,500 352,750 FY21 741,289 322,788 - - - - - - - - - - - - - - 23,306 35,957 15,180 26,224 8,620 4,840 - 3,804 - - - - Total £ 548,556 560,957 351,430 362,224 £ - - - - 15,300 216,670 8,351 118,569 - - - - - - - 54,003 20,000 19,000 30,000 28,500 47,106 70,825 15,300 1,166,656 8,351 1,143,253 Governance Governance 26 26 Remuneration Report CONTINUED Directors’ Service contracts and employment letters The Executive Directors have entered into service agreements with the Group with effect from 1 May 2017 or in the case of Terry Boot his date of commencement. Salaries for the upcoming year are set out below: Anthony Smith Charles Smith (1) Terry Boot (1) 4 days per week. £ 367,500 235,200 140,000 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 and Charles Smith and 6 months for Terry Boot. Other fixed elements of the Executive Directors’ remuneration comprise a company car provision, life assurance and private medical insurance. Terry Boot is entitled to a Pension Contribution of 12% 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: 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: Malcolm Collins Victoria Norrish £ 20,000 30,000 The remuneration report was approved by the Board. On behalf of the Board Malcolm Collins Chairman of the Remuneration Committee Date: 10 January 2023 Governance 27 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 The Directors present their Annual Report and audited financial statements of the Company and the Group for the 52 weeks ended 1 October 2022. The disclosure requirements of the Companies Act 2006 have been met by the contents of this Directors’ Report, apart from the likely future developments in the business and existence of stores which are included within the Strategic Report which should therefore be read in conjunction with one another. 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 22 of the financial statements. The Company’s share capital consists of one class of ordinary shares. As at 1 October 2022 there were 49,500,000 ordinary shares of £0.01 each. The authorised share capital of the Company is unlimited. At the AGM held on 8 March 2022, 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 shares representing approximately a further third of the Company’s issued share capital in connection with a pre-emptive rights issue. At the 2023 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 are listed on the directors and advisors page. Directors’ Interests Information about the Directors’ interests in the shares of the Company can be found in the Directors’ Remuneration Report. Governance 28 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 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 2,664 (October 2021: 2,854) 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. All employees are able to contribute to the ongoing success of the business through regular contact between management and employees. We promote equal opportunities and do not tolerate discrimination of any kind. Annual general meeting The Company’s ninth AGM will be held on Thursday 9 March 2023 at 10.00 a.m. at the Company’s registered office at Haramead Business Centre, Humberstone Road, Leicester, Leicestershire LE1 2LH. The Notice of AGM appears on pages 98 to 104. Set out below is an explanation of certain resolutions which will be proposed at the AGM. Final Dividend (resolution 2) The Directors are proposing a final dividend of 3.3p per ordinary share, amounting to a final dividend of approximately £1.6m, which is subject to approval by the shareholders at the AGM. Special Dividend (resolution 3) The Directors are also proposing a special dividend of 8.2p 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 £8.3m (inclusive of the final dividend proposed in resolution 2). 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. Governance 29 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Appointment of Directors (resolutions 4 to 8) 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 re-election at the AGM. Biographical details of each Director appear on page 23. The Board believes that each Director continues to demonstrate their commitment to their role and that, collectively; the Directors’ skills complement each other and enhance the overall operation of the Board. Political donations (resolution 11) The Company is prohibited under the Companies Act 2006 from making donations to political parties or organisations or to independent election candidates 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 year 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. Authority to allot shares (resolution 12) 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 12 seeks shareholder authority to allow the Directors to allot shares having an aggregate nominal value of £161,682 representing approximately a third of the Company’s issued share capital (excluding shares held in treasury) on 10 January 2023. In addition, shareholder authority is sought to allot shares having an aggregate nominal value of £161,682 in connection with a pre-emptive rights issue (representing approximately a further third of the Company’s issued share capital (excluding shares held in treasury) on 10 January 2023). Disapplication of pre-emption rights (resolutions 13 and 14) Resolutions 13 and 14 concern the disapplication 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 13 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 13 gives the Directors the necessary authority to either allot shares Governance 30 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED or sell shares held in treasury for cash on a non pre-emptive basis up to an aggregate nominal amount of £24,252 (being 2,425,200 ordinary shares). This is equivalent to approximately 5% of the issued share capital of the Company (excluding shares held in treasury) on 10 January 2023. This resolution also disapplies statutory pre-emption rights to the extent necessary to facilitate rights issues. Resolution 14 is being proposed as a separate resolution to authorise the Directors to allot a further approximately 5% of issued ordinary share capital of the Company (excluding shares held in treasury) otherwise than in connection with a pre-emptive offer for the purposes of financing a transaction (or refinancing within 12 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 the March 2015 Pre-emption Group Principles. The Pre-emption Group Principles were updated in November 2022 to provide companies with greater flexibility to undertake non-pre-emptive issuances both generally and in connection with acquisitions and specified capital investments (in each case, representing up to 10% of the company’s issued share capital). However, notwithstanding the increased flexibility allowed by the revised Pre-emption Group Principles, the Company has, this year, decided to seek disapplication authorities in line with those sought in previous years. 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 2024 or 8 March 2024, whichever is earlier. Authorisation for the Company to purchase its own shares (Resolution 15) Resolution 15 seeks authority for the Company to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of the Company’s ordinary shares on such terms and in such a manner as the Directors may determine from time to time, subject to the limitations set out in the resolution. If Resolution 15 is passed, the Company will be authorised to purchase up to a maximum of 4,850,471 ordinary shares, representing approximately 10% of the Company’s issued ordinary share capital (excluding shares held in treasury) as at 10 January 2023. Resolution 15 also sets out the minimum and maximum price that the Company may pay for purchases of its ordinary shares. If Resolution 15 is passed, the authority for the Company to purchase its ordinary shares will remain effective until the conclusion of the next AGM of the Company to be held in 2024 or 8 March 2024, whichever is earlier. The Directors will only exercise this buy-back authority, after careful consideration, when it is in the best interests of the shareholders generally. Any purchases would be financed out of distributable profits and shares purchased would either be cancelled (and the number of shares in issue reduced accordingly) or held as treasury shares, with a view to using any such shares held in treasury for future distributions to employees. Governance 31 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Form of proxy Please note you will not receive a form of proxy for the March 2023 AGM in the post. You may vote online which you can do at www.signalshares.com. To register you will need your Investor Code, which can be found on your share certificate. For shares held through CREST, proxy appointments may be submitted via the CREST proxy voting system. Otherwise, you may request a hard copy proxy form directly from our Registrars, Link Group, on 0371 664 0391 if calling from the United Kingdom, or +44(0)371 664 0391 if calling from outside the United Kingdom. Calls are charged at the standard geographical rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 9.00 a.m. – 5.30 p.m. Monday to Friday excluding public holidays in England and Wales. All online votes or proxy appointments should be submitted so as to be received no later than 10.00 a.m. on 7 March 2023. 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 Cooper Parry Group Limited have issued their independent report on these financial statements to the shareholders of Shoe Zone plc. The report can be found on pages 26 to 31. The auditor, Cooper Parry Group Limited has 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 and relevant advisors 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. Governance 32 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Streamlined Energy and Carbon Reporting (SECR) Energy consumption breakdown (kWh): Electricity Natural gas Transport fuel Other fuels Totals Greenhouse gas emissions (Tco2e): Natural gas Transport fuel for company vehicles Transport fuel for rental vehicles Other fuels Subtotal From Purchased Electricity, Steam, Heat & Cooling From Other Activities inc. Process & Fugitive Subtotal Total gross emissions Renewable electricity Carbon offsets Domestic carbon units Total net emissions Intensity ratios Annual MWh per £m Turnover Annual tCO2e per £m Turnover 2022 13,989 2,910 4,373 - 21,272 531.19 1,047.25 - - 1,578.44 2,705.22 7.82 2,713.04 4,291.48 - - - 2021 8,925 3,105 3,056 - 15,086 568,66 722.60 - - 1,895.18 1,895.18 5.85 1,901.03 3,192.29 - - - 4,291.48 3,192.29 136.22 27.48 126.63 26.79 Governance 33 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED The intensity ratios indicate a worsening position if compared to 2021, which is not the best comparison. The table below reports the 2020 figures which are more comparable, and shows the ratios improving on a two year basis. SECR Energy consumption (MWH) Total Net Emissions Intensity - MWH per Turnover Intensity - tCO2e per Turnover 2022 21,272 4,291 136.22 27.48 2021 15,086 3,192 126.63 26.79 2020 20,783 4,909 169.57 30.45 The Group continues various strategies to improve our carbon performance these include: • Working with our suppliers to review plastic and card used in packaging and when labelling our products • Reviewing and increasing our recycling strategies including initiatives at all of our retail outlets as well as our Distribution Centre and head office sites. • Instigate a policy review into single use plastics • Review of delivery schedules to all of our stores to further improve efficiency and to reduce deliveries and idle time. • Review into the use of both hydrogen powered and electric HGV/car vehicles Initiatives in place: • We use 100% renewable energy sources and part of our distribution centre is powered by solar panels. • Gas boilers are being replaced with efficient heat pumps in a number of stores. • Our Head office and distribution centre is equipped with high efficient LED lighting. • We have a programme in place to better insulate stores and to change to LED lighting as we continue through our refits. and • We have taken delivery of our first fully electric car. Future: • We are currently exploring the possibility of an instore scheme for recycling end of life shoes to reduce overall waste. This initiative is in conjunction with two Universities and a number of footwear retailers. Governance 34 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 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 satisfactory despite the current trading environment. It also has in place a £3.0m overdraft facility. During the pandemic the group previously took a COVID-19 Large Business Interruption Loan Scheme (CLBILS) loan of £15.0m. This was paid off in January 2022. 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 high street stores have remained open throughout the year and post year end due to the success of the Government vaccine programme. Digital performance movement combined with the satisfactory cash position gives the Directors a reasonable basis on which to satisfy themselves that the business is a going concern. The group has prepared forecasts and budgets which shows the group has sufficient cash to meet its day to day liabilities as they fall due. On that basis, the directors have prepared the financial statements on a going concern basis. Events after the year-end After the year end, in October and November 2022 an additional 716,618 shares were bought back by the company for a cost of £1,500,000 and 500,000 shares were then cancelled 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 United Kingdom 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: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Governance 35 DIRECTORS’ REPORT FOR THE 52 WEEKS ENDED 2 OCTOBER 2021 CONTINUED 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. 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 ongoing 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: • So far as they are aware, there is no relevant audit information of which the Company’s auditors are unaware; and • They have 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: Anthony Smith Chief Executive Date: 10 January 2023 Governance 36 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHOE ZONE PLC Opinion We have audited the financial statements of Shoe Zone plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the 52 weeks ended 1 October 2022 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 company statement of financial position, the company statement of changes in equity and the related notes to the financial statements, including a summary of significant accounting policies. 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). The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 1 October 2022 and of the Group’s profit for the 52 weeks then ended; • the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; • the parent Company 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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Governance 37 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHOE ZONE PLC CONTINUED Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Carrying value and impairment of Property, plant and equipment and Right-of-use assets in relation to the store portfolio Matter The Group has significant property, plant and equipment and right- of- use assets in relation to the portfolio of stores it operates. The Group’s assessment of the carrying value of assets relating to each store requires significant judgement, in particular regarding cash flows, growth rates and discount rates. Response • We obtained information on performance by store in order to assess for indication of impairment. • We considered historical trading performance by comparing recent growth rates of both revenue and operating profit/loss by store. • We assessed the appropriateness of the assumptions concerning growth rates and inputs to the discount rates against latest market expectations. • We performed sensitivity analysis to determine whether an impairment would be required if costs increase at a higher than forecast rate. Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of these financial statements. We apply the concept of materiality in planning and performing our audit, in determining the nature, timing and extent of our audit procedures, in evaluating the effect of any identified misstatements, and in forming our audit opinion. The materiality for the Group financial statements as a whole was set at £676,000. This has been determined with reference to the benchmark of the Group’s profit before tax which we consider Governance 38 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHOE ZONE PLC CONTINUED to be an appropriate measure for a Group of companies such as these. Materiality represents 7.5% of group profit before tax. The materiality for the Parent Company financial statements as a whole was set at £11,000. This has been determined with reference to the benchmark of the Parent Company’s loss before tax which we consider to be an appropriate measure for a parent company such as this. Materiality represents 7.5% of the parent Company loss before tax. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the director’s assessment of the entity’s ability to continue to adopt the going concern basis of accounting included: • reviewing management’s cash flow forecasts for a period of 12 months from the date of approval of these financial statements; • applying reasonable “worst case” sensitives to management’s forecasts and assessing remaining cash headroom within those scenarios; and • review of results post year end to the date of approval of these financial statements and assessment against original budgets. From our work we noted that the Group has significant cash balances and forecasts support that the Group will continue to be able to meet its liabilities as they fall due. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. An overview of the scope of our audit We adopted a risk-based audit approach. We gained a detailed understanding of the Group’s business, the environment it operates in and the risks it faces. The key elements of our audit approach were as follows: Our Group audit scope focused on the Group’s principal trading subsidiary, Shoe Zone Retail Limited, which was subject to a full scope audit. Together with the parent company and its group consolidation, which was also subject to a full scope audit, these entities represent the principal business units of the Group and account for 100% of the Group’s revenue, 100% of the Group’s profit before tax and 97% of the Group’s total assets. In performing our testing we utilised performance materiality of £575,000, equating to 85% of materiality. In order to address the matters described in the Key audit matters section we performed focused audit procedures over these areas, including reference to external market data and publicly available market information in relation to assumptions used. Governance 39 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHOE ZONE PLC CONTINUED Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the statutory financial statements and our auditor’s report thereon. Our opinion on the statutory financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the statutory financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the statutory financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the 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 • we have not received all the information and explanations we require for our audit. Governance 40 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHOE ZONE PLC CONTINUED Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 24, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: Our assessment focused on key laws and regulations the group has to comply with and areas of the financial statements we assessed as being more susceptible to misstatement. These key laws and regulations included but were not limited to compliance with the Companies Act 2006, UK- adopted international accounting standards, and relevant tax legislation. We are not responsible for preventing irregularities. Our approach to detecting irregularities included, but was not limited to, the following: • obtaining an understanding of the legal and regulatory framework applicable to the Group and the parent company and determined that the most significant which are directly relevant to specific assertions in the financial statements are those related to the financial reporting framework, being international accounting standards in conformity with the Companies Act 2006; • obtaining an understanding of how the Group is complying with those legal and regulato- ry frameworks by making enquiries of management, those responsible for legal and com- pliance procedures and the Company Secretary. We corroborated our enquiries through our review of board minutes; • obtaining an understanding of the entity’s policies and procedures and how the entity has Governance 41 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHOE ZONE PLC CONTINUED complied with these, through discussions and sample testing of controls; • obtaining an understanding of the entity’s risk assessment process, including the risk of fraud; • designing our audit procedures to respond to our risk assessment; and • performing audit testing over the risk of management override of controls, our audit pro- cedures involved: • testing of journal entries and other adjustments for appropriateness, with a focus on manual journals including those with unusual account combinations and those posted directly to the consolidation that increased revenue or that reclassified costs from the profit and loss account to the balance sheet; • evaluating the business rationale of significant transactions outside the normal course of business; • challenging assumptions and judgements made by management in its significant • accounting estimates, specifically those in relation to the dilapidation provision, the defined benefit pension scheme position and the value of the derivative financial instru- ments. including testing of journal entries with a focus on material manual journals and other adjustments for appropriateness, evaluating the business rationale of significant trans- actions outside the normal course of business, and reviewing accounting estimates for bias, specifically in relation to the dilapidation provisions, the defined benefit pension scheme deficit and the value of the derivative financial instruments. • These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. However, detecting irregularities that result from fraud is inherently more difficult that detecting those that result from error, as those irreg- ularities that result from fraud may involve collusion, deliberate concealment, forgery, or intentional misrepresentations. Also, the further removed non-compliance with laws and regulations is from events and transactions reflected in the financial statement, the less likely we could become aware of it. • The engagement partner assessed whether the engagement team collectively had the appropriate competence and capabilities to identify and recognise non-compliance with laws and regulations through the following: • Understanding of, and practical experience with, audit engagement of a similar nature and complexity, though appropriate training and participation; and • Knowledge of the industry in which the client operates. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report Tthe Companies Act 2006; • obtaining an understanding of how the Group is complying with those legal and regulato- ry frameworks by making enquiries of management, those responsible for legal and com- pliance procedures and the Company Secretary. We corroborated our enquiries through our review of board minutes; • obtaining an understanding of the entity’s policies and procedures and how the entity has complied with these, through discussions and sample testing of controls; • obtaining an understanding of the entity’s risk assessment process, including the risk of fraud; Governance 42 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHOE ZONE PLC CONTINUED • designing our audit procedures to respond to our risk assessment; and • performing audit testing over the risk of management override of controls, our audit pro- cedures involved: • testing of journal entries and other adjustments for appropriateness, with a focus on manual journals including those with unusual account combinations and those posted directly to the consolidation that increased revenue or that reclassified costs from the profit and loss account to the balance sheet; • evaluating the business rationale of significant transactions outside the normal course of business; • challenging assumptions and judgements made by management in its significant • accounting estimates, specifically those in relation to the dilapidation provision, the defined benefit pension scheme position and the value of the derivative financial instru- ments. including testing of journal entries with a focus on material manual journals and other adjustments for appropriateness, evaluating the business rationale of significant trans- actions outside the normal course of business, and reviewing accounting estimates for bias, specifically in relation to the dilapidation provisions, the defined benefit pension scheme deficit and the value of the derivative financial instruments. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the group’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 group’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 group and the group’s members as a body, for our audit work, for this report, or for the opinions we have formed. Catherine Kelly (Senior Statutory Auditor) For and on behalf of Cooper Parry Group Limited Chartered Accountants and Statutory Auditor Sky View Argosy Road East Midlands Airport Castle Donington Derby DE74 2SA Date: 10 January 2023 Governance 43 CONSOLIDATED INCOME STATEMENT FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 Note 4, 8 5 5 5 9 9 10 28 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 The notes on pages 49 to 91 form part of these financial statements. 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 156,164 (119,764) 36,400 (16,620) (5,104) 14,676 - (1,113) 13,563 (2,718) 10,845 21.74p £’000 119,142 (86,667) 32,475 (16,962) (4,499) 11,014 - (1,558) 9,456 (2,442) 7,014 14.03p Financials 44 CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 Note 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Profit/(Loss) for the period Items that will not be reclassified subsequently to the income statement Remeasurement gains on defined benefit pension scheme Movement in deferred tax on pension schemes 25 21 Share buy back Items that will be reclassified subsequently to the income statement Fair value movements on cash flow hedges Tax on cash flow hedges Other comprehensive income for the period Total comprehensive income for the year attributable to equity holders of the parent The notes on pages 49 to 91 form part of these financial statements. £’000 10,845 5,798 (1,505) (966) 1,129 (226) 4,230 £’000 7,014 3,379 761 - (190) 56 4,006 15,075 11,020 Financials 45 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 1 OCTOBER 2022 Note 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Registered Number : 08961190 Assets Non-current assets Property, plant and equipment Right of use assets Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Lease liabilities Derivative financial liability Bank Loan Provisions Corporation tax liability Total current liabilities Non-current liabilities Lease liabilities Provisions Employee benefit liability Total non-current liabilities Total liabilities Net assets Equity attributable to equity holders of the Company Called up share capital Merger reserve Capital redemption reserve Cash flow hedge reserve Retained earnings Total equity and reserves 12 13 21 14 15 26 17 13 16 18 19 13 19 25 22 £’000 12,582 25,581 720 38,883 32,188 6,071 24,427 62,686 101,569 (22,801) (14,870) - - (1,108) (1,910) (40,689) (20,975) (2,662) - (23,637) (64,326) 37,243 495 2,662 5 653 33,428 37,243 £’000 14,227 30,884 3,220 48,331 25,131 5,457 19,015 49,603 97,934 (16,440) (17,035) (591) (4,400) (1,698) (773) (40,937) (25,942) (1,728) (5.909) (33,579) (74,516) 23,418 500 2,662 - (250) 20,506 23,418 The notes on pages 49 to 91 form part of these financial statements. The financial statements were approved and authorised for issue by the Board of Directors and were signed on its behalf by: Anthony Smith, Chief Executive, Date: 10 January 2023 Financials 46 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 Share capital Capital redemption reserve Merger reserve Cash flow hedge reserve Retained earnings Total £’000 £’000 £’000 £’000 £’000 £’000 500 2,662 (116) At 4 October 2020 Profit for the year Defined benefit pension movements Cash flow hedge movements Deferred tax on other comprehensive income Total comprehensive income for the year Dividends paid during the year (note 11) Total contributions by and distributions to owners At 2 October 2021 Impact on transition to IFRS 16 (note 13) At 3 October 2021 Profit for the year Defined benefit pension movements Capital redemption reserve Cash flow hedge movements Share buy back Deferred tax on other comprehensive income Total comprehensive income for the year Dividends paid during the year (note 11) Total contributions by and distributions to owners At 1 October 2022 - - - - - - - 500 - 500 - - - - (5) - (5) - - 495 - - - - - - - - - - - - - - 5 - 5 - - 5 2,662 (250) 20,506 23,418 - - - - 2,662 (250) 20,506 23,418 9,352 7,014 3,379 - 12,398 7,014 3,379 (190) - - (190) 56 761 817 (134) 11,154 11,020 - - - - - - - - - 1,129 10,845 10,845 5,798 5,798 - - - 1,129 (966) - (966) (226) (1,505) (1,731) 903 14,172 15,075 - - (1,250) (1,250) - - - - - - - - - - - - - - - - - - 2,662 653 33,230 37,243 Share capital comprises the nominal value of shares subscribed for. The captial redemption reserve represents shares purchased by the company back from shareholders The merger reserve has arisen as a result of the application of merger accounting to the group reorganisation on 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. Financials 47 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 Note 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Operating activities Profit after tax Corporation tax charge Finance income Finance expense Depreciation of property, plant and equipment Fixed asset impairment and loss on disposal of property, plant and equipment and right of use asset Right-of-use asset, depreciation and impairment Pension contributions paid Increase in trade and other receivables Decrease in foreign exchange contract Increase in inventories Increase in trade and other payables Increase in provisions Cash generated from operations Net corporation tax paid Net cash flows from operating activities Investing activities Purchase of property, plant and equipment Proceeds from sale of PPE Net cash used in investing activities Share buy-back Repayments of secured loan Capital element of lease repayments Interest paid Dividends paid during the year Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 12 12 13 25 15 16 14 17 19 10 12 18 18 11 26 £’000 10,845 2,718 - 1,113 4,118 (1,075) 13,016 - 30,735 627 (527) (7,057) 6,361 345 (251) 30,484 (1,214) 29,270 (5,225) 3,590 (1,635) (966) (4,400) (15,584) (23) (1,250) (22,223) 5,412 19,015 24,427 £’000 7,014 2,442 - 1,558 3,144 1,001 15,860 (1,500) 29,519 (2,722) 486 1,567 (816) 694 (791) 28,728 1,353 30,081 (1,405) - (1,405) - (2,600) (20,037) (290) - (22,927) 5,749 13,266 19,015 Financials 48 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 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 registered number of the Company is 08961190. The Company and its subsidiaries’ (collectively the Group) principal activity is footwear retailing. 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 2022 (2021: 52 weeks ended 2 October 2021). These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the UK adopted international accounting standards (‘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 Group’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. The consolidated financial statements are presented in Sterling, which is also the Group’s functional currency. Amounts are rounded to the nearest thousand, unless otherwise stated. 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 2022. The results for all subsidiary companies are consolidated using the acquisition method of accounting. Where the company has control over 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. Financials 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES CONTINUED 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: • The size of the Company’s voting rights relative to both the size and dispersion of other parties who hold voting rights • Substantive potential voting rights held by the company and by other parties. • Other contractual arrangements. • Historic patterns in voting attendance. The consolidated financial statements present the results of the Company and its subsidiaries (‘the Group’) as if they are formed a single entity. Intercompany transactions and balances be- tween group companies are therefore eliminated in full. 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 initally recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. They are deconsolidated from the date on which control ceases. 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. It also has in place a £3.0m overdraft facility. During the pandemic the Group, in the prior year, took a CLBILS loan of £12.0m, this requires the Group to comply with certain financial covenants, these have been met during the year and since year end. 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 high street stores have remained opened throughout the year and post year end due to the success of the Government vaccine programme. Digital performance movement combined with the satisfactory cash position gives the Directors a reasonable basis on which to satisfy themselves that the business is a going concern. The group has prepared forecasts and budgets which shows the group has sufficient cash to meet its day to day liabilities as they fall due. On that basis, the directors have prepared the financial statements on a going concern basis. Financials 50 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES CONTINUED Revenue Revenue is measured at the fair value of consideration received or receivable net of discounts, returns and VAT. Revenue 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: Freehold and long leasehold Short leasehold and leasehold improvements Fixtures and fittings Motor vehicles - - - - 50 years on a straight line basis 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. Assets under construction Whilst held under assets under construction, no depreciation is charged on the assets. Once the project is completed, the asset will be transferred to the correct fixed asset category. Impairment of non-financial assets The carrying values of non-financial assets are reviewed in conjunction with an independent third party 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 total comprehensive income. Financials 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES CONTINUED 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. 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. Cash and cash equivalents include cash in hand and deposits held at call with banks. 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. Financials 52 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES CONTINUED Financial liabilities The Group classified its financial liabilities as other financial liabilities which include the following: • Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. • Bank loan – external loan which is valued at its amortised cost and incurs interest. • Finance costs are charged to the Income statement over the term of the debt using the effective interest method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associat- ed capital instrument. Derivative financial instruments and hedging activities Hedge accounting is applied to financial assets and financial liabilities only where all of the following criteria are met: At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge. • For cash flow hedges, the hedged item in a forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss. • The cumulative change in the fair value of the hedging instrument is expected to be between 80-125% of the cumulative change in the fair value or cash flows of the hedged item attributable to the risk hedged (i.e. it is expected to be highly effective). • The effectiveness of the hedge can be reliably measured. • The hedge remains highly effective on each date tested. Effectiveness is tested quarterly. 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. Financials 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES 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. 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 statement of financial position 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: • the same taxable group company; or • 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. Dilapidations are not included in IFRS 16 as they relate to ‘wear and tear’ and not structural alterations to the buildings. Financials 54 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES CONTINUED Foreign exchange Transactions entered into the Group entities in a currency other than the functional currency are recorded at the average monthly rate prevailing during the year. Foreign currency monetary as- sets and liabilities are translated at the rates ruling at the reporting date. Foreign exchange differences are recognised in the Income statement. 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 income statement in the year to which they relate. Defined benefit scheme surpluses and deficits are measured at: • the fair value of plan assets at the reporting date; less • 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 • 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 the income statement, 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 year. Gains or losses arising from changes to scheme benefits or scheme curtailments are recognised immediately in the Income Statement Settlements of defined benefit schemes are recognised in the period in which the settlement occurs. A net pension asset may only be recognized when the group has an unconditional right to a refund or to reductions in future contributions. As a result, no asset has been recognised at year end. Financials 55 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES CONTINUED Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the directors. In the case of final and special dividends, this is when approved by the shareholders at the AGM. Lease accounting The Group leases various properties as well as vehicles under lease agreements. At inception of a contract the Group assesses whether the contract contains a lease. A lease is present where the contract grants the right to control the asset for a period of time in exchange for consideration. Where a lease is identified a right of use asset and a corresponding lease liability is recognised other than leases classed as “Short term,” less than 12 months, or “Low value,” under the avail- able exemptions. Where the exemption has been taken advantage of the lease cost are recog- nised on a straight line basis over the life of the lease within the Consolidated Income Statement. The lease payments are discounted using the Group’s incremental borrowing rate as 2.94% and 1.82% depending upon the date of lease liability being created Lease liability- initial recognition The lease liability is initially measured at the present value of the lease payments not paid at the commencement date. If the discount rate isn’t explicitly included in the lease the payments are discounted at the Group’s incremental borrowing rate. Lease payments included within the initial recognition include: • Fixed payments (including in-substance fixed payments) • Variable lease payments that depend on an index or rate at the commencement date • Amounts expected to be payable by the lessee under residual value guarantees • Exercise price of a purchase option if the Group is reasonably certain to exercise that option • Payments for penalties for terminating the lease if the lease term reflects the Group exer- cising the option Lease liability- subsequent measurement The lease liability is subsequently measured by increasing the carrying value to reflect interest on the lease liability and by reducing the carrying value to reflect the lease payments. Lease liability- remeasurement The lease liability is remeasured where: • Change in the assessment of the original lease information; being a change in the lease term or exercise of a purchase option. • Lease payments change due to a change in an index or a rate or a change in expected payment under the residual value guarantee • The lease contract is modified and the lease modification isn’t treated as a separate lease Financials 56 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 1. ACCOUNTING POLICIES CONTINUED Right of use asset- initial recognition The right of use asset comprises of the following: • Initial measurement of the lease liability • Any lease payments made at the commencement date, less any lease incentives received • Any initial direct costs incurred by the group in taking out the lease • Estimate of costs to be incurred by the group to restore the underlying asset to the condi- tion required by the lease Right of use asset- subsequent measurement The right of use asset is depreciated over the shorter of the lease term and useful life of the asset on a straight line basis. • section for further information, the right of use asset will also be adjusted. If a change in contract has been identified, see the “Lease liability- remeasurement” • An impairment review will be undertaken in-line with the group impairment policy, as further described in note 1, any identified impairment will be recognised against the right of use asset. • Where the lease liability is remeasured an equivalent adjustment is made to the right of use asset unless its carrying value is reduced to zero, in which case the adjustment is rec- ognised in the profit and loss. • When the lease liability is remeasured a revised discount rate is used based on the con- tract, or if none is available the Groups incremental borrowing rate. Sale and leaseback A sale and leaseback transaction is where the Group sells an asset and immediately reacquires the use of the asset by entering into a lease with the counterparty. If a sale and leaseback meets the criteria for a sale under IFRS 15 the transaction will be accounted for under IFRS 16. The group measures the right-of-use asset arising for the leaseback in proportion to the carrying balance of the asset directly before the sale and this will be recognised as an addi- tion to the right of use asset and lease liability. The previous balance held for the asset will be derecognised in its entirety. For any sales that don’t meet the recognition criteria under IFRS 15 a finance liability will be recognised for the consideration received. For any sale and leaseback assets that are sold at above the market value of the asset these are accounted for as additional financing provided by the counterparty and be recognised as an increased lease liability for the amount. Financials 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 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. Accounting estimates and assumptions Retirement benefits: The Groups’ defined benefit schemes’ pension surplus/obligation, which is assessed each period by actuaries, is based on key assumptions including discount rates, mortality rates, inflation, future salary costs and pension costs. These assumptions, individually or collectively, may be different to actual outcomes; refer to note 25 for further details. A net pension asset may only be recognized when the group has an unconditional right to a refund or to reductions in future contributions. As a result, no asset has been recognised at year end. Estimated impairment of store assets: The Group tests whether store assets have suffered any impairment in accordance with the ac- counting policies stated in note 1. The recoverable amount of cash-generating units is deter- mined on a value-in-use calculation. The method requires an estimate of future cash flows and the selection of a suitable discount rate in order to calculate the net present value of cash flows. The Group has performed a sensitivity analysis on the impairment tests for its store portfolio using various reasonably possible scenarios. An increase of three percentage points in the post- tax discount rate would have resulted in no increase to the impairment charge. A decrease of one percentage point in the growth rate after year three would have resulted in no increase to the impairment charge. Estimated useful life of property, plant and equipment: At the date of capitalising property, plant and equipment, the Group estimates the useful life of the asset based on management’s judgement and experience. Due to the significance of capital investment to the Group, variances between actual and estimated useful economic lives could impact results both positively and negatively, see note 12. Judgements Foreign currency hedge accounting: Group policy is to adopt hedge accounting for cash flows for the purchase of goods for resale. Due to the degree of judgement in determining forecast cash flows there is a risk that the as- sumptions made in the effectiveness testing are inappropriate. Discount rate - The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 October 2022 was 1.82%. If the discount rate was changed by 1% this would result in an increase of liabilities in excess of £300,000. Financials 58 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 3. FINANCIAL INSTRUMENTS – RISK MANAGEMENT The Board has overall responsibility for the determination of the Group’s risk management ob- jectives 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: • credit risk; • liquidity risk; and • foreign exchange 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; and • trade and other payables. Fair value hierarchy All financial instruments measured at fair value must be classified into one of the levels below: • Level 1: Quoted prices in active markets; • Level 2: Level 1 quoted prices are not available, but fair value is based on observable market data; and • Level 3: Inputs that are not based on observable market data. Financials 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 3. FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED A summary of the financial instruments held by category is provided below: Financial assets Financial assets at amortised cost Trade receivables Other receivables Cash and cash equivalents Total receivables and cash Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Total financial assets 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 1,250 1,282 24,427 26,959 642 (1,241) 26,360 467 1,579 19,015 21,061 (261) 590 21,390 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 Financial liabilities Financial liabilities at amortised cost Trade and other payables Financial liabilities at fair value through other comprehensive income Financial liabilities at fair value through profit and loss Financial liabilities at fair value through other comprehensive income 24,524 16,440 - - - 591 Total financial liabilities 24,524 17,031 Financials Financials 60 60 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 3. FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED 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 2022 and 2 October 2021. 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 income statement 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. 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 2022 the Group has trade receivables of £1,250,000 (2021: £467,000). £705,000 of the balance relates to payments to a single supplier, £161,000 is monies due from on-line sales with a further £227,000 in respect of longstanding prepaid gift card providers. The remainder is balances owing from sub-let properties and charges due from a number of suppliers. All trade debtors are expected to be recoverable within 3 months. The Directors are unaware of any factors affecting the recoverability of outstanding balances at 1 October 2022 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 service providers and the Board monitors its exposure to counterparty risk on an on-going 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. The Company has an overdraft facility of £3m. Trade payables are repayable within 3 months. The Group prepares and maintains detailed cash flow forecasts to monitor cash requirements and manage liquidity risk. Financials Financials 61 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 3. FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years At 1 October 2022 £’000 £’000 £’000 £’000 £’000 Trade and other payables Total financial liabilities 24,524 24,524 - - - - - - - - Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years At 2 October 2021 £’000 £’000 £’000 £’000 £’000 Trade and other payables Total 16,440 16,440 - - - - - - - - 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. 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’ reasonable assessment of a 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. Financials Financials 62 62 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 3. FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED Income Statement Equity 2022 £’000 (867) (618) 2021 £’000 521 (224) 2022 £’000 436 (1,511) 2021 £’000 1,701 (1,692) Sterling strengthens by 10% Sterling weakens by 10% Year-end exchange rates applied in the above analysis are US Dollar 1.28 (2021: 1.34). 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. 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 flow hedge reserve and retained earnings totalling £37,243,000 (2 October 2021: £23,418,000). The Group’s objectives when maintaining capital are: • 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 commen- surately 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. Financials Financials 63 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 4. REVENUE Revenue arises from: Sales of goods 5. EXPENSES BY NATURE Inventories recognised as an expense Employee benefit expenses Depreciation and impairment charge of property, plant and equipment Depreciation and impairment charge of right of use assets Rentals under operating leases: Land and buildings Other Loss on disposal of property, plant and equipment Loss / (Profit) on disposal of Right of Use Assets Administration expenses Gain on Foreign Exchange Other costs (see note below) 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 156,164 119,142 52 weeks ended 1October 2022 52 weeks ended 2 October 2021 £’000 60,763 37,748 4,118 13,016 411 7 (149) 1,224 4,045 (984) 21,289 141,488 £’000 46,268 28,691 3,571 15,234 827 44 733 1,394 3,456 (111) 8,021 108,128 Other costs includes rates payments of £7.7m, (2021 £1.6m) and retail grants of (£5k), (2021 £6.9m) 6. AUDITOR’S REMUNERATION 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 The audit of the parent company Audit of subsidiary financial statements pursuant to legislation Other services £’000 £’000 12 65 10 87 10 53 - 63 Financials 64 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 7. EMPLOYEE BENEFIT EXPENSES Employee benefit expenses (including Directors) comprise: Wages and salaries Social security costs Other pension costs 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 34,832 1,903 1,013 37,748 26,243 1,530 918 28,691 Wages and salaries in 2022 incudes the benefit of furlough income £Nil (2021: £6,142,651). The average monthly number of employees during the year was as follows: Sales and distribution Directors Administration 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 No. 2,612 5 139 2,756 No. 2,819 6 136 2,961 The average monthly number of full time equivalent employees during the period was 1,384 (2021: 1,487). Shoe Zone plc does not employ any members of staff and has no staff costs during the year (2021: Nil). Directors’ remuneration, included in staff costs: Salaries and benefits Pension contributions Information regarding the highest paid Director is as follows: Salary and benefits 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 1,151 15 1,116 548 548 £’000 1,135 8 1,143 561 561 Financials Financials 65 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 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 and Finance Director. 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. The Directors now consider Digital to be its own operating segment. 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. Revenue United Kingdom stores Digital Republic of Ireland stores Other There are no customers with turnover in excess of 10% of total turnover. Non-current assets by location: United Kingdom Republic of Ireland 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 128,664 26,967 - 533 156,164 87,420 30,499 674 549 119,142 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 38,163 - 38,163 45,111 - 45,111 Digital non-current and current assets have not been disclosed due to the immaterial value. The contribution is £7.0m (2021: £8.5m) The Group has only one operating and reporting segment which reflects the Group’s management and reporting structure as viewed by the board of directors. The deferred tax asset of £720,000 (2021: £3,220,000) is unallocated. Financials Financials 66 66 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 9. FINANCE INCOME AND EXPENSES Finance expense Interest expense on lease liability Net interest expense on defined benefit pension scheme Loan interest Other finance expense Total finance expense 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 (976) (116) (18) (3) (1,113) (1,268) (148) (147) 5 (1,558) Financials Financials 67 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 10. INCOME TAX 52 weeks ended 1 October 2022 52 weeks ended 1 October 2021 £’000 £’000 Current tax expense Current tax on profit for the year Adjustment for (over) provision in prior years Total current tax / (credit) Deferred tax expense Adjustment for under / (over) provision in prior years Effect of tax rate changes Origination and reversal of temporary differences (note 21) Taxation charge / (credit) 2,188 (61) 2,127 (13) 604 - 2,718 652 (1,425) (773) 1,240 641 1,334 2,442 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 is as follows: 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Profit / (loss) for the year Income tax charge / (credit) (Profit / (loss) before income taxes Expected tax charge based on corporation tax rate of 19% (02 October 2021: 19%) Expenses not deductible for tax purposes Effective change of rate Adjustments to tax charge in respect of previous period Total tax charge / (credit) £’000 10,845 2,718 13,563 2,577 (389) 604 (74) 2,718 Factors that may affect future tax charges: on 3 March 2021, the Chancellor of the Exchequer announced that the corporation tax rate would increase to a maximum of 25% from 1st April 2023. This was substantively enacted on 24 May 2021. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled, or the asset is realised, based on tax law and the corporation tax rates that have been enacted, or substantively enacted, at the balance sheet date. As such, the deferred tax rate applicable at 1 October 2022 is 25% and deferred tax has been re-measured at this rate. £’000 7,014 2,442 9,456 1,799 187 641 (185) 2,442 Financials Financials 68 68 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 11. DIVIDENDS Dividends paid during the year at 2.5p (2021: Nil) per share 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 1,250 £’000 Nil A second interim dividend of 3.0p per share will be paid for all shareholders on the register in December and a final dividend of 3.3p per share will be paid in 2023 (2021: Nil). Financials Financials 69 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 12. PROPERTY, PLANT AND EQUIPMENT l d n a d o h e e r F l d o h e s a e l g n o l s e i t r e p o r p l d o h e s a e l d n a s t n e m e v o r p m i l d o h e s a e l t r o h S s e l c i h e v r o t o M s g n i t t fi d n a s e r u t x F i l a t o T £’000 £’000 £’000 £’000 £’000 Cost At 3 October 2020 3,802 19,910 Additions Disposals Impairments - 248 (248) (1,371) - - 114 385 - - 38,021 772 (2,005) - 61,847 1,405 (3,624) - At 2 October 2021 3,554 18,787 499 36,788 59,628 Additions Disposals Impairments - 882 547 (3,349) (2,012) - - - - 3,796 (3,011) - 5,225 (8,372) - At 1 October 2022 205 17,657 1,046 37,573 56,481 Depreciation At 3 October 2020 Charge for the year Disposals Impairments At 2 October 2021 Charge for the year Disposals Impairments At 1 October 2022 Net book value At 1 October 2022 At 2 October 2021 At 3 October 2020 1,177 53 (124) - 1,106 26 (1,124) - 8 197 2,448 2,625 14,937 925 (1,211) 285 14,936 1,104 (1,810) 168 47 50 - - 97 149 - - 28,719 2,116 (1,715) 142 29,262 2,470 (2,686) 201 44,880 3,144 (3,050) 427 45,401 3,749 (5,620) 369 14,398 246 29,247 43,899 3,259 3,851 4,973 800 402 67 8,326 7,526 9,302 12,582 14,227 16,967 Financials 70 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 13. LEASES The majority of the Group’s trading stores are leased under operating leases. The Group also has a number of non-property operating leases relating to vehicles and an item of equipment in the Distribution Centre. Information about leases for which the Group is a lessee is presented below: Right of us Asset Cost Balance at 2 October 2021 Additions Disposals At 1 October 2022 Right of use Asset Depreciation Balance at 2 October 2021 Charge for the year Disposals Impairment At 2 October 2022 Net book value At 1 October 2022 At 2 October 2021 Property Motor vehicles and equipment £’000 £’000 39,823 7,698 (19,659) 27,862 9,442 12,202 (19,659) 541 2,526 25,336 30,381 868 75 (508) 435 365 273 (448) - 190 245 503 Total £’000 40,691 7,773 (20,167) 28,297 9,807 12,475 (20,107) 541 2,716 25,581 30,884 Financials 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 13. LEASES CONTINUED The Group costs for those leases for which the practical expedient was applied described in Accounting Policies: IFRS 16 Leases, amounted to £9,000 in the 52 weeks ended 1 October 2022. The table below sets out the maturity analysis of future lease payments: Maturity analysis – contracted undiscounted cash flows 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 Less than one year Between one and five years More than five years Total undiscounted lease liabilities Carrying value of lease liabilities included in balance sheet Current Non-current Movement of carrying value of lease liabilities Balance as 2 October 2021 Additions Repaid Disposal Interest Balance as at 1 October 2022 Operating Leases 13,239 18,694 2,280 34,213 35,845 14,870 20,975 42,977 7,773 (15,584) (297) 976 35,845 The Group has a number of stores on short-term rental and a small number of outlets where a subsec- tion are sublet to third parties at a contracted rate. The Group has classified these leases as operating leases because they do not transfer substantially all the risks and rewards of the right-of-use-asset. In line with IAS36 the carrying value of the right-of-use-asset is assessed for impairment and booked where necessary. 16,345 21,759 3,760 41,864 42,977 17,035 25,942 Financials 72 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 14. INVENTORIES Goods for resale Shop fitting materials and other consumables 15. TRADE AND OTHER RECEIVABLES Trade receivables Derivative financial instruments (see note 16) Prepayments Other receivables 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 31,570 618 32,188 £’000 24,608 523 25,131 52 weeks ended 1 October 2022 52 weeks ended 2 October 2022 £’000 1,250 1,241 2,298 1,282 6,071 £’000 467 - 3,411 1,579 5,457 There are no impairment provisions or receivables past due in either year. 16. DERIVATIVE FINANCIAL INSTRUMENTS At the statement of financial position date, details of the forward foreign exchange contracts that the Group has committed to are as follows: Derivative financial asset/(liability) Derivatives not designated as hedging instruments Derivatives designated as hedging instruments 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 642 599 1,241 £’000 (261) (330) (591) The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the consolidated statement of financial position. The notional principal amounts of outstanding forward foreign exchange contracts at 1 October 2022 were $13,500,000 (3 October 2021: $27,750,000). 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 is market rates of financial instruments at the reporting date. Financials Financials 73 73 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 17. TRADE AND OTHER PAYABLES Current Trade payables Social security and other taxes Other payables and finance lease liability Accruals 18. LOANS Amounts falling due within one year Bank Loans Amounts falling due within 1-2 years Bank loans Amounts falling due within 2-5 years Bank loans 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 13,336 3,305 442 5,718 22,801 7,284 2,517 210 6,429 16,440 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 - - - - £’000 4,400 - - 4,400 The bank loan provided by National Westminster Bank plc under their COVID-19 Large Business Interruption Scheme was fully repaid in January 2022. The loan previously attracted an interest rate of 1.727 over base rate and was secured over a fixed and floating charge over the Groups property and assets. Financials Financials 74 74 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 19. PROVISIONS As at 2 October 2021 Additions Amounts utilised Amounts released As at 1 October 2022 Customer Returns Dilapidations £’000 (9) 3 9 - 3 £’000 3,434 1551 (68) (1,150) 3,767 The provisions are aged as follows: Current Non-current As at 1 October 2022 Customer Returns Dilapidations £’000 3 - 3 £’000 1,105 2,662 3,767 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. 20. CONTINGENT LIABILITIES Shoe Zone plc and its subsidiary undertakings have given a duty deferment guarantee in favour of HM Revenue and Customs amounting to £800,000 (2 October 2021: £800,000). Total £’000 3,425 1554 (59) (1,150) 3,770 Total £’000 1,108 2,662 3,770 Financials 75 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 21. DEFERRED TAX Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 25% (2 October 2021: 19%). The movement on the deferred tax account is as shown below: At beginning of the year Recognised in income statement: Tax expense (note 10) Recognised in other comprehensive income: Actuarial gain / loss on defined benefit pension schemes Cashflow hedge At end of the period 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 3,220 (592) (1,506) (402) 720 £’000 5,617 (3,214) 761 56 3,220 The deferred tax has arisen due to the following: 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Accelerated capital allowances Ineligible buildings Short term timing differences Derivatives Loss for the financial year IFRS 16 Leases Defined benefit pension scheme £’000 756 - (150) (336) - 450 - 720 The Group has an unrecognised deferred tax asset £720,000 as at 1 October 2022 (2 October 2021: £3,220,000). There are estimated losses available to offset against future capital taxable profits amounting to approximately £nil (2 October 2021: £nil). £’000 1,624 (675) 83 65 - 646 1,477 3,220 Financials 76 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 22. SHARE CAPITAL Share capital issued and fully paid 49,500,000 (2021:50,000,000) ordinary shares of 1p each 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 495 495 500 500 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. On 1 August 2022 the company bought back 15,000 ordinary 1p shares, on 2 August bought back 20,000 1p shares, on 5 August bought back 60,846 1p shares, on 8 August bought back 30,000 1p shares, on 9 August bought back 25,000 1p shares, on 10 August bought back 25,000 1p shares, on 11 August bought back 66,293 1p shares, on 17 August bought back 25,000 1p shares, on 18 August bought back 64,590 1p shares, on 19 August bought back 50,000 1p shares, on 22 August bought back 59,535 1p shares and on 23 August bought back 58,736 1p shares for total consideration of £966,000. All 500,000 shares were then cancelled on 2 September 2022. 23. 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: Expense relating to short-term leases Expense relating to variable lease payments The majority of leases are now included within IFRS 16 (note 13). Property Property 1 October 2022 2 October 2021 £’000 £’000 9 - 9 130 - 130 Financials 77 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 23. LEASES CONTINUED Finance leases 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. Not later than one year Later than one year and not later than five years Later than five years Motor Vehicle Motor Vehicle 1 October 2022 2 October 2021 £’000 £’000 27 49 - 76 14 36 - 50 Finance leases are secured on the assets to which they relate to. The net book value of assets held under finance lease is £101,000 (2021: £46,000). 24. CAPITAL COMMITMENTS Contracted for but not provided 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 Nil £’000 Nil Financials 78 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSION COSTS Defined contribution scheme The Group operates a defined contribution pension scheme namely Shoe Zone Worksave Pension Plan, and contributions amounted to £918,000 (02 October 2021: £918,000). 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. There have been no contributions to the scheme this year, last year was £1.5m. The schemes are exposed to a number of risks, including: • 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 statement of financial position at 1 October 2022 Fair value of assets Present value of funded obligations Impact of asset ceiling Deficit 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 62,240 (53,348) (8,892) - 89,608 (89,594) (5,923) (5,909) Financials 79 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS CONTINUED Amounts recognised in other comprehensive income Return on plan assets Actuarial gains arising from changes in: Demographic assumptions Financial assumptions Experience losses Total actuarial gain / (losses) Impact of asset ceiling Deferred tax on employee benefit scheme Total amount recognised in other comprehensive income 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 (25,910) 830 31,079 3,102 35,011 (2,856) (1,506) 4,739 2,183 (826) 4,173 - 3,347 (2,151) 761 4,140 Financials Financials 80 80 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS CONTINUED The following figures are based on a full actuarial valuation performed in April 2019 and March 2019 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 2022 for the purpose of calculating the pension surplus and disclosures in the current year. Post retirement mortality Life expectancy Male currently aged 45 Female currently aged 45 Male currently aged 65 Female currently aged 65 Financial assumptions 1 October 2022 2 October 2021 Years Years 88.3 90.2 86.5 88.6 88.8 90.5 87.0 89.0 1 October 2022 2 October 2021 Deferred pension revaluation - Shoe Zone Scheme Deferred pension revaluation - Shoefayre Scheme Pension increases Discount rate Consumer Price Index - Shoe Zone Scheme Consumer Price Index - Shoefayre Scheme Retail Price Index % 3.15 3.35 3.70 5.55 3.15 3.35 3.95 The weighted average duration of the defined benefit obligation for the Shoe Zone scheme at 1 Octo- ber 2022 is 10 years (2 October 2021: 14 years). The weighted average duration of the defined benefit obligation for the Shoefayre scheme at 1 Octo- ber 2022 is 12 years (2 October 2021: 16 years). % 3.10 2.95 3.60 1.95 3.10 2.95 3.80 Financials Financials 81 81 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS CONTINUED Defined benefit scheme - Shoe Zone Pension Scheme Assets Assets 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 major categories of assets as a percentage of total assets are as follows: Asset category 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Equities Fixed Income Alternatives Gilts/bonds Cash Diversified Growth Funds Liability Driven Investment £’000 15% 45% 3% 0% 37% 0% 0% 100% £’000 19% 0% 0% 18% 15% 26% 22% 100% The pension scheme has recently changed investment managers who provide a different classification for investments. The actual return on the Scheme’s assets net of expenses over the year to the review date was a loss of £14,030,000 (2 October 2021:gain of £561,000). The assets do not include any investments in shares of the Group. 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. Financials Financials 82 82 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS CONTINUED Amounts recognised in the income statement over the period Interest cost Expected return on assets Administration costs Interest on asset restriction Amounts recognised in the statement of financial position Fair value of assets Present value of funded obligations Surplus Impact of asset ceiling Net defined benefit liability 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 (882) 995 (220) (113) (220) (680) 732 61 (52) (61) 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 36,159 (29,040) 7,119 (7,119) - 51,874 (45,951) 5,923 (5,923) - Financials Financials 83 83 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2021 CONTINUED 25. PENSIONS CONTINUED Defined benefit scheme - Shoe Zone Pension Scheme (continued) Amounts recognised in other comprehensive income Return on plan assets Actuarial (loss) / gains arising from changes in: Demographic assumptions Financial assumptions Total actuarial gain / (loss) Changes in effect of asset ceiling Deferred tax on employee benefit scheme Total amount recognised in other comprehensive expense Reconciliation of assets and defined benefit obligation The change in assets over the year was: Fair value of assets at the beginning of the period Expected return on assets Company contributions Administration costs Benefits paid Actuarial (loss) Fair value of assets at the end of the period 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 (15,025) 478 15,850 16,328 (1,083) - 220 (171) (359) 2,742 2,383 (2,151) 618 679 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 51,874 995 - (220) (1,465) (15,025) 36,159 53,264 732 - (61) (1,890) (171) 51,874 Financials Financials 84 84 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS CONTINUED Defined benefit scheme - Shoe Zone Pension Scheme (continued) The change in defined benefit obligation over the year was: 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 Defined benefit obligation at the beginning of the period Interest cost Benefits paid Actuarial loss Defined benefit obligation at the end of the period 45,951 882 (1,465) (16,328) 29,040 49,544 680 (1,890) (2,383) 45,951 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 -5.0% 5.0% 1.0% -1.0% 4.0% -4.0% 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. Financials Financials 85 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 2 OCTOBER 2021 CONTINUED 25. PENSIONS 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 Fixed Income Gilts/bonds Cash Alternatives Diversified Growth Funds Liability Driven Investment 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 51% 29% 0% 6% 14% 0% 0% 100% £’000 28% 0% 5% 8% 0% 42% 17% 100% The pension scheme has recently changed investment managers who provide a different classification for investments. The actual return on the Scheme’s assets net of expenses over the year to the review date was a loss of £10,164,000 (2 October 2021: gain £2,830,000). 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 Fair value of assets Present value of funded obligations Net liability 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 26,081 (24,308) 1,773 37,734 (43,643) (5,909) Financials Financials 86 86 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS CONTINUED Defined benefit scheme - Shoefayre Limited Pension and Life Assurance Scheme (continued) Amounts recognised in other comprehensive income Gain / (loss) on plan assets Actuarial gains / (loss) / gains arising from changes in: Demographic assumptions Financial assumptions Total actuarial gain Changes in effect of ceiling 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 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 (10,885) 352 18,331 7,798 (1,773) 29 6,054 £’000 2,354 (467) 1,446 979 - 143 3,476 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 (837) 721 (116) (624) 476 (148) Financials Financials 87 87 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS 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 year was: Fair value of assets at the beginning of the year Expected return on assets Employer contributions Benefits paid Actuarial (loss)/ gain on assets Fair value of assets at the end of the period The change in defined benefit obligation over the year was: Defined benefit obligation at the beginning of the year Interest cost Benefits paid Actuarial gain / (loss) on obligation Defined benefit obligation at the end of the period 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 37,734 721 - (1,489) (10,885) 26,081 34,586 476 1,500 (1,182) 2,354 37,734 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 43,643 837 (1,489) (18,683) 24,308 45,180 624 (1,182) (979) 43,643 Financials Financials 88 88 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 25. PENSIONS 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 -6.0% 6.0% 2.0% -3.0% 4.0% -4.0% 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. 26. CASH AND CASH EQUIVALENTS Cash and cash equivalents for the purpose of the statement of cash flow comprise: 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 Cash at banks and in hand Cash and cash equivalents 24,427 24,427 19,015 19,015 Financials Financials 89 89 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 27. 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 year the group donated £358,000 to the Shoe Zone Trust for distribution to a variety of charities, this derives from carrier bag sales and a donation equivalent to 2% of profits. During the year, 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 Shoefayre Limited Pension and Life Assurance Scheme 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 178 971 - 1,149 £’000 178 888 1,500 2,566 During the year, the key management personnel remuneration included within staff costs are as follows: 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Short term employee benefits Post-employment benefit Employers national insurance Key management personnel are considered to be the Directors of Shoe Zone plc. £’000 1,134 15 110 1,259 £’000 1,093 8 106 1,207 Financials Financials 90 90 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 28. 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 2022 52 weeks ended 2 October 2021 £’000 £’000 Numerator Profit for the year and earnings used in basic and diluted EPS 21.74p 14.03p 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Denominator Weighted average number of shares used in basic and diluted EPS 49,500,000 50,000,000 29. ANALYSIS OF NET DEBT 2 October 2021 Cashflows Loan advance Loan repayment 1 October 2022 Cash at bank and in hand Bank loan 19,015 (4,400) 14,615 9,812 - 9,812 - - - (4,400) 4,400 24,427 - - 24,427 30. POST BALANCE SHEET EVENT After the year end, in October and November 2022 an additional 716,618 shares were bought back by the company for a price of £1,500,000 and 500,000 shares were then cancelled. 30. ULTIMATE CONTROLLING PARTY The company is controlled by the Smith family albeit there is not a single controlling party. Financials 91 COMPANY STATEMENT OF FINANCIAL POSITION AS AT 1 OCTOBER 2022 Registered Number 08961190 Note 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’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 Capital redemption reserve Profit and loss account Total shareholders’ funds 2 3 4 5 6 6 68,644 68,644 1,025 1,025 (3,963) (2,938) 65,706 495 586 5 64,620 65,706 The Company made a loss during the year of £112,000 (2021: loss of £143,000). The financial statements were approved and authorised for issue by the Board of Directors and were signed on its behalf by: Anthony Smith Chief Executive Date: 10 January 2023 68,644 68,644 16 16 (1,842) (1,826) 66,818 500 586 - 65,732 66,818 Financials Financials 92 92 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 Share capital Capital Redemption Reserve Merger reserve Retained earnings Total £’000 £’000 £’000 £’000 £’000 At 3 October 2020 Loss for the year Total comprehensive income for the year Dividends paid during the year Total contributions by and distributions to owners At 2 October 2021 Profit for the year Capital Redemption Reserve Share buy back Liquidations during the year Total comprehensive income for the year Dividends paid during the year Total contributions by and distributions to owners At 1 October 2022 500 - - - - 500 - (5) (5) - - 495 - - - - - - - 5 5 - - 5 586 65,875 66,961 - - - - (143) (143) (143) (143) - - - - 586 65,732 66,818 - - - - 1,138 1,138 - (1,000) (1,000) 138 138 (1,250) (1,250) - - 586 64,620 65,706 Share capital comprises nominal value of shares subscribed for. The capital redemption reserve represents share purchased by the company back from shareholders. 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. Financials Financials 93 93 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 1. ACCOUNTING POLICIES Basis of preparation The Company’s financial year is 52 weeks ended 1 October 2022. 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 loss dealt with in the accounts of the Company was £112,000 (2 October 2021: loss of £143,000). 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 year. Investments Investments held as fixed assets are stated at cost, less any provision for impairment. The Directors review the forecast and budgets of the subsidiaries held and review any necessary impairments. Financials Financials 94 94 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 2. FIXED ASSET INVESTMENTS 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 Cost Impairment of investment in Castle Acres Development Limited Total 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 incorporation Principal activity Ownership Castle Acres Development Limited England & Wales Non-trading company 100% owned by company Shoe Zone Retail Limited England & Wales Trading company 100% owned by company Zone Property Limited* England & Wales Non-trading 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 Shoe Zone Pension Trustees Limited England & Wales Non-trading company Shoe Fayre Pension Trustees Limited England & Wales Non-trading company Stead & Simpson Limited* England & Wales Non-trading company Zone Footwear Limited* England & Wales Non-trading company Zone Retail* England & Wales Non-trading company Walkright Limited* England & Wales Non-trading company 100% owned by Shoe Zone Retail Limited 100% owned by Zone Group Limited 100% owned by Zone Group Limited 100% owned by Zone Group Limited 100% owned by Zone Group Limited 100% owned by Zone Group Limited 100% owned by Zone Group Limited *Liquidated during the year The registered address of all of the above subsidiaries is Haramead Business Centre, Humberstone Road, Leicester, LE1 2LH. Financials Financials 95 95 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 3. DEBTORS Prepayments Other debtors 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 17 8 25 8 8 16 4. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 Amounts owing to group undertakings Accruals 5. SHARE CAPITAL Allotted, called up and fully paid: 49,500,000 (2021:50,000,000) ordinary shares of 1p each £’000 3,943 20 3,963 £’000 1,811 31 1,842 52 weeks ended 1 October 2022 52 weeks ended 2 October 2021 £’000 £’000 495 495 500 500 On 1 August 2022 the company bought back 15,000 ordinary 1p shares, on 2 August bought back 20,000 1p shares, on 5 August bought back 60,846 1p shares, on 8 August bought back 30,000 1p shares, on 9 August bought back 25,000 1p shares, on 10 August bought back 25,000 1p shares, on 11 August bought back 66,293 1p shares, on 17 August bought back 25,000 1p shares, on 18 August bought back 64,590 1p shares, on 19 August bought back 50,000 1p shares, on 22 August bought back 59,535 1p shares and on 23 August bought back 58,736 1p shares for total consideration of £966,000. All 500,000 shares were then cancelled on 2 September 2022. Financials Financials 96 96 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED 6. RESERVES At 2 October 2021 Loss for the financial period Dividends paid during the year Share buy back At 1 October 2022 Merger reserve Profit and loss account £’000 £’000 586 - - - 586 65,732 1,138 (1,250) (1,000) 64,620 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. 8. POST BALANCE SHEET EVENT After the year end, in October and November 2022 an additional 716,618 shares were bought back by the company for a cost of £1,500,000 and 500,000 shares were then cancelled Financials 97 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, 9 March 2023 at 10.00 a.m. to consider and, if thought fit, pass the resolutions set out below. Resolutions 1 to 12 will be proposed as ordinary resolutions and Resolutions 13 to 15 will be proposed as special resolutions. 1. To receive and adopt the Company’s annual accounts for the financial year ended 1 October 2022 and the associated reports of the Directors of the Company and the auditors of the Company. 2. To declare a final dividend of 3.3p per ordinary share for the financial year ended 1 October 2022. 3. To declare a special dividend of 8.2p per ordinary share. 4. To re-elect Charles Smith as a Director. 5. To re-elect Anthony Smith as a Director. 6. To re-elect Terry Boot as a Director. 7. To re-elect Malcolm Collins as a Director. 8. To re-elect Victoria Norrish as a Director. 9. To re-appoint Cooper Parry Group Limited 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 2024. 10. To authorise the Directors of the Company to determine the remuneration of Cooper Parry Group Limited as auditors of the Company. 11. 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 in total; (b) make political donations to political organisations other than political parties, not exceeding £50,000 in total; and Financials 98 NOTICE OF ANNUAL GENERAL MEETING CONTINUED (c) incur political expenditure, not exceeding £50,000 in total, such authority to expire on the earlier of 8 March 2024 and the conclusion of the annual general meeting of the Company to be held in 2024. 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. 12. 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 £161,682; and (b) up to an aggregate nominal amount of £323,364 (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, provided that this authority shall expire on the earlier of 8 March 2024 and the conclusion of the annual general meeting of the Company to be held in 2024, 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. 13. That, subject to the passing of resolution 12 proposed at the annual general meeting of the Company convened for 9 March 2023 (‘Resolution 12’) 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 12 and/or by way of a sale of treasury shares (within Financials 99 NOTICE OF ANNUAL GENERAL MEETING CONTINUED 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 12, 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 matters (including 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 £24,252, and shall expire on the earlier of 8 March 2024 and the conclusion of the annual general meeting of the Company to be held in 2024, 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. 14. That, subject to the passing of resolution 12 proposed at the annual general meeting of the Company convened for 9 March 2023 (‘Resolution 12’) and in addition to any authority granted pursuant to resolution 13 proposed at the annual general meeting of the Company convened for 9 March 2023, 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 12 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 £24,252; and (b) used only for the purposes of financing (or refinancing, if the authority is to be used within 12 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, Financials 100 NOTICE OF ANNUAL GENERAL MEETING CONTINUED and shall expire on the earlier of 8 March 2024 and the conclusion of the annual general meeting of the Company to be held in 2024, 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, the Company be and is hereby generally authorised pursuant to section 701 of the Companies Act 2006 (the ‘Act’) to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of £0.01 each in the capital of the Company (‘Ordinary Shares’) on such terms and in such manner as the Directors of the Company may from time to time determine, provided that: (a) the aggregate number of such Ordinary Shares hereby authorised to be acquired by the Company shall not exceed 4,850,471; (b) the price that may be paid by the Company for any of its Ordinary Shares shall not be less than £0.01, being the nominal value of each Ordinary Share, and shall not be greater than the higher of, exclusive of expenses: (i) an amount equal to 105% of the average trading price of the Ordinary Shares as derived from the middle market quotations for an Ordinary Share on the London Stock Exchange Daily Official List for the five trading days immediately preceding the date on which a share is contracted to be purchased; and (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out, and unless previously revoked, renewed, extended or varied, the authority hereby conferred shall expire on the earlier of 8 March 2024 and the conclusion of the annual general meeting of the Company to be held in 2024, save that the Company may before such expiry make an offer or enter into an agreement which would or might require such purchases of Ordinary Shares to be carried out after such expiry and the Directors may carry out such purchases in pursuance of such an offer or agreement as if the power conferred hereby had not expired. By order of the Board Catherine Bowen Company Secretary Date: 10 January 2023 Registered Office: Haramead Business Centre, Humberstone Road, Leicester, Leicestershire, LE1 2LH Financials 101 NOTES 1. ATTENDANCE AT THE MEETING 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, Link Group (the ‘Registrar’), prior to being admitted to the Annual General Meeting. 2. ONLINE VOTING Members may vote online at www.signalshares.com. To register for this service, members will need their Investor Code, which can be found on their share certificate. To be valid, an online vote must be submitted no later than 48 hours (excluding non-working days) before the time of the Annual General Meeting or any adjournment of that meeting. The submission of an online vote will not prevent a member from attending the Annual General Meeting and voting in person. 3. 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. 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 Link Group, PXS1, Central Square, 29 Wellington Street, Leeds LS1 4DL or by telephone on 0371 664 0391 if calling from the United Kingdom, or +44(0)371 664 0391 if calling from outside the United Kingdom. Calls are charged at the standard geographical rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 9.00 a.m. – 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. Unless others indicated on the Form of Proxy, CREST voting or any other electronic voting channel, the proxy will vote as they think fit, or at their discretion, withhold from voting. The appointment of a proxy will not prevent a member from attending the Annual General Meeting and voting in person if he or she wishes. Financials 102 NOTES CONTINUED 4. APPOINTMENT OF A PROXY USING A FORM OF PROXY Members may request a hard copy proxy form directly from the Registrar on 0371 664 0391. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines open between 9.00 a.m. – 5.30 p.m. (London Time), Monday to Friday excluding public holidays in England and Wales). 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 in person (during normal hours only) by hand to the Registrar at Link Group, PXS1, Central Square, 29 Wellington Street, Leeds LS1 4DL no later than 48 hours before the time of the Annual General Meeting or any adjournment of that meeting. If these arrangements change, members will be notified by the Company via Regulatory Information Service. 5. 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 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 & International 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. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & International 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 Financials 103 NOTES CONTINUED 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). 6. 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. 7. 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). 8. 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 7 March 2023 (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. 9. VOTING RIGHTS As at 10 January 2023 (being the latest practicable date prior to circulation of this Notice) the Company’s issued share capital consisted of 49,000,000 ordinary shares of £0.01 each carrying one vote each and the Company held 495,283 ordinary shares of £0.01 each in treasury. Accordingly, the total voting rights were 48,504,717. Financials 104 Shoe Zone plc Annual Report & Accounts 2022 www.shoezone.com email: investorrelations@shoezone.com
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